How Does It Affect Your Decision to Buy a Property That Is Yet to be Registered Under the Seller’s Name?
How Does It Affect Your Decision to Buy a Property That Is Yet to be Registered Under the Seller’s Name?
It sounds uneasy when you come across buying a Property that is not registered under the name of the Seller. So, most common questions we have from our clients would be:
(A) Can we proceed to buy the Property? (B) Any risks of me having to encounter after the purchase? (C) Will the purchase costs increase? (D) Will it take ages to complete the transaction?
Those questions would be answered well after your full reading of this blog. Do not skip the property directly if you are well informed of the following risks and able to forecast the worst scenarios you may be able to accept.
1. Higher Risk of Delay
In the event if the property is still under the developer’s name with strata title duly issued, the buy and sale transaction may require developer consent with agreeable to directly transfer the strata to you as new buyer and/or owner or alternatively should perfecting the first transfer to the seller first before reselling the said property to you. Should the developer agree for a direct transfer to you, then it is indeed a super good news to both seller and buyer as this can save you a lot of time and cost to complete the whole transaction! Lets us share with you the sample of clauses to be mentioned in SPA in the event of developer agrees to the scenario of direct transfer:-
"In the event that the Developer grants its consent for the Direct Transfer, the Seller shall comply with all such conditions imposed by the Developer and to pay all such fees charges costs and expenses whatsoever that may be chargeable by the Developer in respect thereof within fourteen (14) days from the date of receipt by the Purchaser’s Solicitors of the original letter of consent to Direct Transfer from the Developer, failing which, the period of time after the expiry of the said fourteen (14) days to the date of compliance of all such conditions shall not be taken into account in computing the Completion Period, in the event that the Completion Period has been commenced PROVIDED ALWAYS THAT the Purchaser shall have complied with all such conditions that may be imposed by the Developer on the Purchaser for granting the Direct Transfer but not limited to execute and sign the relevant documents (if applicable)."
On the other side, in the Event of a Double Transfer, the clause of SPA that we always adopt would be as follow:-
"In the event that the Direct Transfer cannot be obtained within three (3) months from the date of this Agreement or such other extended period as may be mutually agreed between the parties or if the Developer refused to grant the Direct Transfer, the Seller shall forthwith proceed with the transfer of the said Property from the Developer to the Seller first and a subsequent transfer from the Seller to the Purchaser (hereinafter referred to as “the Subsequent Transfer”), wherein the Seller shall:-
(a) cause the Developer to execute the memorandum of transfer as prescribed by the National Land Code in respect of the said Property in favour of the Seller (hereinafter referred to as “the Principal MOT”) and cause the Principal MOT to be submitted to the Collector of Stamp Duty for adjudication as to the stamp duty payable thereon and to be presented for registration in favour of the Seller as registered owner of the said Property;
(b) after obtaining the original strata title duly registered in favour of the Seller as registered owner of the said Property, to execute a second Memorandum of Transfer as prescribed by the National Land Code in respect of the said Property in favour of the Purchaser (hereinafter referred to as “the Subsequent MOT”) and deliver the Subsequent MOT with the Purchaser’s Solicitors as stakeholders."
Slight comparisons between the two scenarios would be:-
(a) Cost: Direct Transfer would be way cheaper than Double Transfer in cost. Direct transfer costs would be almost equivalent to buy and sell transactions with strata title or individual title issued under seller's name.
(b) Time: Direct Transfer would be faster than Double Transfer in timeframe. Timeframe for double transfer normally will require additional three (3) more months to complete the whole transaction as transfer will be carried out twice of which first stage transfer between developer and seller and subsequent transfer from seller to purchaser.
(a) reduce the risks of purchaser being penalised for late payment interest; (b) reduce the uncertainty pertaining to the timeframe to complete the transaction and seller would be able to anticipate the expected time to receive his or her selling price; (c) purchaser would have better predicted time to accept possession of the property; and (d) purchaser would be well aware of the costs to spend on the purchase.
We emphasize a properly drafted SPA can help minimise conflict between parties arising from title perfection issues, delayed consent approvals, or prolonged registration processes.
