Appraising the new SPA
08/03/2003
NST-PROP
By Salleh Buang
There was an e-mail message in my inbox recently from an old friend, NT of
Shah Alam. In his e-mail to me, NT asked whether I had seen the new
version of the standard sale and purchase agreement (SPA).
The standard SPA, as we all know, takes two forms. It either conforms to
Schedule G or H of what was before the Housing Developers (Control &
Licensing) Regulations 1989, recently updated by the 2002 Regulations.
Form G is meant for houses built on terra firma, whilst Schedule H is for
stratified housing.
In my reply to NT, I said that I have not done so, but I have done the
next best thing. I have read the comments on the matter by Shamsulbahri
Ibrahim, the Legal Adviser of the Housing Ministry, whom I personally know
since the late 80s. His excellent comments were contained in a lengthy
article now available in cyberspace.
In summary, the following represents the new features of the revamped SPA
under Schedule G:
1. In the Preamble to the SPA, the developer is now required to state
whether the property sold to the purchaser is freehold land or leasehold
land. To me, whilst the terms “freehold land” and “leasehold land” are
perfectly acceptable as employed in common usage, strictly speaking they
do not conform to the terminology found in the National Land Code, 1965
which states that land is either “held in perpetuity” or “for a term of
years”.
2. There is better protection for the purchaser in the event that the
property sold by the developer to him is subsequently or “at any time”
encumbered - i.e. charged by the developer to a bank as security for his
bridging loan. In the event of foreclosure proceedings by the bridging
financier (due to the developer’s default), the property is excluded from
the order for sale granted to the bridging financier.
3. Greater flexibility is granted to the developer to carry out
construction work on the housing project. It need not follow exactly the
sequence stated in the Third Schedule to the SPA. The purchaser’s interest
is, however, safeguarded. If any work certified for payment is then
damaged by any subsequent work done by the developer, it shall be made
good by the developer at his own cost before the purchaser takes vacant
possession of the property.
4. A new way out is provided to the purchaser in the unfortunate event
that he is unable to obtain a housing loan to complete the purchase. Under
the revamped SPA, if the purchaser fails to obtain financing due to his
ineligibility, he can terminate the SPA and ask for a refund of all monies
already paid by him to the developer. The developer, however, is entitled
to deduct a sum equivalent to one per cent of the purchase price.
5. The purchaser can now initiate and maintain an action “in his own name”
against the developer in any court or tribunal, notwithstanding that the
purchaser has assigned his rights and interests under the SPA to his
end-financier. There is, however, a catch to this. That right exists only
if there is no “contrary intention” expressed in the security
documentation executed by the purchaser in favour of his end-financier.
6. Greater leeway is granted to the purchaser in respect of late payment.
Under the revamped SPA, interest is payable only if the purchaser delays
beyond 21 working days (formerly it was 14 days). The revamped SPA also
spells out certain circumstances under which the developer cannot claim
interest due to late payment.
7. The purchaser is only required to pay the developer RM500 or 0.5 per
cent of the purchase price, whichever is lower, for his consent and as
administrative fee should the purchaser subsequently sell the property to
another party. Neither the purchaser nor the other party can be asked to
pay the developer’s solicitor’s fee.
8. There is now a limit to the amount the developer can claim from the
purchaser in cases where the purchase price is to be adjusted due to
actual lot size. There is now a maximum of two per cent of the total area.
In Shamsulbahari’s opinion, which I completely agree with, that limit
“represents a reasonable accuracy tolerance for construction purposes,
especially with respect to land sizes”. It is also intended “to prevent
excessive claims by the Developer resulting from adjustment of purchase
price in cases where the land area as shown in the final document of title
when issued is much larger than the land area as shown in the layout plan,
such claim being beyond the means and/or expectation of the Purchaser”.
9. The developer is now allowed to collect, from the purchaser, not more
than six months’ advance in respect of the purchaser’s contribution for
the maintenance of services (to be provided by the developer from the date
of handing over of vacant possession to the purchaser until the same is
taken over by the appropriate authority). This is to prevent the developer
from continuing past practices, where some developers have been asking for
a year’s advance payment for such services.
10. In cases where the developer has delayed completion beyond 24 or 36
months, he is now required to pay liquidated damages (at 10 per cent of
the purchase price) to the purchaser on the day he hands over vacant
possession of the completed property to the purchaser. The revamped SPA
states: “For the avoidance of doubt, any cause of action to claim
liquidated damages by the Purchaser under this clause shall accrue on the
date the Purchaser takes vacant possession of the said Building.”
11. Under the new law, the revamped SPA now provides as follows: “For the
purpose of claiming any liquidated damages in the Tribunal of Homebuyer
Claims established under section 16B of the Housing Development Act 1966
[Act 118], such claim shall be made not later than twelve months from (a)
the date of issuance of the certificate of fitness for occupation for the
said Building; or (b) the expiry date of the defects liability period as
set out in clause 26, whichever is the later.”
12. Greater protection is provided to the purchaser with regard to the
delivery of vacant possession. The revamped SPA now requires the developer
to provide the purchaser with “a letter of confirmation” from the
appropriate authority “certifying that the Form E as prescribed under the
Second Schedule to Uniform Building By-Laws, 1984” has been duly submitted
by the developer and duly “checked and accepted” by such authority. The
intention behind this revamped provision is to ensure the speedy issuance
of Certificate of Fitness for Occupation for the purchaser.
13. Under the revamped SPA, the purchaser can now ask the solicitor
(stakeholder of the purchase money) to release the sum of money
representing his out of pocket expenses in cases where the purchaser is
compelled by circumstances to carry out rectification work in respect of
defects.
At face value, without a doubt, the revamped SPA is better than what it
was before. Whether it will benefit purchasers will depend on the
professionalism and goodwill of the housing industry as well as the
vigilance of the purchasers themselves. Rights are meaningless if we sleep
on them.
