SPA, MOT and Loan Agreement: What Are the Differences?

Property buyers frequently encounter three important documents: the Sale and Purchase Agreement, the Memorandum of Transfer and the Loan Agreement or Facility Agreement.

Although these documents are connected to the same property transaction, each serves a different legal purpose.

What Is a Sale and Purchase Agreement?

The Sale and Purchase Agreement, or SPA, is the contract between the buyer and seller.

It sets out the terms on which the property will be sold.

The SPA generally deals with:

• The purchase price;

• The deposit;

• The completion period;

• The obligations of the buyer;

• The obligations of the seller;

• Conditions for completion;

• Default; and

• Vacant possession or delivery of the property.

The SPA creates contractual rights and obligations between the parties.

What Is a Memorandum of Transfer?

The Memorandum of Transfer, commonly known as the MOT, is the instrument used to transfer registered ownership of the property from the seller to the buyer.

Once properly executed, stamped and registered, the buyer becomes the registered proprietor, subject to the relevant land laws and registration requirements.

The MOT is therefore different from the SPA.

The SPA is the contract for the sale and purchase. The MOT is the instrument used to register the transfer of ownership.

What Is a Loan Agreement or Facility Agreement?

The Loan Agreement or Facility Agreement governs the financing provided by the bank to the borrower.

It normally sets out matters such as:

• The approved loan amount;

• The interest or profit rate;

• Repayment terms;

• Events of default;

• The bank's rights; and

• The borrower's obligations.

The financing documents are separate from the SPA.

A buyer may sign an SPA with the seller while also signing a financing agreement with the bank.

How Do These Documents Work Together?

A typical transaction may operate as follows:

1. The buyer agrees to purchase the property.

2. The buyer and seller sign the SPA.

3. The buyer applies for bank financing.

4. The buyer signs the Loan Agreement or Facility Agreement.

5. The MOT is prepared and executed.

6. Stamp duty is paid where applicable.

7. The transfer is registered.

8. The bank's security is created or registered.

9. The transaction is completed.

The actual process may differ depending on the type of property and whether the title has been issued.

Why Is It Important to Understand the Difference?

Each document creates different legal consequences.

For example:

• Breach of the SPA may result in contractual remedies;

• Failure to comply with the financing agreement may result in a loan default; and

• The MOT is connected to the registration of ownership.

A buyer should not assume that signing one document completes the entire transaction.

What If the Property Does Not Yet Have a Separate Title?

Where an individual or strata title has not yet been issued, the legal documents may be structured differently.

Instead of immediately registering a transfer at the land office, the parties may use documents such as a Deed of Assignment, depending on the circumstances.

When the title is later issued, additional steps may be required to complete the transfer and security arrangements.

Conclusion

The SPA, MOT and Loan Agreement serve different purposes:

• SPA: Contract for the sale and purchase;

• MOT: Instrument for transfer of registered ownership; and

• Loan Agreement/Facility Agreement: Contract governing bank financing.

Understanding these documents helps buyers appreciate the legal structure of a property transaction and the importance of completing each stage properly.