By Datuk Chang Kim Loong
In this second part of the article, we discuss what a conveyancing lawyer does to protect the parties involved.
DO you know that under the National Land Code, the designated persons to witness the signatures in all dealing instruments including a Memorandum of Transfer (MOT) are an advocate and solicitor (aka lawyer) and a host of others permitted by legislation?
The housing loan documentation is a tedious and complex process, with every bank having its own requirements and processes. All parties involved in the transaction have to issue their respective confirmation and undertaking, be it the SPA lawyer, housing loan lawyer, the property developer and the bank financier.
Hence the time required for disbursement of the loan would be about three months, depending on its complexity.
The following is a checklist that conveyancing lawyers have to undertake in dealing with the purchaser’s bank or financier:
- Searches to ascertain that the land information as contained in the SPA is correct and to confirm the presence of any encumbrances, restrictions or prohibitions on the land in which the buildings are erected, and may prejudice a financier’s interest in the borrower’s housing unit or parcel.
- Searches on the developer, vendor (for sub-sale), purchaser or borrower to establish their solvency. If the purchaser/borrower is a company, there are additional checks such as reviewing the board of directors’ resolutions and the corporate documents.
- For properties still under a master title, the end-financier lawyer must obtain letters of undertaking from the developer to assure the financier that the developer will effect the transfer of the property to the purchaser once the strata title is issued.
The financier lawyer will write to the purchaser’s lawyer to seek an undertaking to attend to the transfer once the strata title is issued. The responses and documents requested are then subsequently reviewed to ensure the contents comply with the financier’s requirement and, if need be, the financier lawyer will seek further information or clarification from the developer.
If the master titles are charged to a financial institution (bridging financier), the end-financier lawyer will have to request a redemption statement and a Letter of Disclaimer, whereby the master charge agrees not to foreclose the purchaser/borrower’s unit or parcel so long as the redemption sum is paid.
The above does not include other checking such as sighting of the developer’s licence, approvals for the project, issuance of the Certificate of Completion and Compliance (for completed projects), payment of quit rent and assessment to the local authorities.
Not all loan processes are standard because development projects may have a leaseback arrangement or guaranteed income scheme. The lawyer would then have to advise a financier on the terms of the scheme and its impact on the financier’s interest in the property.
In addition, there are procedures to witness the instruments, endorsement, affirmation of the Statutory Declaration (SD), stamping process and registration.
The Letter of Advice for release of the loan which is issued by a law firm to the financier usually runs over several pages (some nearly nine) of, among others, confirmation of facts, information and actions that have been taken such as lodgment of caveats to protect a financier’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 financier’s letter of offer and the affirmed loan and security documentation.
Once the requirements are satisfied, the lawyer then advises the financier to release part of the loan to the master charge (bridging financier) for redemption purposes and then to the developer’s project account when the developer issues its progress claims.
The letter of advice may be uploaded onto a financier’s portal or printed. The letter from the law firm entrusted with the housing loan usually contains a professional undertaking to make good on any loss or damage suffered by a financier for negligence, error, omission or mistakes.
Discounted legal fees
We acknowledge that the amount of work that has to be done should be taken into account in the scaled fees. However, in a case where the purchase transaction is governed by the Housing Development (Control & Licensing) Act or where a loan is obtained to finance a HDA transaction, a permitted lower scale of fees will apply, with 25% to 35% discounts (Table 2) based on the Solicitors’ Remuneration Order 2023 (SRO 2023) which came into force on March 15, 2023.
The legal fees are calculated based on a percentage of the buying price of the property or housing loan sum, which can be from 0.5% to 1% (see table):
|Consideration / Loan Value
|Scale of fees for SPA and Loan Agreement
|1.25% (subject to minimum of RM500)
|For the next RM500,000
|For the next RM2,000,000
|For the next RM2,000,000
|For the next RM2,500,000
|For the next RM7,000,000
|Where the consideration / loan sum is in excess of RM7,500,000
|Subject to negotiation on the excess but shall not exceed 1% of such excess
Discount eligible for SPA / Loan Agreement under the Housing Development (Control & Licensing) Act (‘HDA’)
|RM500, if consideration / loan is RM50,000 or below
75% of the applicable fee
if consideration / loan is more than RM50,000 but less than RM250,000
|70% of the applicable fee if consideration / loan is more than RM250,000 but less than RM500,000
|65% of the applicable fee if consideration / loan is more than RM500,000 but less than RM1,000,000
|50% of the applicable fee if consideration / loan is more than RM1,000,000
The discounted legal fees benefit purchasers. Regardless of the SPA, professional insurance will still have to be purchased by lawyers to cover all circumstances.
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 higher-end properties.
In the case of a low-cost house, it entails applying for formal consent from the state authorities, land office and sometimes the local council on top of having to recite the status of the property in the SPA contract.
With the compulsory discount, I do not think that buyers for low and medium-cost units are overcharged. Conveyancing entails voluminous work and only a hands-on legal practitioner will understand the intricacies of the processes.
Of course, academicians understand the peripheral procedures but they are not practising professionals. What more Joe Public who does not have full knowledge of the legal intricacies, obligations and possible liabilities?