The Importance Of A Sale And Purchase Agreement (SPA) In Malaysia

In this article, we explore some basic knowledge on the Sales and Purchase Agreement (SPA) such as what it consists of, the different types, and why it's important to you. We even touch on something called a 'Vacant Possession' (VP), which is another very important document!

Finding the perfect property is no easy feat. Going through all the black and white? Even more tedious.

Especially if you aren’t familiar with all the legal jargon and what normally goes down when buying a property!

But that’s why we’re here! In this article, we explore some basic knowledge on the Sales and Purchase Agreement (SPA/S&P) buyers should possess, before charging headfirst into the buying process.

As you know, purchasing a property comes with a whole host of documents (Letter of Offer, Memorandum of Transfer, Loan Agreement etc.).

The Sale and Purchase Agreement however, is one that requires extra attention to detail. But what is it about this SPA that makes it so crucial in the buying process? Let’s find out.

What Is The Sales And Purchase Agreement? And Why Is It Important To Me?

The SPA is a legally binding contract which outlines the details of a sale between a buyer and a seller.

It’s important that these conditions are mutually agreed upon between both parties too, hence the term “agreement.”

The SPA protects the buyer by ensuring the seller cannot change the terms and conditions to their benefit.

The buyer here can refer to anyone purchasing the property, whereas the seller can be the previous owner in the case of a sub-sale property, or the developer if you’re buying it brand new.

If the property is received by means of inheritance or auction however, an SPA usually isn’t involved!

Do note that upon signing your SPA, you’re essentially closing the deal. No further negotiations can take place and both parties need to respect the terms stated in the SPA.

With that in mind, most people don’t see the power of their SPA until things go south. This is why it’s important!

It lays out all the details, terms and conditions of the transaction in utmost detail so that in the event anything goes wrong, there’s hard proof to fall back on and the interest of both parties is protected.

But... what if I want to cancel the SPA?

As a buyer, you can, if ever you find the need to. There'll be consequences to that though, especially if the agreement comes with a strict clause.

This clause is usually found in every standard SPA, whereby it'll state that the party who decides to cancel will normally be charged a penalty of 10% of the purchase price.

Now, imagine if the property you were looking to buy was valued at a price of RM500,000. Wriggling your way out of the purchase would mean you'd need to pay the seller a whopping RM50,000! Ouch.

On the other hand, if it was the seller who wanted to get out of the deal, it will be very difficult (if not impossible) to do so.

This is because if the SPA has a specific performance clause, a breach of the agreement could very well result in a legal case against him/her!

What Exactly Does The Sales And Purchase Agreement Consist Of?

Remember, there’s no one-size-fits-all template in drafting up an SPA!

And though it’s not required per se, you should definitely still appoint a lawyer to help you with drafting up the SPA as well as help with other aspects of the buying process too. This isn’t the time to DIY.

We mentioned earlier that the SPA consists of details of the transaction. But what details specifically? The below are just a few important clauses which should be included.

Other terms may apply, and that’s fine too! Just make sure both parties have agreed on it before it’s added in as a special clause.

Sample sub-sale SPA from company to company. Image credits: Slideshare

Manner Of Payment

This is important for both the seller and buyer not only to manage their finances, but also to prevent any penalties incurred in case the terms are accidentally breached.

Defect Liability Period

You’ll usually see this if you’re buying brand new directly from the developer (primary market).
It’s basically a warranty period, and ensures the developers are responsible for any defects in the property.

House Plan

You don’t want to be receiving the wrong unit now, do you?
Plus, it’s not uncommon for deceitful developers to cut corners and take advantage of unknowing buyers by altering the measurements and using cheaper materials.
So make sure to specify materials and measurements to a T!

Vacant Possession

Simplified, this basically means when you actually get the keys to the property.
The SPA should state when and how you receive it, as well as the terms and conditions, should the seller fail to deliver vacant possession.

Vacant Possession?

Vacant possession is when you, the buyer can finally start moving in and using the property undisturbed.

That means no more construction, no more occupants, and no more of the ex-occupant’s stuff.

Delivery of vacant possession on the other hand, is when the property is handed over to you. In other words, the delivery of access keys and cards to your newly purchased property.

After you’ve signed the SPA, you should also receive your keys within 24/36 months. To be exact, 24 months for landed properties, 36 months for strata title.

This is because in Malaysia, most developers start selling units while the development is still under construction (and us being cheapo Malaysians, can’t get enough of the massive rebates that come with it!).

As for the clause, this is what it might look like in your SPA:

“Vacant possession of the said Building shall be delivered to the Purchaser in the manner stipulated in clause 24 herein within twenty-four (24) calendar months from the date of this Agreement.”

This then ties back to the importance of stating the terms for delivery of vacant possession in your SPA. Because what if the developer does not hand over the keys within the stipulated time?

If this were to happen, the developer would be required to pay you liquidated damages (LAD) at 10% per annum of the property’s purchase price. So at least you get some compensation!

Are There Different Types Of SPA For Different Properties?

Individual and Strata titled properties both require their own separate SPA. Not sure how to differentiate the two titles? Our updated guide here will tell you how.

The SPA templates for each are provided for under the Housing Development (Control and Licensing) Regulations 1989. These are the two schedules.

1) Schedule G - Landed Individual Title

Schedule G is for landed individual properties such as semi-D houses and terrace houses.

2) Schedule H - Strata Title

Schedule H is for Strata properties such as condominiums and flats.
Strata titles are a little fussier and require more detailed SPA because they involve common properties like swimming pools, parking spaces and other facilities.

Sample template of schedule G from Halim, Hong & Quek

In a nutshell, your SPA is the contract that will protect you in the case your deal turns sour. So make sure to be meticulous, and don’t worry about being over-fussy.

It’s not everyday you buy a house, so make sure you do it right (with the help of a trusted lawyer!)

And if you’re not that far down the line in your property buying journey yet, pop on over to our free PropertyGuru Loan Pre-Approval (PGPA) solution to find out exactly how much you can borrow from a bank.

It helps you improve your chances of getting a home loan in just 5 minutes, from the comfort of your home!

Source: https://www.propertyguru.com.my/

Whether you are buying, selling, or just plain interested in real estate, connect with Penang Property Angel today for professional assistance.