Real Estate Practice (PDF)

00:01 This lecture relates to the sale process of a private residential property, which is an apartment in a condominium with separate legal title issued to it. We call it the property that is owned by a single registered proprietor. We call him the vendor that is leased to tenant, mortgage to a ba...

00:01 This lecture relates to the sale process of a private residential property, which is an apartment in a condominium with separate legal title issued to it. We call it the property that is owned by a single registered proprietor. We call him the vendor that is leased to tenant, mortgage to a bank and charged to the CBF board. 00:23 In this lecture, we shall be focusing on the sale process of a private residential property, an apartment in a condominium with a separate legal title issued to it. We call it the property. Now the property is owned by a single registered proprietor. We call him the vendor. 00:46 The property is leased to a tenant, mortgaged to a bank and charged to the CVF board. 00:56 Deciding the sale price. What are the factors that the vendor should consider before deciding on the sale price of the property? Firstly, the amount he owes the bank in respect of the mortgage loan, including whether he\'s liable to additional charges because he\'s repaying the mortgage loan within a period that attracts a penalty. The industry calls it the lock-in period. 01:26 the amount of monies that he withdrew from his CPF account to finance the purchase of the property that is required to be refunded to his CPF account, including accrued interest, that is, interest that the monies would have earned had it not been withdrawn. Thirdly, whether he sold the property within a prescribed period from the date of his purchase that attracts liability to pay seller\'s stamp duty to the Inland Revenue. 01:55 Fourthly, the legal fees to his solicitors and the commission to his real estate agent if he engages one to be incurred. 02:06 Now, what happens when the vendor discovers that the total sale proceeds is insufficient to repay the bank and refund the monies into the CPF account in full? Well, it depends on whether the bank or the CPF board has the first charge on the property. Now, rules introduced in 2002 by the CPF board for home financing using CPF funds. 02:33 Banks are given first charge and the CPF board second charge for properties bought on or after 1st September 2002. This means that if the property is sold by the vendor, the bank has the first claim to the sale proceeds. The CPF board is paid if there is any money left over. The vendor could lose part or all his CPF monies that he invested in the property if the sale proceeds are insufficient. 03:03 However, the bank can only claim from the sale proceeds the monies owing on the home loan and interest, but not penalty charges. Further, the CPF Board requires the following before legal completion. One, valuation report on the property to confirm that sale price is at or above valuation. Two, copies of the bank\'s initial and final redemption statements. 03:31 to ascertain whether there are any penalty charges. Three, confirmation from the vendor that he is not a relative of the purchaser. 03:43 Let\'s look at an example of what happens when the sale proceeds are insufficient to repay the mortgage loan and refund the monies into the vendor\'s CPF account in full when the bank has first charge. The facts. The sale price \$1 million. The amount owing to the bank is \$606,000, of which \$600,000 is the amount owing on the home loan. 04:11 and \$6,000 is the penalty charges for redeeming within the lock-in period. The amount required to be refunded to the vendor account, the vendor CPF account, is \$500,000. 04:26 Now, on legal completion, the sale proceeds of \$1 million will be utilized as follows. \$600,000 to repay the bank, \$400,000 to refund to the vendor\'s CPF account, and there is now a shortfall of \$6,000 due to the bank, of which the vendor will have to produce in order to complete the sale. Now, you\'ll obviously note that the vendor has effectively 04:55 of his CPF monies. Now don\'t forget the vendor still needs additional funds to pay the seller stamp duty if required and for the services of his solicitors and the real estate agent. So what if the situation is reversed? That is the CPF board having the first charge. Then on legal completion, the sale of proceeds of \$1 million will be utilized as follows. 05:23 \$500,000 to refund the vendor of CPF account first. \$500,000 to repay the bank. Now there\'s a substantial shortfall of \$106,000 due to the bank, which the vendor will have to produce to complete the sale. Likewise, not forgetting the additional cost of seller stamp duty if required and the services of his solicitor and real estate agent. However, do note if the vendor is unable to produce this hefty sum. 05:53 He can, prior to concluding the contract or having concluded, then prior to legal completion, quickly apply to the CPF board and the bank to reverse the charge. That is, changing the CPF board charge to second and the bank to first charge. This, of course, will incur additional legal fees on top of the cost of the sale transaction. 