There have been calls to do away with the necessity of hiring a lawyer for the conveyancing process when buying a house in Malaysia, as it’s felt that the fee charged is too high for routine, mechanical work. HBA explains why this is a naïve suggestion – it has to be kept in mind that the fee is not so much for the work of the conveyancing solicitor but for the liability he or she bears.
It has come to HBA’s attention that some naïve and uninformed laypersons are adopting a simplistic approach to comparing the acquisition of real property with movable property. The comparison that was given is:
When we buy a movable luxury car say for RM800,000, we can get our bank facility within 2 or 3 days without a lawyer. But, when we purchase an immovable property/ condo/ house for say RM300,000, we are required to have a battery of lawyers to complete the transaction which takes an average of 3 to 6 months.
With the abundant availability of materials and resources online on anything and everything, there is no shortage of professional advice. However, if you suffered from a toothache, would you seek advice from a qualified dentist or entrust the fate of your molars to quacks who are not qualified but have seen 100 videos on YouTube and TikTok on treating toothaches? The answer is obvious, any person of sound mind would seek treatment for whatever ailments from the most appropriate professional.
Why buying a car via a Hire Purchase Contract cant be used as a comparison
The pre-printed form of a hire purchase contract (HP) requires the mere clerical ‘filling of blanks’ in the HP Schedules – including the description of car model, make, chassis, details of the loan sum and its monthly repayment as well as the hirer’s name, address and identity.
A HP merely requires the bank officer to witness the contract, get it stamped and thereafter keep it on a shelf after notifying JPJ (Department of Motor Vehicles) of the ownership claim. Meanwhile, the hirer has to adhere to the HP arrangement by paying the monthly instalments otherwise risk the ‘repossession’ of the hired vehicle. And that is it, case closed.
The assumption is that if you can understand legal language, you can do a lawyer’s job. The role of a lawyer in the sale and purchase of a real property is not so simple that it can be equated with the same process as buying a car under hire purchase. In reality, the signing of the Sales and Purchase Agreement (SPA) is merely the beginning of a property buying journey and is a mere tip of the iceberg of what entails the entire property transaction.
Why do you need to hire a lawyer for the conveyancing process?
For us to answer this question, one must understand the role a lawyer plays in a property sale and purchase and the reasons to engage your lawyer.
Usually, when a purchaser decides to buy a Real Property such as a house, an apartment, a condominium, shop office or land, they would probably consult a conveyancing lawyer. The lawyer could be your regular legal advisor or came recommended by the real estate agent. We would recommend that a purchaser of real property get legal advice from the onset before committing to said purchase – and not after payment of a deposit to the vendor or the real estate agency. The reasons being is that the lawyer can advise you on the terms of sale and purchase, conditions of the real estate including the implications of encumbrances over the real estate which may impede the transfer, restrictions-in-interest and the financial commitments needed to complete the acquisition.
The Latin phrase caveat emptor, meaning “let the buyer beware” certainly holds for properties. No purchaser would want to pay a deposit or the purchase price only to discover the property does not exist, cannot be purchased owing to public policy, or the seller is a fraudster using another person’s identity. The complications arising from a botched transaction can be severe leading to court proceedings or financial detriment due to payment of liquidated damages. Thus, the role of the lawyer is not just to affix his/ her signature, it is to protect the interest of a property seller and purchaser and to act as a filter against any irregularities in dealings.
Why a property buyer should not share a lawyer with the seller
We know of property agents who propagate the belief that both purchaser and seller can “share” a common lawyer so that there are some savings in legal fees. That is an untrue proposition and puts the seller at a disadvantage position. In a sale and purchase of property, lawyers cannot represent both a seller and purchaser. If a seller chooses not to appoint a lawyer, the seller is considered as not legally represented. In general, most real property transactions undertaken with lawyers on board do tend to complete successfully because the lawyers can navigate the technical and procedural complexities associated with land and tax laws. The benefits of having legal advice and a problem-free transaction outweigh the fees payable for legal services. The adage: “Don’t be Penny wise Pound foolish” is most appropriate.
There are some differences between buying a property from a developer and from an individual or company that already owns the property which we term subsale (short for subsequent sale). In this article, we would concentrate on the purchase of residential property from a licensed housing developer.
SEE WHAT OTHERS ARE READING:
Sales and Purchase Agreement in Malaysia: What is SPA in property
Can I cancel a house purchase after signing the SPA?
