SPA or Sales and Purchase Agreement is a legal contract that dictates the terms and conditions that a seller and buyer of a given property agree upon on the sale and purchase of a property. Basically, it is the document that binds the two parties under legal terms as dictated by the property laws of the country. As a legal document, a Sales and Purchase Agreement (SPA) has to be signed in the presence of a lawyer. This is done to ensure that both the seller and the buyer get to have a deep understanding of the core clauses outlined in the document for the property transaction.
What is Sales and Purchase Agreement (SPA)
This contract often acts as the basic legal framework that informs the parties involved in their legal rights and obligations. From it, the buyers can have detailed information about the property being purchased like the amount of deposit require, property price, property type, warranty period and the purchase price. The seller, on the other hand, will be informed about a number of things, such as the consequences that may arise in the event that there is a breach of contract.
In all the documents that are used in the process of purchasing a property, a Sales and Purchase Agreement (SPA) requires the most attention, especially from the buyer. On the buyers’ side, it is advisable to have a legal advisor by your side at all times when processing this contract. Any slight mistake or misunderstanding will determine the success or failure of the agreement between the seller and the buyer.
The document acts as a protection for both the seller and the buyer. But in most cases, a good number of the protection privileges cover the buyer. This is to prevent cases of the seller altering with the outlined terms and conditions with the aim of exploiting the buyer during a property purchase.
In summary, a Sales and Purchase Agreement (SPA) is a binding contract in legal jargons that can always be used as evidence by either the seller or the buyer in the event that there is a misunderstanding after sealing a property deal.
Basic Contents of a Sales and Purchase Agreement (SPA)
Seller and buyer details:
This section of the Sales and Purchase Agreement (SPA) contains basic information about the parties that are involved in the transaction. It has the seller’s and buyer’s registered address and other information that can assist in locating either party. For example, if two companies that are both located in Malaysia decide to take part in a property sale and purchase those handling the transaction must include details such as company number in the contract. Additional information like the number of people owning the property being sold can also be found here.
Agreement for the Sale and Purchase of Property:
This section stands out as one of the most important parts of the whole agreement. This area ensures that the interests of the purchaser and the vendor are equally considered. Each of the participants has to see to it that the clauses included in the contract are in their favor. Additionally, this part also indicates the type of ownership the seller has on the property being sold. If the property is owned by more than one person the information has to be included to avoid future conflict. Each property shareholder has to approve that they are in agreement with the purchase of the property in question. This will subsequently make them part of the SPA contract.
It is from this section that the seller fully agrees with reference to the defined legal terms to sell the property. The buyer also confirms that he or she is ready to purchase the property for the price proposed by the seller. The buyer has to be very keen when reviewing this section of the contract as it provides important details about the property. From here the buyer will be able to know if the property comes with vacant possession.
In Malaysia, the vacant possession has to be delivered before 24/36 months elapse from the date both parties sign the final agreement. In simple terms, vacant possession delivery refers to the day the vendor decides to hand over the property to the buyer. Legally the seller should inform the buyer that the property is not under any caveat or encumbrances through this section. This will give the buyer an assurance that buying the property is safe and no financial loses will be incurred.
Consideration and processing of payment:
The property buyer is obligated to make payments for the property. This section will indicate the amount to be paid by the buyer. Payments can be made depending on how the seller and the buyer have agreed. Cash payments are preferred but if the seller and the buyer agree on a different payment plan they can equally include this in the contract. However, the buyer has to honor the payment plan that has been agreed upon. All payments have to be made before the expiry period indicated on the contract, failure to which the seller has the legal right to sue the buyer for breach of contract.
Completion of Sale and Purchase:
After the vendor has confirmed full payment, the legal ownership of the property is transferred to the buyer. This phase may involve the exchange of documents between the seller and the buyer which have to be signed. In most cases, the paperwork is handled by solicitors from both parties, who are fully qualified to confirm the authenticity of the documents presented.
If the purchase is carried out between companies then Companies Act, 1965 of Malaysia dictates that the latest copies of form 24, 44, and 49 have to be presented by both companies. Form 24 confirms that certain shares have been allotted to a particular shareholder or director of a company. The form has to be submitted for registration after the shareholder has approved the allotment. The parties will use form 44 to provide additional information about their companies such as official office hours and the particulars that are likely to undergo change.