2) Clause on Seller’s Obligation to Perfect Transfer
It is common in Malaysia to see a seller is buying a property under master title but upon a few years after his or her purchase, strata title or individual title of the property has been issued under developer name pending the subsequent perfection of transfer in name of seller being carried out. In such event, the SPA should clearly requires the seller to:
a) promptly perfect the transfer from the developer into the seller’s own name at his or her own costs and expenses; or b) execute all documents necessary for the double or direct transfer process, as the case maybe; and
c) bear responsibility for delays caused by the seller’s failure to cooperate.
This is important because the purchaser’s transfer cannot proceed until the seller becomes the registered proprietor save and except developer has agreed for a direct transfer from developer to the purchaser without requiring a prior transfer to the seller. For better clarification, any costs chargeable by developers for the direct transfer shall be borne by the seller eg, administrative fees.
3. Parties are informed about the completion date
In double transfer cases, delays are often caused by:
* developer consent procedures;
* state authority consent applications;
* Land Office processing; or
* title registration timelines.
The SPA should therefore provide that delays arising from such administrative or governmental processes will automatically extend the completion period without triggering late payment penalties or default. The sample clauses are as follows:-
"In the event that the perfection is not completed within six (6) months from the date of this Agreement due to delays arising from the Developer’s consent, State Authority approval, Land Office registration, or any other administrative or regulatory requirements beyond the control of the Parties, the Completion Date shall automatically be extended accordingly without imposition of any late payment interest, penalty, or default."
4) Clause Clarifying Responsibility for Additional Costs
As previously mentioned, double transfer may result in additional costs including but not limited to:-
* legal fees;
* MOT registration fees;
* stamping fees;
* consent fees; and
* administrative charges.
The SPA should expressly state which party to bears these costs to avoid uncertainty later.
In practice, parties sometimes negotiate for:
* the seller to bear perfection costs; or
* the purchaser to bear only the transfer directly relating to the purchaser’s acquisition.
We opine the above practice is fair to each party and most frequently are acceptable to both parties to achieve a win- win situation. Relevant clause we usually adopt is reproduced as per below:-
"For avoidance of doubt, the Seller shall bear all costs, charges, and expenses relating to the perfection of transfer into the Seller’s name, including but not limited to legal fees, stamp duty, registration fees, consent fees, and administrative charges, whereas the Purchaser shall bear all costs, charges, and expenses relating to the transfer from the Seller to the Purchaser, including but not limited to stamp duties, registration fees or other fees or charges payable on or incidental to the preparation of this Agreement, the said Transfer of the said Property and any additional cost/fee imposed by the relevant land office which is attributed to the Purchaser’s errors, mistakes or lack of documents in providing the registration documents (whichever is applicable)."
5) Clause Requiring Developer’s Cooperation
Where direct transfer is initially anticipated by both parties, but there is uncertainty regarding the developer’s position, it is a smart practice to have your SPA to include provisions requiring:
* the seller to obtain confirmation from the developer at his own costs and expenses,
* the seller to use his best efforts to secure direct transfer approval from the developer; or
* procedures to follow if the developer subsequently refuses a direct transfer; or *timeline to complete the liaising between the developer and seller.
"The Seller undertakes to use its best efforts to apply to the Developer for their letter of confirmation (hereinafter called “the Developer’s Confirmation”). The parties shall also within fourteen (14) days from the date of receipt of the Developer's Confirmation execute such relevant documents/comply with the conditions (if any) (“Conditions”) as requested by the Developer in the Developer’s Confirmation. In the event that the Seller fails to comply with the Conditions within the said fourteen (14) days, then the Completion Date shall be extended free of interest by the number of days delayed by the Seller in excess of the fourteen (14) days. In the event that the Developer refused to grant the Direct Transfer, the Seller shall forthwith proceed with transfer from the Developer to the Seller first and a subsequent transfer from the Seller to the Purchaser."
6. Clause Allowing Time for Loan Disbursement
In the event that buyer is obtaining loan from financial institutions to finance the purchase, Banks may require additional documentation in double transfer transactions before releasing financing facilities.
The SPA should ideally provide flexibility for both parties to avoid bias and injustice to the buyer:-
* extended loan documentation timelines to ensure no penalties payable to seller for any delay’s caused thereof;
* delayed disbursement caused by title perfection procedures in name of seller; * costs shall be borne by seller as part of the bank’s requirements to disburse the facility.
Malaysia