Conveyancing work involved when purchasing from a licensed Housing Developer
The purchase of residential property from a housing developer is regulated under the Housing Development (Control and Licensing) Act 1966. Under HD Regulation 11(4), the purchaser lawyers shall be entitled to a complete set of the SPA including all annexures ‘free of charge’ from the developers subjected to the lawyers’ undertaking.
From a Purchasers perspective, buying from a developer is even more simplified – they choose a unit, apply and obtain the housing loan, sign the SPA, pay the deposit and wait for the property to be completed. On paper, it sounds easy enough. However contrary to popular belief, the actual process for completing the sale and purchase is not a mere 3 step process. The end goal of any sale and purchase is to ensure that the property is properly conveyed to the purchaser. The process of conveyance has grown more complex; this process has evolved through the years to ensure that the right property is transferred to the right persons and to prevent fraudulent transfers.
Most of the essential work done by the lawyer is not known to the parties in a sale and purchase transaction. As far as the home buyer is concerned, once they pay the legal fees they expect the lawyers to complete the legal process so that the housing loan will be available for release progressively to the property developer and to wait for the end of the completion period – usually 3 months and thereafter to take delivery of vacant possession. To a seller, it may look even simpler; sign the SPA and wait for the payment.
1. Preliminary verification exercise in SPA transaction
Before one even signs a SPA, some preliminary matters need to be addressed such as:
- whether the developer has obtained the proper and upfront licenses and requisite approvals from the Government and related agencies
- confirmation of the unit being purchased
- the type of property being purchased
- the approved layout plans of the property
- what are essential items that come with the property, the schedule of payments
- the relevant identification documents of the developer and purchaser
- conduct the relevant bankruptcy, winding up and land title search.
If all these are in order then the SPA can be signed by the parties. The duly signed SPA will then be stamped accordingly. Stamping is done online, and the stamp office issues a stamp certificate to show duty has been paid.
Stamping of the SPA does not convey ownership to a purchaser. At this point, for purchasers that have taken a housing loan to part-finance the purchase of their property – the lending bank’s lawyer will have to coordinate with the solicitor in charge of the SPA to prepare the loan facilities documentation.
2. Memorandum of Transfer (MOT)
Pursuant to Section 211 (Fifth Schedule) of the National Land Code, 1965, the designated persons to attest or witness the signatures appearing in all dealing instruments including, but not limited to Memorandum of Transfer (MOT) are ‘an advocate and solicitor (aka lawyer) and a host of others permitted by the legislation. The Bank officers, Commissioner for Oaths or clerk cannot attest or witness the signatories to the MOT or such dealing instruments.
Find out more: Memorandum of Transfer (MOT) and Stamp Duty in Malaysia
3. Undertakings and performance in the housing loan transaction
The loan documentation is a tedious and complex process where every bank will have its own drawdown requirements and processes. Each party instrumental to the transaction has to issue their respective confirmations and undertakings; be it the SPA lawyers, housing loan lawyers, the property developer or the bank financiers. Hence, the time required for effectual disbursement of the loan (or part thereof) would consume approximately 3 months – depending on its complexity.
4. End to end conveyancing process in immovable property transactions
The following is the checklist that conveyancing lawyers have to perform and undertake for the home buyer’s bank (this can vary from bank to bank as they have different pre-disbursement criteria):
- Land searches to ascertain the land information as represented in the SPA is correct and to confirm the presence or absence of any encumbrances, restrictions, prohibitions, or acquisitions on the land in which the buildings are erected which may materially prejudice a bank’s interest or cause the bank not to be able to register their interest over the buyer/borrower’s housing unit or parcel.
- Searches on the developer, seller (for sub-sale), and buyer/borrower to establish their solvency. If the buyer is a company, there are additional checklists such as reviewing the Board of Directors resolutions and the corporate documents are in order.
- For properties which are still under a master title, the end-financier lawyer must obtain letters of undertakings from the developer to assure the financier that the developer will effect the transfer of the property to the purchaser once the separate strata title is issued, not to encumber the land any further through the creation of additional charges and to apply for consent to transfer and charge.
- The bank lawyers will also write to the buyer’s lawyer to seek their undertaking to attend to the perfection of the transfer once the separate strata title is issued. The responses and documents requested are then subsequently reviewed to ensure the contents comply with a bank’s requirement and if need be, the bank’s lawyers will seek further information or clarification from the developer. If the master titles are charged to a financial institution (bridging financier), the end-financier/bank lawyer will also need to request a redemption statement and a Letter of Disclaimer whereby the master charge agrees not to foreclose the buyer’s unit or parcel so long as the redemption sum is paid.
