Every property deal is unique, and a one-size-fits-all approach to SPAs can lead to complications. A lawyer’s job is customising the SPA to fit your situation. This might include adding special conditions, like ensuring certain repairs are done before the sale is finalised.
Q: I recently purchased a sub-sale condo and am about to collect the keys. However, my lawyer has requested that I pay the “unutilised sinking fund” fee before collecting my keys. I’m puzzled by this, as I thought the seller should be responsible for this payment. Could someone advise me on whether I am obligated to cover this cost?
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Hello there! This is a great question, as it shows the importance of having a good SPA to protect your interests! Before we jump to any conclusions, let’s review the basics first.
When buying a property through a sub-sale, you’ll likely come across different fees and payments that need to be settled before finalising the deal. One payment that can be confusing is the sinking fund. You might be asked to pay a “utilised sinking fund” to the previous owner, and it’s natural to wonder if that’s a real thing.
Sinking Funds Explained: What Are They?
If you’re a condo owner, you’ve probably heard the term “sinking fund.” A sinking fund is a reserve fund managed by the Joint Management Body (JMB) or Management Corporation (MC) of a strata property, like a condo. It’s set aside for big, long-term expenses and major repairs, such as fixing structural issues, replacing elevators, or repainting the building. These costs go beyond the usual maintenance fees.
The sinking fund is basically a part of the money collected from property owners. Usually, it is calculated from a certain percentage of the maintenance fees. Although the terms “utilised sinking fund” and “unutilised sinking fund” are not defined under any legislation in Malaysia, they can be understood as: –
What is a “Utilised Sinking Fund”?
This refers to the part of the sinking fund already used for the shared property’s repairs, upgrades, or major maintenance. Once the money has been spent, it benefits everyone, both past and current owners, by keeping the common areas in good and usable condition and improving the shared amenities.
What is “Unutilised Sinking Fund”?
On the other hand, an unutilised sinking is simply the leftover money that hasn’t been spent yet. The management body keeps this cash for future needs, like upcoming repairs or future unexpected emergency needs. So, if you’re buying a property, any remaining sinking fund can be considered a plus.
Who Is Actually Responsible for Paying It?
Even though terms like “utilised sinking fund” and “unutilised sinking fund” aren’t usually used in everyday property transactions, knowing about them can help you gauge the state of the sinking fund when buying a property. As a buyer, you must realise that you shouldn’t have to pay the seller for any part of the sinking fund that has already been spent.
According to the Strata Management Act (SMA), buyers usually aren’t required to cover the unutilised sinking fund for sub-sale transactions. Under normal circumstances, the seller is responsible for all maintenance fees and sinking fund contributions until the property is officially transferred to you.
However, in some sub-sale property transactions, the seller might want to reclaim the unutilised portion of the sinking fund from you as the buyer. Now, this can be a bit of a grey area because no hard and fast rule in Malaysian law automatically places this responsibility on the buyer, but it’s entirely possible if both you and the seller agree to it.
This arrangement should be clearly outlined in the SPA, particularly the apportionment clause. If you both agree to this in the SPA, the property transaction might not be able to proceed smoothly unless you settle the unutilised sinking fund as part of the deal.
What Lawyers Do When Handling Sub-Sale Agreements in Property Transactions?
In the process of buying and selling properties, especially in sub-sales transactions, lawyers are essential for managing the legal side of things. Even though these transactions might seem straightforward, they come with complex legal details that need a lawyer’s expertise.
1. Carrying Out Legal Due Diligence
Legal due diligence is a critical part of the sub-sale process. Lawyers are responsible for conducting thorough checks on the property and the parties involved to ensure that everything is in order. This means checking the property’s title, looking for any legal claims or encumbrances, and ensuring the seller has the right to transfer ownership.
2. Drafting and Reviewing the Sale and Purchase Agreement (“SPA”)
Before a lawyer starts drafting the SPA, they must get a clear picture of the deal. This means understanding the property in question, the agreed price, how payments will be made, and any special terms. The SPA covers all the terms of the sale. Some of the crucial terms are the purchase price, payment details, apportionment clause and completion date.
Every property deal is unique, and a one-size-fits-all approach to SPAs can lead to complications. A lawyer’s job is customising the SPA to fit your situation. This might include adding special conditions, like ensuring certain repairs are done before the sale is finalised.
When reviewing the SPA, the lawyer’s job is to spot any potential issues that could be problematic for you. This might mean finding vague terms, unfair clauses, or missing details that could affect your interests. If they see anything that is unfavourable or needs clarification, they will negotiate changes with the other party’s lawyer to ensure you’re well-protected.
When it comes to sub-sale transactions in Malaysia, there are several laws and rules to follow, such as the SMA, the Contracts Act 1950, and the National Land Code. Lawyers ensure that everything meets these legal requirements, covering aspects like property ownership, conveyancing, land issues, and contracts.
3. Handling The Transfer of Ownership
Transferring property ownership from the seller to you is the most crucial part of the whole sub-sale transaction. Your lawyer will handle all the legal steps needed to transfer the title from the seller to you. This includes drafting and filing important documents, like the Memorandum of Transfer (MOT), with the Land Office or Registrar of Titles. They ensure everything aligns with the terms of the SPA and that all legal requirements are met, such as paying stamp duty and getting any necessary approvals. Essentially, they ensure that the transfer process is properly transferred to you.
4. Facilitating Communication Between Parties
Good communication between you, the seller, and everyone else involved is key to making the transaction go smoothly. Lawyers play a big role here by acting as intermediaries, making sure that everyone stays in the loop about important updates and developments.
What Can You Do If You’re Asked to Pay for an “Unutilised Sinking Fund”?
If you find out that you need to pay an “unutilised sinking fund” to the previous owner, here’s what you can do to handle the situation:
1. Request Detailed Documentation
You should get a full breakdown from the property’s management through the seller. This should include a statement showing how much has been contributed to the sinking fund, how it has been used, and if there are any outstanding payments. This information will help you get a clear picture of the condo’s current status.
READ MORE: Can I cancel a house purchase after signing the SPA?
2. Review the SPA
Take a look at the SPA, ideally with your lawyer’s help. See if there is any mention of reimbursing the seller for the sinking fund. If the SPA doesn’t say anything about it, you might not be legally required to make this payment.
3. Negotiate with the Seller
If the seller insists on the payment and you’re uncomfortable with paying the amount, you can try negotiating with the seller. For example, you might argue that the seller has already enjoyed the benefits of the sinking fund usage previously, and maybe they’ll agree to a reduced amount or even drop the request altogether.
Ultimately, whether you should pay for the unutilised sinking fund depends on the terms of your SPA and the negotiations between you and the seller. Hence, in any sub-sale deal, it’s crucial for you to get legal advice and make sure you fully understand the contents of all the documents.
Best Regards,
Tsu Jean Yinn, Legal Associate, Melissa Lim & Associates