It is very common that parties to have their un-stamp documents or so called “simple” agreement when it comes to transacting a property in Malaysia. However, we strongly suggest engaging your legal representative as transferring property ownership in Malaysia is more than just signing a sale and purchase agreement. It involves legal procedures, due diligence check before preparing your legal documentations, stamp duties payment to the authority to ensure its admissibility before the court, and registration requirements to ensure the transfer is valid and enforceable. Irrespective whether you are buying, selling, or inheriting property, understanding the legal process can help you avoid hefty costs and causing avoidable mistakes and delays.
What is Property Transfer/Conveyance of Property?
Property transfer refers to the legal process of changing ownership of a property at government department from one party to another in accordance with laws of Malaysia via different common scenarios as listed below:-
* Sale and purchase transactions
* Gifts between family members
* Inheritance after death
* Transfer due to divorce settlements
* Company asset restructuring
In Malaysia, property transfers are governed mainly by the National Land Code 1965 and this explains why legal representatives are required to ensure all the transfer are carried out in compliance with state land office regulations. Each land office in each State of Malaysia will have their specific regulations and format to adopt when it comes to transfer of property. You must be very familiar with the process of stamping the documents at tax department, using the right format as specified in National Land Code 1965, duly witnessed by solicitors or land officers and further to complete the transaction within the timeline prescribed by each land office to avoid any penalty thereof.
What are the commonly used and seen Legal Documents to facilitate a property transfer?
1. Sale and Purchase Agreement (SPA)
This is the frequently used and main contract executed between the buyer and seller. This is the primary document that usually will outline all the terms pertaining to the transaction of which will includes but not limited to:-
(A) Purchase Price and its payment schedule;
(B) Property details and conditions as at of date of signing;
(C) Parties’ details and correspondences address;
(D) Title status of the Property, whether it is under master title, strata title or individual title;
(E) Legal representatives’ details of each party;
(F) Any special conditions relates to the property, eg, inventories attached to the sales/property will be delivered in vacant or tenanted conditions;
(G) Default clauses in the event of breach by either party; and
(H) obligations of both parties.
In the event of conflicts, this agreement will be tendered before to court subject to the documents are prepared in well versed terms and duly stamped in accordance with laws of Malaysia.
2. Memorandum of Transfer (MOT)
Memorandum of Transfer (MOT) is a form that is prescribed by the government in National Land Code 1965 and it is also known as Form 14A. The form is commonly recognised as the official legal instrument used to transfer ownership of a title from the seller to the buyer together with the tender of original title of the property at the land office subject further that seller has no outstanding of quit rent and assessment for the said property.
3. Loan Documentation
Unless you are cash buyer of a property purchase, then you are allowed to skip this part. If you are obtaining loan from financial institution to part finance your purchase, loan agreements and security documentation must also be completed before your financial institution carries out the disbursement of your loan facility. Many of our clients are confused that the loan will be automatically disbursed once they have signed the letter of offer from the financial institution. Hence, we are taking this opportunity to emphasize that, simply signing an offer letter with financial institution, does not mean your loan will be automatically disbursed as the financial institution will as well rely on our legal expertise to advise whether all the requisite due diligence and/or legal documents have been properly signed, stamped and registered in its favour, to ensure the financial institution is well protected before they will proceed with any disbursements.
4. Consent to Transfer and Charge
Most often, leasehold properties, Bumiputera status properties, and/or properties with state restrictions, require approval from the relevant state authority before any transfer or charge is allowed to be registered at land office. Some clients will enquire, what kind of documents that can allow them to self-check whether their property will require this land office consent before they decide to dispose of and/or charge their property to financial institution. This could be easily checked and reviewed from your copy of title and/or land search at land office. If you need the service, feel free to contact us for further enquiry.
What do I have to pay as a buyer to a property?
Property transfers in Malaysia involve unavoidable costs of which shall includes but not limited to the below (depending on your scenarios) :-
A) Stamp Duty for transfer and loan facility
There are two types of stamp duty that are payable if you are loan buyer. First, any transfer of property via sale and purchase agreement will trigger payable stamp duty on the MOT of which is to be assessed and calculated based on the property’s market value or purchase price, whichever is higher.
The current rates for Malaysian are generally:-
* 1% for the first RM100,000
* 2% for the next RM400,000
* 3% for the next RM500,000
* 4% for amounts above RM1 million
For instances, if you are buying property at RM 800,000.00, payable stamp duty shall be RM18,000.00 base on calculation below:-
1% for the first RM100,000.00 = RM1,000.00
2% for the next RM400,000.00 = RM8,000.00
3% for the next RM300,000.00 = RM9,000.00
TOTAL: RM800,000.00 = RM18,000.00 (stamp duty on MOT)
Additional to the above, should you are getting loan to part finance your loan approval, payable stamp duty for your loan will be assessed at 0.5% calculated against the loan amount approved by the financial institution (in general).