06:20 Next, how to find your purchaser? Well, the vendor could search the purchaser himself or engage the services of a real estate agent to assist him. In the majority of cases, the sale is handled by a real estate agent, as most people do not have the luxury of time or the patience to deal with the many potential purchases that come knocking at their door. So. 06:47 Who prepares the contract for sale and purchase? Well, it\'s usually the vendor. Now the vendor could engage a solicitor to negotiate with the purchaser directly or with his solicitor, if he has engaged one, and prepare the contract. Or when the vendor engages a real estate agent to sell his property, the real estate agent comes complete with the company\'s standard printed form of contract. However, the vendor should proceed with caution as 07:17 The standard print form of contract may contain terms and conditions which are unfavorable to the vendor. 07:26 Now, what are the types of contracts? We have basically two types. The first type is an option to purchase. How does it work? Well, on the payment of 1% of the sale price by the purchaser to the vendor, we call this the option fee. Now the vendor signs and grants an option to purchase to the purchaser. And now the purchaser can think about things. If he wishes to proceed 07:55 He must sign on the acceptance copy that is attached to the option to purchase and deliver it together with the deposit, which is usually 5% of the sale price, less the option fee to the vendor solicitors before an expiry date. We call this the option period. The option period is usually 14 days. 08:19 Now, if the purchaser elects not to proceed with the purchase of the property, he merely allows the option to purchase to lapse, walks away from the transaction, there is no breach of contract and the purchaser is not liable to compensate the vendor. The purchaser\'s only loss is the option moneys, which the vendor is entitled to forfeit. Thereafter, the vendor is entitled to resell the property. 08:47 However, do note option fees could be more than 1% of the sale price. Option periods could be more than 14 days if the vendor and purchaser agree otherwise. However, do note the longer the option period, the longer the vendor has to wait to a certain whether the purchaser will eventually exercise option to purchase or not. 09:10 Type 2, Sale and Purchase Agreement. Well, how does this work? If the vendor wishes to ensure that the purchaser does not have the opportunity to walk away from the transaction, the vendor should not provide an option to purchase to the purchaser. Instead, the vendor should enter into a sale and purchase agreement with the purchaser. Once both the vendor and the purchaser signs on the sale and purchase agreement, the vendor is\... 09:40 bound to sell and the purchaser is bound to purchase the property. A deposit is paid by the purchaser to the vendor on the signing of the sale and purchase agreement. And if the purchaser decides not to proceed with the purchase after signing, the purchaser will be in breach of contract and will have to compensate the vendor. Next, what should be stinted in the contract for the sale and purchase of the property? Well, 10:09 As far as the vendor is concerned, less is always better. The least of the requirements we\'re going to go through are one, description of the property. The full addressed is sufficient. There is no requirement to state the lot area. Two, the sale price. Please state the currency as Singapore dollars. Three, whether the deposit paid by the purchaser 10:37 is to be released directly to the vendor or to be held by the vendor solicitors as stakeholders pending legal completion. Now if it is to be held by the stakeholders, then it must be stated that the monies are to be deposited either in the vendor solicitor\'s conveyancing account or into the Singapore Academy of Law\'s Conveyancing Money Service account. 11:01 4\. The sale and purchase is subject to law society\'s condition of sale. So, condition 5.1 which reads as follows. I\'ll just read it out for you. On completion, the vendor must deliver the property in the same state and condition that it was at, at the date of the option or the date of a contract, whichever is earlier, save for fair wear and tear unless otherwise agreed by the parties. 11:31 This clause, what does it do? You see, if, for example, after concluding the contract, but before completion, all the tiles of the floor of the property suddenly pop up through no fault of anyone, and it cannot be proven that it was due to fair wear and tear. If condition 5.1 is excluded, the vendor need not repair. He goes off scot-free, right? Condition 10.1. 12:01 The vendor represents and warrants to the purchaser that the vendor has not carried out any unauthorized additions, alterations to a property. Hey, this is quite dangerous because it\'s quite possible that the vendor may innocently be unaware that there are unauthorized additions or alterations made to the property, as the vendor often, more often than not, relies on contractors\' assertions that they have 12:29 without citing official documents. Now, if this condition is excluded and the purchaser discovers any unauthorized additions or alterations, the vendor need not bear the cost of removing it nor to apply for their removal. Good to exclude. Condition 13b, which reads as 12:58 or the purchaser taking possession of property, whichever is earlier. Likewise, this is something like you\'re popping up of tiles. But let\'s say the real unfortunate thing. The property is burned to the ground through no fault of the vendor after the contract is concluded, but prior to completion. Now, if this cost is excluded, the purchaser will still have to complete the purchase. The vendor doesn\'t need to build back the house 13:28 at all at its cost. So, it\'s very important that we do this so the vendor will not incur any unwanted financial obligations which is sometimes unforeseen. 