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Common problems in a sub sale transaction

Posted on July 8, 2017 | 10277 views | Topic : Featured, News & Articles, Property News.

By Ivan Chan cphchambers@gmail.com

A typical transaction for a sub-sale and purchase agreement (SPA) of an immovable property (whether a landed property or
strata titled property) in the secondary market is normally divided into three stages:

1. The pre-SPA stage;

2. The formation of the SPA stage;
3. The completion of the SPA stage.

The pre-SPA stage:

During the pre-SPA stage, the investigations carried out at this stage are basically on the property and the vendor.

When a vendor sells his property, it is reasonable to believe that he wants to receive the proceeds of sale in the shortest
possible time. On the other hand, when a purchaser buys a property, he wants to get early vacant possession of the property,
or get vacant possession within the contemplated completion date of the transaction.

At the pre-SPA stage, it is prudent for the real estate agent to conduct due diligence on the property and the vendor with the
assistance of a solicitor, so that the agent may advise his vendor client and also provide the relevant information to the
purchaser.

Since the agents and negotiators are in the front line before the solicitor prepares the draft SPA, it is prudent for them to
investigate the property and the vendor.

These are some of the issues and decisions that may affect the purchaser and the vendor’s decision to go through with the
transaction.

Who is the registered proprietor of the property?

If the property is still in the developer’s name, the original purchaser (aka the vendor) may write to the developer to do a direct
transfer of the property from the developer to the second purchaser. However, if the developer does not agree to do a direct
transfer in favour of the second purchaser, then a Memorandum of Transfer will be signed between the original purchaser and
the developer. At the same time, the original purchaser will sign a Memorandum of Transfer with the second purchaser.

After both Transfers have been duly adjudicated and stamped, both Transfers will be sent to the land office/registry for
simultaneous registration, firstly from the developer to the first purchaser, and then from the first purchaser to the second
purchaser.

Some developers accept requests for direct transfer, but others will not. If the property is subject to a restriction in interest,
then generally the developer may not agree to do a direct transfer to the second purchaser as the developer would have
obtained a blanket consent to transfer the property to the first purchaser.

Where the property is subject to a restriction in interest, the developer will firstly transfer the property to the first purchaser.
After the first purchaser has been registered as proprietor, then only can he sell to the second purchaser subject to obtaining
the consent of the State Authority. This type of transaction will exceed the normal completion period of three months.

The owner of the property is deceased

When a person dies and has left a will, then the executor of the estate of the deceased person has to apply for a grant of
probate to enable him to deal with the property of the deceased person.

When a person dies without leaving a will, then the administrator of the estate of the deceased person has to apply for grant
of letters of administration to enable him to deal with the property of the deceased person.

When the owner is deceased, we need to find out if the executor or administrator has been duly authorized by the court to
deal with or sell the property of the deceased owner through the grant of probate or the grant of letters of administration
respectively.

The executor or administrator of a deceased’s estate has the capacity to enter into a sale and purchase agreement to dispose
of the property of the deceased owner.
Without the grant of probate or the grant of letters of administration, there is no authority to sell, and the SPA will not be
signed. Parties are to ensure that all the legal formalities have been duly complied by the executor or the administrator of the
estate of the deceased owner so that the completion date of the SPA to be eventually signed may be ascertained.

Who has custody of the title to the property?

Where the property has not been transferred to the vendor, it will be desirable to inquire whether the developer or the vendor
has the custody of the title.

If the title is found to be lost or missing, then it may not be advisable to sign the SPA. It may take a few months from the time
of application to obtain a new title from the relevant authority.

If the parties proceed to sign a conditional SPA despite the lost or missing title, then the process of completion of the SPA will
exceed the normal completion period.

The identity of the vendor

If the vendor is a foreigner, and if his name in his identity card and in his passport differs, then the purchaser’s financier may
require various documentation to be executed by the vendor to declare and state that the person named in the identity card
and in the passport are one and the same person.

