The offer letter / booking form
The legal process often begins when the seller or his agent presents the offer letter / booking form for the prospective buyer to sign. This often requires the prospective buyer to pay an earnest deposit to the seller (usually 3% of the agreed purchase price of the property).
Once the offer letter is accepted and signed by the Seller, and the earnest deposit is paid, a binding contract between the seller and prospective buyer comes into existence.
The parties are now legally obligated to finalise the terms of the transaction by entering into a sale and purchase agreement (SPA).
The offer letter often stipulates a timeframe for the purchaser to sign the SPA and further stipulates what happens in the event the terms of the offer letter is breached.
The Sale and Purchase Agreement ("SPA" / "S&P") & Memorandum of Transfer ("MOT")
After signing the offer letter or booking form, the parties must now appoint their respective conveyancing lawyers to draft and review the SPA. During this stage, the lawyers for both parties will negotiate the most terms of the SPA for their client.
Once the SPA is finalised, the parties will proceed to sign the SPA and Memorandum of Transfer in the presence of their lawyer. Upon signing, the buyer usually pays the remaining 7% deposit ( deposit is usually 10% of the purchase price but can be negotiated between parties).
Commonly the SPA will stipulate that the purchaser will have 3 months from the SPA date (or any other effective date) to pay the balance purchase price. The SPA outlines the terms and conditions to be observed by the parties (this includes any penalties for breach of the SPA).
The Memorandum of Transfer (also known as Form 14A) is the statutory form used to register a transfer of ownership at the land registry.
For convenience, the parties will often sign the MOT and the SPA together. The MOT will then be held by the Seller’s lawyer as stakeholder.
Application for state authority consent
Some properties have a restriction in interest endorsed on the title and cannot be sold without first obtaining state authority consent. Additionally, consent from the relevant authority is also required where the purchaser is a foreigner, the property is a low-cost property or where land reserved for Bumiputra is intended to be transferred to a non-Bumiputra.
Real Property Gains Tax
Pursuant to Section 13 of the Real Property Gains Tax Act, 1976, both the Buyer and Seller are required to submit their respective real property gains tax (cukai keuntungan harta tanah in Malay) forms within 60 days from the effective date of the SPA.
Where the Seller is subject to real property gains tax, the Buyer will be required to retain a percentage of the purchase price to be submitted to IRB / LHDN on behalf of the Seller.
Financing and loan documentation (for Buyers)
Most buyers apply for a housing loan to finance their purchase. Once their loan application is approved by the bank, they will be required to appoint their bank’s panel lawyer (the Buyer may choose which panel lawyer to appoint) to prepare the loan documentation and register the charge on the property in the bank’s favour.
The buyer will often be required to sign the Loan/Facilities Agreement and other relevant security documents as stipulated by the bank in the bank’s loan offer letter.
Buyers must pay attention to the bank’s margin of financing and be ready with the extra cash in the event the loan sum does not cover the entire purchase price.
Redemption (for Sellers)
In some cases, the Seller sells the property before the Seller’s housing loan is paid off. In such case, the Seller cannot complete the sale and purchase transaction until his housing loan is paid off and the right to deal with the property is reassigned to him.
The Seller will then have to use his own money or money from the sale of the property to redeem the property from the bank.
Payment of Balance Purchase Price
The buyer is usually required to settle the balance 90% of the purchase price within three months from the SPA date (or effective date), with an extension of 1 month (subject to payment of interest by the Buyer).
The Buyer may pay the balance purchase price using his own funds or by bank loan. Where the Buyer applies for a loan, he must first pay the difference between the balance purchase price and the loan sum
Stamp Duty and Legal Fees
The Buyer must pay stamp duty on the SPA, MOT and loan agreement. Stamp duty for the MOT is ad valorem, according to the purchase price or market value of the property, whichever is higher. Stamp duty for the loan agreement is based on the loan sum.
Lawyers will often advise their client about any available stamp duty remissions or exemptions that their client qualifies for.
Both parties are required to pay their own lawyers’ legal fees and disbursements.
Presentation of the documents for registration at the land office.
Once the Buyer has paid the balance purchase price, the Seller’s lawyer hands over the MOT, original land title and other relevant documents to Buyer’s lawyer to present at the land office for registration.
A new title in the Buyer’s name will be issued once the registration is completed. This can take up to a few months.
Delivery of vacant possession
After presentation, the Seller is required to deliver the property to the Buyer in the agreed condition, free of encumbrances (unless otherwise stated).
Parties usually conduct a joint inspection to ensure that there are no disputes regarding the condition of the property.
Apportionment of outgoings
On the date of delivery of vacant possession, the Seller’s lawyer will provide the Buyer with a calculation of the apportionment of the quit rent, assessment, utilities etc. paid by the Seller thus far.
The Buyer will be required to reimburse the Seller for the excess paid by the Seller.
Other post-sale matters
As the new owner of the property, the Buyer is now required to update the relevant authorities of the change of ownership. This includes notifying the local authority, utility companies etc.
Conclusion
The sale and purchase of property in Malaysia is a legally regulated process involving several stages, from negotiation to legal documentation, financing, and registration. Engaging experienced lawyers and real estate agents helps ensure a smooth transaction while protecting your rights as a buyer or seller.