Increase in legal fees: How will it affect homebuyers

The increase in legal fees can actually be set off by legal waivers. Discounts and rebates are now legalized, and consumers are at liberty to negotiate their fees (legal) on purchases and loans.

The National House Buyers Association (HBA) refers to the Solicitors’ Remuneration Order 2023 (SRO 2023) which has been gazetted and was implemented on 15th July, 2023.

The SRO 2023 governs the legal fees that lawyers can charge in Malaysia in respect of Sale and Purchase Agreements (SPA) and financing agreements involving immovable properties (land and building).

It replaces the Solicitors Remuneration Order 2005, which was revised in 2016 and again, in 2017. The SRO 2023 was approved by the Solicitors Costs Committee chaired by the Chief Judge of Malaya under Section 113 of the Legal Profession Act, 1976.

Impact on Homebuyers / Borrowers and Discounts

The last few years have seen challenging times for many people, including professionals and lawyers too. In a nutshell, in line with the rising cost of living and doing business since the last revision of the SRO 2005 (revised in year 2017 hereinafter referred to as ‘SRO 2017’), the SRO 2023 reviewed upwards the schedule of fees that lawyers can legally charge and offer discounts and rebates.

Please refer to Table 1 below for the comparison of the fees chargeable.

Table 1 – Comparison of fees chargeable between SRO 2017 and SRO 2023

We have analyzed the possible impact to prospective house buyers on the increase in legal fees payable for properties / loan value under different scenarios, ranging from:

• affordable properties costing RM300,000
• mid-range properties costing RM500,000 and RM750,000
• high-end properties costing RM1,000,000 and RM1,500,000

Our findings in Table 2 can be summarized below:

Table 2 – Comparison of fees payable between SRO 2017 and SRO 2023

Although the new SRO 2023 does increase legal fees payable for both the SPA and the Loan Agreements, the increase can be considered reasonable as the last revision was almost 6 years ago in 2017.  Malaysia and the rest of the world have seen a rise in the cost of living because of Covid-19 and the global economic disruptions.

In our examples above, the increase in legal fees (being property valued at RM300,000 up to RM1.0 million) between SRO 2017 and SRO 2023 was at 25% or at a compounded annual rate increase of 3.79% per year which is within the expected range of inflation rate of 3% to 4%.  

For properties valued at RM1.5 million, the increase in legal fees is about 30% and the compounded annual rate of increase between SRO 2017 and SRO 2023 is 4.47% which is marginally higher than the expected inflation rate of between 3% to 4%.

The increase in legal fees between SRO 2017 and SRO 2023 is also very minimal in comparison to the Consideration / Loan Value of the property. 

Based on our examples above:

It is also to be noted that the SRO 2023 also charges a lower legal fee of between 25% and up to 50% for properties governed under the Housing Development Act, i.e. bought directly from housing developers. There is realistically a higher percentage of discounts compared to SRO 2017 which reflected between 25% to 35% for properties bought under the HDA. 

For properties under HDA where the Consideration / Loan Value is above RM1.0 million, the discount under SRO 2023 of 50% is higher than the discount available under SRO 2017 of 35%.  Hence under our example below, the fees payable for properties under HDA valued at RM1.0 million, there is no increase in legal fees to be paid.

Please refer to Table 3 to Table 5 for the actual increase in legal fees payable for HDA properties.

Table 3 – Comparison of legal fees payable for Affordable Properties valued at RM300,000

Table 4 – Comparison of legal fees payable for Mid-Range Properties (RM500,000 and RM750,000)

Table 5 – Comparison of legal fees payable for High-End Properties (RM1,000,000 and RM1,500,000)

As the increase in legal fees is reasonable and not significant when compared against the property value or loan amount, it is not expected to cause a domino effect towards the rising cost of living or house prices.

Frequently asked questions on the increase of property legal fees

We have posed several questions that will most probably be in most home buyers’ and tenants’ minds.

Q1) How would a potential increase in legal fees affect homeowners or first-time homebuyers?

HBA: Most people can only afford to buy one property in their lifetime and a small minority might be lucky enough to afford a second property for long-term investment. Hence, such a ‘one-off’ increase is not expected to impact their daily living expenses compared to say increase in petrol, toll, or utility charges which need to be incurred on a daily basis.

Q2) Could the increase in legal fees also affect rent fees for future tenants?

HBA: No, it will not because many estate agents now have their standard Tenancy Agreement that they adopt with their ‘cut & paste’ to suit the arrangement between landlord and tenants.

On top of that, the Government has highlighted that a new legislation has been proposed to govern the rights of the tenants with the entitlement of the landlords under the proposed: ‘Residential Tenancy Act’. With the coming of the new legislation, a standard template will be made mandatory with ‘fair and reasonable’ terms and conditions in the Tenancy Agreement. Hence, the need for the involvement of lawyers (to draw up a Tenancy Agreement) will be minimized.

Q3) What do you think is the appropriate increase in legal fee structure to ensure lawyers’ financial well-being while also ensuring consumers aren’t too heavily affected? (e.g., fees increased within the expected range of inflation rate)

HBA: We are of the opinion that the increase in legal fees is in tandem with current times.

Q4) Do you think an increase in maximum legal fee discounts would be enough to compensate for the rise in overall legal fees?

HBA: Yes, in my opinion, the increase in legal fees is set off by legal discounts. Discounts and rebates are now legalized, and consumers are at liberty to negotiate their fees (legal) on purchases and loans.

*This article is written by Datuk Chang Kim Loong, Hon. Sec-Gen of the National House Buyers Association (HBA). HBA can be contacted at email: [email protected] Tel: 012 3345676