If such a discrepancy is discovered from the beginning, then it should be rectified immediately to avoid delays in the
disbursement of the purchaser’s financier’s loan.

To ascertain the correct and property

identity of the vendor is important to ensure that there are no unnecessary delays in the completion date of the SPA.

Check the title for the correct express condition where the category of land
use is “building”
Where the property being sold is an office unit, it is important to ensure that the express condition stated in the title does not
state “untuk rumah kediaman’ (for residential purpose). The correct description is “untuk pejabat” (for commercial purpose).

In one SPA transaction, the vendor wanted to dispose an office unit. After the purchaser had placed a deposit to buy, he
discovered that the express condition in the title stated ‘untuk rumah kediaman’ when it should state ‘ untuk pejabat ‘. This
could be due to an inadvertent mistake on the part of the relevant authority. The purchaser and his solicitors objected.

The SPA had to be drafted in such a way to indicate that the vendor was given a specific period of time to rectify the error on
the title, failing which the SPA would be terminated. There is thus an element of uncertainty which would extend the
completion period of the transaction.

Property held on leasehold tenure

If it is a leasehold property with a restriction-in-interest endorsed on the title against the transfer and the charge of the
property without the consent of the State Authority, then it is imperative for the vendor to apply and obtain the consent to
transfer from the State Authority before the purchaser may proceed to buy the property from the vendor.

Generally, the application for the consent to transfer is approved by the State Authority. However, if the vendor is a bumiputra
and the purchaser is a non-bumiputra, then there could be a risk that the State Authority may not approve such application. If
further appeals are not entertained by the State Authority, then the sale and purchase agreement will become ineffective and
will be terminated.

Where the property of the vendor is caveated

If a land search on the property reveals that a private caveat has been entered on the vendor’s property, then obviously the
purchaser will not proceed with the signing of the sale and purchase agreement, unless the private caveat is first removed.

On the other hand, if the preliminary land search shows that there are no caveats on the property, then the parties will
proceed with the signing of the sale and purchase agreement.

However, if after the sale and purchase agreement has been signed, and another land search subsequent thereto reveals that
a caveat is lodged on the vendor’s property, then if the vendor fails to withdraw the caveat, then the sale and purchase
agreement may be terminated and in such an event, the vendor will have to refund all monies paid towards the account of the
purchase price to the purchaser and pay compensation to the purchaser, as the case may be.

Developer in liquidation
There have been instances where after a housing project has been completed, but before the strata titles are transferred to
the original purchasers, the housing developer company has gone into liquidation.
In such an event, a liquidator may be appointed and requested to act on behalf of the wound up housing developer company
in handling the documentation pertaining to the execution of the memorandum of transfer in favour of and for the benefit of
the original purchasers.

When an original purchaser does not intend to obtain registered ownership of his property but desires to sell it, then he has
write to the liquidator to seek its consent to a direct transfer in favour of the second purchaser.

Upon receipt of such a request, the liquidator will conduct a verification of ownership exercise, and upon being satisfied that
the legal formalities and requirements have been complied with by both the original purchaser (currently in his capacity as
vendor) and the second purchaser and are found to be in order, and after payment of an administrative fee by the original
purchaser to the liquidator, then the process of execution of the direct transfer by the liquidator in favour of the second
purchaser may commence and proceed accordingly.

In the above situation, it will be prudent for a due diligence to be undertaken before the original purchaser decides to sell and
the second purchaser decides to purchase the property so as to avoid or expect unnecessary delays in the intended sale and
purchase transaction.

DISCLAIMER:

The views and opinions expressed in this article are solely those of the original author. These views and opinions do not
necessarily represent those of StarProperty.my.

This article is intended to provide information and does not constitute legal advice for specific needs. You should consider, or
seek and obtain independent legal or professional advice for your specific needs and situation.

Advocate & Solicitor Ivan Chan is a legal practitioner at Messrs Amir Toh Francis & Partners, K.L.

His area of practice is mainly in conveyancing matters both in the primary and secondary market, and loan and security
documentation for real estate property transactions.

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