When buying property in Malaysia, one of the most critical legal documents is the Sales and Purchase Agreement (SPA). It formalizes the terms of the transaction between the buyer and seller, ensuring the rights and obligations of both parties are clearly outlined and legally enforceable. In this guide, we will dive into the key clauses you must be aware of and understand before signing the SPA, especially if you’re navigating Malaysia’s property market for the first time.
What Is a Sales and Purchase Agreement (SPA)?
The Sales and Purchase Agreement (SPA) is a legally binding contract between a buyer and a seller, specifying the terms and conditions for the purchase of a property. This document goes beyond the mere transaction, as it also lays out the responsibilities of each party throughout the sales process. From outlining payment terms to detailing delivery conditions, the SPA ensures both the buyer and the seller are protected during the sale.
Key Clauses in a Sales and Purchase Agreement
1. Parties Involved
The first and most fundamental clause identifies the parties to the agreement. In any SPA, there are typically two main parties—the buyer and the seller. The SPA will list their full legal names and addresses. In some cases, a developer may be the seller, particularly for new properties, whereas for subsales (secondary market properties), the seller is usually an individual or entity.
2. Property Details
The SPA must clearly outline the specific details of the property being sold, including the property’s description, address, and title information. This section is crucial because it confirms exactly what is being transferred, avoiding disputes later.
3. Purchase Price and Payment Terms
One of the most crucial parts of the SPA is the purchase price and how it will be paid. It specifies the total amount agreed upon and how it will be paid, including any deposit (usually 10%) and subsequent payments. There is also a timeframe within which payments must be made, which is usually within 90 to 120 days.
4. Delivery of Vacant Possession
The SPA must clarify when and how the buyer will receive vacant possession of the property. Vacant possession means that the property is handed over free of any occupants, tenants, or squatters. If the seller fails to deliver vacant possession within the specified period, they may be required to compensate the buyer.
5. Defects Liability Period (DLP)
For newly developed properties, a defects liability period is usually included in the SPA. During this period, the developer is responsible for repairing any defects found in the property. The typical period for DLP is 24 months from the date of vacant possession.
6. Termination Clauses
The SPA will also specify the conditions under which the contract can be terminated. This clause protects both parties in case one fails to fulfill their obligations. For instance, if the buyer defaults on payment, the seller can terminate the agreement, and the buyer risks forfeiting the deposit.
7. Legal Costs and Fees
One key aspect of the SPA is the responsibility for legal costs and fees. In Malaysia, it’s typically the buyer who bears the cost of preparing the SPA, including the lawyer’s fees and stamp duty. In some cases, developers may absorb these costs as part of a promotional package, but this should be clearly stated in the SPA.
Who Prepares the SPA?
The buyer’s lawyer is usually responsible for drafting the SPA. This ensures the document is tailored to the buyer’s best interests while also complying with Malaysian property laws. The legal fees for drafting the SPA are typically between 1% to 3% of the property price, depending on the transaction’s complexity.
Important Considerations Before Signing the SPA
Engage a Qualified Lawyer
Hiring a competent lawyer is essential to navigate the complex terms of the SPA. A lawyer will not only draft or review the document but will also ensure that the agreement complies with legal standards and is fair to both parties.
Conduct Due Diligence
Before signing the SPA, buyers should conduct thorough due diligence. This involves verifying the title of the property to ensure it is free of encumbrances (such as mortgages or unpaid taxes). Failure to do so could result in complications later, especially if the seller is not the rightful owner or if the property has legal issues.
Property Defect Inspection After Vacant Possession
Once you have signed the SPA and received vacant possession of the property, it is crucial to conduct a property defect inspection. This step ensures that the property is in the agreed condition and that any defects or issues are identified and rectified by the developer during the Defects Liability Period (DLP).
Why Conduct a Defect Inspection?
Even newly developed properties may have defects such as:
- Cracks in walls or ceilings
- Water leakage
- Faulty wiring or plumbing
- Uneven flooring or structural issues
Identifying these defects early allows the developer to rectify them within the DLP, ensuring the property is in perfect condition. Failure to conduct a defect inspection may result in you inheriting unresolved issues that can be costly to repair later.
Hire a Professional Inspection Company
Hiring a professional property inspection company can save you time and ensure a comprehensive assessment of the property’s condition. A trained inspector will have the expertise and tools needed to identify defects that might be overlooked by an untrained eye.
For homebuyers in Malaysia, Pro Inspect Solution is a trusted company offering property inspection services, particularly for defect inspections after vacant possession. Their team provides detailed reports that help homeowners identify issues and follow up with developers to ensure defects are repaired within the stipulated period.
Visit Pro Inspect Solution for more information on their services and to schedule an inspection.
What Happens After Signing the SPA?
Once the SPA is signed, the buyer typically pays a deposit (usually 10% of the purchase price). The next steps include applying for a home loan (if needed), and upon approval, the balance of the payment will be made to the seller through the appointed lawyers. The lawyers will handle the disbursement of funds, the transfer of the property title, and registration with the Land Office.
FAQs
What is the purpose of the Sales and Purchase Agreement?
The SPA is a legal contract that outlines the terms and conditions of the property sale, ensuring both the buyer and the seller fulfill their obligations. It safeguards both parties from disputes that may arise during or after the transaction.
Who pays for a Sales and Purchase Agreement in Malaysia?
In most cases, the buyer bears the cost of preparing the SPA, which includes legal fees and stamp duty. Sometimes, developers offer packages where they cover these costs.
What happens after signing an SPA?
After the SPA is signed, the buyer pays the deposit, and the lawyers begin processing the transfer of ownership. The buyer will also need to secure financing if a loan is required. Once all payments are completed, the property title is transferred to the buyer.
What is the difference between a purchase agreement and a sales agreement?
While both terms are often used interchangeably, a purchase agreement typically refers to the buyer’s agreement to purchase a property, whereas a sales agreement refers to the seller’s agreement to sell the property. However, in most cases, both concepts are encapsulated within the SPA.
Can I cancel after signing an SPA?
Yes, but cancellation comes with consequences. If a buyer cancels the SPA without valid legal grounds, they risk losing the deposit paid, which is usually 10% of the property price.
Can the seller cancel the Sales and Purchase Agreement?
Yes, the seller can cancel the SPA, especially if the buyer defaults on payment or fails to meet the contractual obligations. However, this should be explicitly stated in the termination clauses of the SPA.
Conclusion
The Sales and Purchase Agreement is an indispensable legal document in any property transaction in Malaysia. Whether you’re a first-time buyer or an experienced investor, understanding the key clauses of the SPA can protect you from future disputes and ensure a smooth transaction. Always engage a qualified lawyer to help you through the process, and take the time to thoroughly review the document before signing.
Additionally, after receiving vacant possession, hiring a reputable defect inspection company like Pro Inspect Solution can ensure your new property is in perfect condition and free of issues.
