Navigating the final stages of an apartment sale

Completing our apartment sale marks the end of a lengthy and intricate process. It had been a long nine-month journey from when we received the offer letter to the completion of the sale. My previous article covered the initial phase of the sale, where I discussed the timing of agency fee payments and the penalties sellers and buyers may face. You can find the link to that article at the end. In today’s article, I will focus on the final stages of the sale and highlight key aspects to watch for.

For those unfamiliar with the complexities of the sale process, it’s easy to overlook how specific terms in the sale and purchase agreement (SPA) can significantly impact the process. In Malaysia, there isn’t a standard sale and purchase agreement for sub-sale properties; it is up to the seller and buyer to negotiate the terms following a general framework. Depending on which party holds more negotiating power, some terms may vary in favour of that party, potentially disadvantaging the other. If you are in a weaker position, ask your legal counsel to identify the key clauses that could harm you and those that could offer protection if complications arise. If you are engaging an agent, they play an integral part, especially at the beginning and end.

We had a cash buyer from overseas. The property is a freehold apartment in a mixed development with a tenant in place.

Offer letter and sale and purchase agreement

We needed to amend the offer letter and obtain countersignatures from the buyer. I suggest obtaining a sample offer letter from your agent and discussing any necessary changes in advance.

Although the offer letter states that both parties had to sign the sale and purchase agreement within one month of the date of acceptance of the offer letter, it took two months to finalise the agreement. We went through seven drafts of the agreement. The final version was delayed overseas for nearly three weeks due to a lockdown in that country.

It’s important to sit down with your lawyer to discuss the first draft and have them highlight the key parts. We missed this step, and I had to review the sale and purchase agreement myself, sending my inquiries to my lawyer, who would then call to discuss them with me. The agreement was 16 pages long and was difficult to understand, as some clauses were tied to others.

One of the amendments to the offer letter included a condition requiring us to ensure the property, upon legal possession, would be in the same condition as it was at the inspection date, except for normal wear and tear. Later, the same clause entered the sale and purchase agreement. I had to reject it both times as a tenant occupied the property, and we could not control damages, if any, caused by the tenant. As the tenancy agreement outlines, the landlord can deduct from the rental deposit to cover damages.

Towards the end, I realised I had missed out on one essential aspect of the sale and purchase agreement. Thankfully, my lawyer included a safety clause to avoid prolonged delays in releasing the purchase price balance to us. I will cover more on this later.

Cash buyers Vs loan buyers

The procedures for transactions involving cash buyers and those requiring a loan are different. For cash buyers, the buyer’s lawyer must transfer the purchase price balance to the lawyer’s client’s account representing the seller before the seller’s lawyer can forward the title to the buyer’s lawyer to register the title in the buyer’s name at the land office. For buyers using a loan, the bank usually requires the property’s title to be transferred to the buyer’s name first so that they can charge the title to secure their interest in the property. After that, the bank will disburse the loan to complete the transaction.

Legal possession before title registration

Do note that once the seller’s lawyer receives the remaining balance of the purchase price, the countdown begins for legal or vacant possession. This point is significant if you have a cash buyer because they can legally possess the property while waiting for the title to be registered in their name. Ensure your sale and purchase agreement includes clauses that allow the release of the purchase price balance to your account so that you don’t have to wait until the title registration is complete. Delays can occur, and the registration may take longer than expected. Keep in mind that they have taken possession of the property, and you may still be waiting for your payment.

In our case, the buyer took legal possession eight working days after the balance of the purchase price was forwarded to our lawyer. The apportionment of expenses and rental was based on the date of legal possession rather than the date the title was registered in the buyer’s name. After the legal possession date, the tenant began paying future rental income to the new owner.

Safety clause for purchase price balance

The safety clause in our agreement allows our lawyer to release the purchase price balance to us if legal possession had occurred and 14 working days had expired from the date the buyer’s lawyer received the title from our lawyer, and if the land office does not require further documents from us. After the 14 working days expired and the title registration was not completed, our lawyer invoked the clause, and we received our money.

Failure to complete transfer

On a side note, if your sale and purchase agreement has a failure to complete transfer clause or if the title cannot be registered in the buyer’s name at the land office, pay attention to the wording and discuss any uncertainties with your lawyer. The sale could be terminated. Ask your lawyer about the conditions that could lead to a full refund and when you may forfeit the 10% deposit paid upon signing the sale and purchase agreement.

Handover process

Let’s revisit the legal possession date, and I’ll guide you through the handover process.

Apportionment of expenses

About a week before the scheduled date, lawyers for both parties prepared the apportionment of expenses, which included quit rent, assessment rate, sewerage charge, maintenance charge, sinking fund and rental income. They calculated the expenses and rental portion for the buyer as of the legal possession date. After offsetting the apportioned expenses from the rental income, we paid the balance to the buyer.

Transfer of rental and utility deposits

We transferred the rental and utility deposits to the buyer while the buyer’s agent processed the name change of the utility bills and expenses Ensure that the tenant pays you promptly for the bills before the cut-off date because, after that date, you no longer have the utility deposit as security for non-payment of bills that fall under the tenant’s responsibilities. The situation will depend on the level of trust between you and the tenant. If you have a reliable tenant, this shouldn’t be an issue. We informed the new owner’s agent that we would pass all bills to them during the name change period for their management.

Letter of attornment and acknowledgement

The tenant had to sign the letter of attornment and acknowledgement of the assignment of tenancy. These letters serve to formally inform the tenant of the sale, confirm their agreement to be the new owner’s tenant, and pay rent to them.

Legal possession day

On that day, the agents and I met with the tenant to sign the attornment and acknowledgement letters. We had planned to do this a few days earlier, but the tenant was unavailable. I explained to the tenant that from that day forward, we would no longer be their landlord; the new owner would be responsible for observing the terms and conditions of the tenancy, including the landlord’s liabilities. The agents and I worked closely to tie up the loose ends, ensuring a smooth transition for the tenant and new owner.

Selling a property can be complex, but understanding the sale and purchase agreement and its relation to the process is essential for mitigating risks. Clear communication with your lawyer and agent, addressing concerns early and including safeguards can protect your interests, making the process less daunting.

Read my previous article: https://marylau.my/property-sales-agency-fees-and-penalties-key-moments-to-know/