For instances, if you are having loan amount approved by financial institution at RM 720,000.00, payable stamp duty for the loan shall be RM3,600.00 base on calculation below:-
RM720,000.00 X 0.5% = RM3,600.00
Legal Fees
Solicitors’ fees are regulated under the Solicitors’ Remuneration Order as set by the Malaysian Bar Council and vary depending on the transaction value of the property. You may send in your enquiries to us to check how much is the payable legal fees. On top of the legal fees payable to the lawyers, do not get surprised should you receive the legal fees quotation(s) reflecting further disbursement charges payable to land office, stamp duty office, commissioner for oath and etc!
Valuer Fees
Should you are a loan buyer, do forget that there is separate valuer fee of which is payable to the valuer engaged by your financial institution with the purposes to ensure that your property value matches with your purchase price. Questions that we usually received from our clients?
A) Can I engage with my independent valuer who gives better value?
Answer: You are not allowed to engage your own valuer as the financial institution will insist to engage their own valuer listed in their panels.
B) Can I finance my valuer fee into the loan amount?
Answer: Yes, you may request your banker to do so.
C) Can I have keys to let my valuer enter the property for valuation purposes?
Answer: You may ask your agent to get the keys from the seller for inspection and valuation purposes.
D) Valuer report can be given before my payments?
Answer: You have to clear the valuer’s fee before the valuer will courier the report to the financial institution to facilitate the disbursement.
Risks of Handling Property Transfer Without a Lawyer
We can really understand, to save some pennies, some buyers and sellers are trying to manage property transfers themselves to save on legal fees. However, this often creates far greater financial and legal risks that can be simplified into few points as per below:-
1. Invalid or Defective Documentation
Errors in the Sale and Purchase Agreement, Memorandum of Transfer, or supporting documents may result in the transfer and charge being rejected by the Land Office or becoming legally unenforceable. Any rectification will take more time with the consequences of you paying more penalty to the land office and/or stamp office and of course, financial institution would not be able to release loan facility on time which causing the seller can penalise you for another round of penalty. These penalties could be way costly than the legal fees payable to your solicitors.
2. Hidden Title Problems without conducting prior due diligence checks
Without proper title searches and advisory works pertaining to your property conditions, terms signed thereof and/or hidden risks that may appear on the title, you as the buyers may miss important issues and risks of which includes but not limited to lodgement of all kind of caveats, outstanding charges on quit rent and assessment, ownership disputes by checking on background of genuine owner/seller, restrictions in interest reflected on the title, or unperfected title conditions.
3. Delays in State Consent Approval for transfer and charge
For leasehold properties and restricted titles, missing or incorrect submissions can significantly delay approval from the State Authority, sometimes for months as each and every enquires from the department will cause a resubmission and/or expiry on your submitted documents. Most often, in a sale and purchase transaction, parties would have prefixed a reasonable period to obtain the State Consent Approval. Hence, it is strongly advisable to engage a professional legal representative to handle the same as approvals will requires well drafted documents together with prompt follow-ups thereafter.
4. Financial Loss from Fraud or Misrepresentation to verify the genuine documents/sellers
Without legal due diligence and informative experts standing by your side, buyers may unknowingly pay deposits for disputed properties, wrong person and/or proxy, fraudulent transactions, or properties bought with unresolved encumbrances. We strongly believe that purchasing a few hundred thousand worth of property will not cause you great loss should you spending few thousand just to engage the right and professional legal representative to complete your transaction in time, in right directions.
Conclusions:-
Should you understand the risks we mentioned and explained above, it is not difficult for us to assume that by now you should not do the followings when it comes to property transfer:-
1) Never Sign Documents Without Proper Review;
2) Always get your lawyer to Conduct a Full Title Search before signing any documents;
3) Do Not Rely on Verbal statements, may it be from the agents and/or sellers; and
4) Check with your lawyer whether there is any hidden costs involved.
No doubt, fraud cases involving property transfer are becoming more common nowadays. As your legal representative, we always emphasize again and again the importance of having proper due diligence, identity verification on the sellers, and secure handling of deposits and payments via legal representatives as stakeholders and/or reviewing your documents before you affix your signature shall be the essence to avoid the risks we have mentioned above.
Many clients only come to us to seek legal help after a dispute arises instead of to have early legal consultation of which could be relatively far more effective and less expensive. Do not ever trying to fix problems after they occur as they later will costs you more!
Hence, never think and assume that a property transfer is merely paperwork’s as it involves substantially tedious and meticulous works which requires proper and professional legal protection.
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