The above does not include other checking such as the sighting of the developer’s licenses, approvals for the project, issuance of the Certificate of Completion and Compliance (for completed projects), the quit rent and assessment have been duly paid to the land authorities and local council, respectively. Not all loan processes are standard as development projects may have different schemes as a leaseback arrangement or guaranteed income scheme in which a lawyer would also need to advise a financier on the terms of the scheme and its impact on the financier’s interest in the property.
5. Additional procedures
Then, there are the procedures to witness the instruments; endorsement; affirmation of the Statutory Declaration; stamping process; registration and extraction thereof.
The Letter of Advice for release of loan which is issued by a lawyer to the bank is not a mere one-pager; it usually runs into pages and pages (some nearly 9 pages) of confirmation of facts, information and certain actions that have been taken such as lodgment of caveats to protect a bank’s interests, explanation on the land conditions, applicable public policy for special housing schemes, compliance by the relevant parties to the conditions set in the bank’s letter of offer, the loan and security documentation have been properly executed, affirmed, stamped and registered, where required.
Once the drawdown requirements are satisfied, the bank lawyers then advise the bank to release part of the loan sum to the master charge (bridging financiers) for redemption purposes and thereafter to the developer’s Housing Development (Project) Account when the developer issues its progress claims to the end-financier and home buyer. The letter of advice may be uploaded onto a bank’s portal or printed in hard copies. The letter from the lawyer, entrusted with the housing loan, usually contains a professional undertaking from the lawyer to the bank to make good on any loss or damage suffered by a financier for any negligence, error, omission, or mistakes.
It is not such a simple and straightforward process as perceived. The end to end conveyancing process list is non-exhaustive.
Keep in mind that legal fees are also discounted
We do acknowledge that the amount of work that has to be done should be, and is, taken into account in the scaled legal fees. The legal fees are calculated based on a percentage of the buying price of the property or housing loan sum, which can be anywhere from 0.5% to 1%:
|Price of Property/ Loan sum||Legal fees Percentage|
|RM500,001 – RM1,000,000||0.8%|
|RM1,000,001 – RM3,000,000||0.7%|
|RM3,000,001 – RM5,000,000||0.6%|
|RM5,000,001 and above||0.5%|
However, in a case where the purchase transaction is governed by the Housing Development (Control & Licensing) Act, 1966 (HDA transaction), or where a loan is obtained to finance an HDA transaction – a permitted lower scale of fees will apply, ranging from 25% to 35% discounts. This is based on the Solicitors’ Remuneration Order 2005, which was gazetted on 2.3.2017 and come into operation on 15.3.2017:
|Price of Property/ Loan sum||Statutory Discount under HDA transaction|
|Below RM100,000 (but above RM50,000)||25%|
|RM500,000 or below (but above RM100,000)||30%|
|RM500,000 and above||35%|
Such discounted legal fees are certainly to the benefit of purchasers. Regardless that the said SPA is in statutory form, *professional insurance still has to be purchased by lawyers to cover all circumstances. To our mind, the scaled fees work better for the lower-income group. Without the scaled fees, lawyers will likely charge more for lower-end properties because the amount of work involved is often the same as for higher-end properties.
In the case of the purchase of a low-cost house, it entails having to apply for the formal consent of the state authorities, land office and sometimes the local council. This is on top of having to recite the status of the property in the SPA contract – which results in more tedious work than a higher-end freehold property. With the compulsory discount, HBA does not think house purchasers for low and medium-cost houses are being overcharged.
It is quite clear that professional legal services are required in conveyancing. The task entails voluminous work and only a ‘hands on’ legal practitioner aka lawyer would understand the intricacies of the processes. Of course, academicians understand the peripheral procedures but they are not practising per se and are merely lecturing the ideal. What more a nescient layperson who doesn’t have full knowledge of the legal intricacies, process, obligations and possible liabilities.
This article is written by Datuk Chang Kim Loong, the Hon Sec-Gen of the National House Buyers Association (HBA) and edited by HBA volunteer lawyers. HBA could be contacted at [email protected] or 012 3345676.
*Professional Indemnity: To enable lawyers to practice in the legal arena, one must be registered with the Bar Council, Malaysia and issued a ‘Practicing Certificate (PC) as an ‘Advocate & Solicitor’. For the PC to be issued, there is a strict list for compliance, one of which is the insurance coverage for professional indemnity.
Disclaimer: This article is intended to offer an insight into the works of the conveyancing processes vis-à-vis sale and purchase and housing loan transactions. If in doubt, please seek out your own independent legal advice.