Form 49 shows a breakdown of particulars and further indicates the particulars that give returns according to the company’s register. Other documents that may be required to complete this phase can be found in the completion schedule. Both parties are therefore advised to make confirmations that they have all the documents prior to the completion phase. This is done to ensure that the transaction flows smoothly without encountering unnecessary delays.
Both the seller and the buyer are advised to keep the documents presented even after the transaction has been fully completed. The buyer should particularly put confidential documents such as the warranty and other indemnities for safekeeping. This will act as an additional security measure should any issue arise after the property has been sold and a vacancy possession handed over to the buyer.
Types of Sales and Purchase Agreements (SPAs)
The seller and the buyer may require different SPAs depending on the type of property being dealt with. The templates governing primary residential properties are provided by the government and are often defined in terms of schedules. Housing regulations used in Malaysia indicate that there are two main schedules that are currently in use.
Schedule G covers individually owned properties, such as houses while schedule H deals with strata properties. On the other hand, primary properties that are owned commercially may adopt their own schedules that may be slightly different compared to primary residential properties. Sales and Purchase Agreements that are used on strata properties may require more work to process compared to the latter. They can describe a property in detail by including additional amenities such as the available parking lots among other things.
Property SPAs that cover commercially owned primary properties are open to negotiations between the buyer and the seller. This can at times work in favor of the buyer when it comes to negotiating the purchase price. Property regulations provided by the government do not share the same flexibility as both parties have to strictly adhere to the templates provided. This is the only difference that clearly stands out when comparing the two types of property SPAs.
Can a buyer cancel a Sales and Purchase Agreement (SPA)?
In the event that a buyer decides to change his/her mind concerning the purchase of a property, a Sales and Purchase Agreement can be terminated. Like most legal contracts, canceling a SPA will result in a legal penalty. In Malaysia, the party that decides to walk out of the agreement is required to pay the other party a penalty fee that is equal to 10% of the initial purchase price.
This ultimatum mainly affects the buyers as it is very rare for the vendor to cancel an SPA. But if it happens that the seller wishes to cancel the agreement he/she may find the process very rough. This can apply in cases where the SPA is protected by strict clauses which do not give the seller the room to have a change of mind. If the seller insists on canceling the agreement the buyer has the right to file a legal case for breach of contract against the seller.
Things to consider before signing a Sales and Purchase Agreement (SPA)
Hire a property lawyer:
If you are a buyer and you intend on buying a property but you lack detailed knowledge of property sales and acquisition, the first thing that you should consider doing is to hire a property lawyer. Property lawyers are well informed regarding the common process dos and don’ts when it comes to selling and buying of property.
A property lawyer will also give a breakdown of the clause on conditions precedent that are included in the SPA. This will provide clarifications on some of the subjects that may be complex such as condition precedent, termination clauses and delivery of possession. The buyer will also be able his/her rights and the possible legal actions that can be taken should the seller break the agreement. As a result, both the buyer and the seller will have an easy time in drafting the final contract.
Terms and conditions of SPA
As a legal contract, a Sales and Purchase Agreement (SPA) has a number of rules and regulations that must be fully adhered to. Before signing a Sales and Purchase Agreement (SPA), the seller and the buyer have to familiarize themselves with the set conditions. Failure to which either party may end up breaching the contract without his/her knowledge.
The buyer has to be particularly keen on the schedule of payment as dictated by the agreement. If the buyer delays in making payments, the seller may decide to take legal action. This in most cases will result in the buyer being penalized for breaching the set agreement. The seller on the other hand also has to ensure that the vacant possession is delivered on or before the agreed dates.
If the seller delays in delivering the vacant possession, he/she is required by the law to pay the buyer a liquidated damages fee which is 10% per annum of the buying price. For the transaction to be completed both parties have to agree fully that they will follow the terms and conditions.
The other thing that both parties must consider is to come up with terms and conditions that are clear and precise. This will make it easier to understand the message that is being passed through the SPA. But most importantly, clear terms and conditions will act as good legal reference points in the event that conflict arises between the parties. It is also for this reason that all documents included in the purchase of a property should be signed in the presence of witnesses which in most cases are lawyers from both parties.
Coming up with a Sales and Purchase Agreement (SPA) is a complex task which requires accuracy and sincerity of everyone that is covered by the contract. It is therefore mandatory that both the seller and the buyer pay keen attention to every bit of information in the document. If everything is done accordingly a SPA can provide adequate legal protection for both the seller and the buyer during a property purchase.
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