5. As the property is tenanted, we should have a clause that says the sale is subject to tenancy, so that the tenancy will be transferred to the new owner. However, it may be prudent for the vendor to include a provisio. 13:56 In the event the tenancy is prematurely terminated by the tenant through no fault of the vendor. For example, the tenant just suddenly abandons the place and the sale of the property will instead be sold with vacant possession to be delivered by the vendor to the purchaser on legal completion. This may save the vendor from having the trouble of procuring another tenant and incurring additional cost real estate agent commission fees. So, 14:25 we should have this in. 7. It\'s usual for us to include a clause that is subject to the purchaser receiving satisfactory legal requisition replies and if any of these replies received by the purchasers is unsatisfactory then the purchaser are able to rescind the contract. 8. The property is sold on an as-is-where-is basis which is a good clause to have and the purchaser shall be deemed 14:55 to have full notice of the actual state and condition of the property with regards to access, repair, state of condition, light and in other respects. And the purchaser shall not be entitled to raise any objection or requisition whatsoever in strike. Therefore, this condition caters to the situation of the tiles popping up which we have previously mentioned. 9. To include a condition to negate any representations, warranties, promises, or conditions. 15:24 made orally by the vendors or purchasers, it should read as follows. This option to purchase, or sale and purchase agreement, whatever the case may be, which supersedes and cancels in all respects all previous representations, warranties, agreements and undertaking, whether such be written or oral, made between the vendor and purchaser with respect to the property, embodies the entire 15:53 agreed upon between the vendor and the purchaser as to the subject matter of this option to purchase, and there are no promises, terms, conditions, obligations, oral, written, express or implied other than those contained herein. This is very useful. Next, we discuss a very common clause called the non-merger clause, or we call it non-merger condition, which is not favorable to 16:23 Now the non-merger condition reads as follows. Notwithstanding the completion of the sale and purchase of the property, the terms and conditions of this contract shall remain in full force and effect in so far as the same are not fulfilled and shall not merge in the assurance of the property to the purchaser and upon the registration of such assurance. Why is this condition adverse to the vendor? I\'ll give you a real extreme example. 16:54 If the building construction authority in their legal rescue reply to the purchaser prior to legal completion, stating that there are no fines relating to a property for unauthorized alterations additions. However, after legal completion, the BCA sends a follow-up letter to the purchaser solicitors to inform them that there was an error in their reply and corrected it by saying in fact there was an outstanding \$50,000 fine. 17:22 for unauthorized alterations made to the property. Now if the non-merger clause was excluded from the contract, the vendor is not liable to pay this amount after completion. Big difference. So be careful of this clause. So, having concluded the contract, what is the position of our vendor? Well, once this is concluded, the vendor is now a trustee of the property. 17:52 to consult the purchaser regarding the property. For example, if the property is comprised in a condominium, which is subject to a proposed on-block sale prior to legal completion, and the vendor received notice of an extraordinary general meeting with the view to obtaining a vote as to whether to proceed with the proposed on-block sale, the vendor must consult the purchaser as to whether the purchaser wishes to vote for or against the proposed on-block sale. 18:22 and vote according to the purchaser\'s wishes. We now move on to the process of how the sale transaction is completed, after the contract is concluded. So, in the sale transaction, what capacities are involved and what are the number of solicitors required? We consider the capacities first. 1. Acting for the vendor to deal with the purchaser\'s solicitors. 2. 18:50 in repaying his outstanding mortgage loan, obtaining the document to discharge the mortgage on the property. 3. Acting for the vendor to deal with the CPF board solicitors in refunding the monies to the CPF account and obtaining the document to discharge the CPF charge on the property. 4. Acting for the bank in dealing with the vendor solicitors to receive the monies to repay the outstanding mortgage loan and delivering the discharge document. And lastly, 5. 19:20 acting for the CPF board to deal with the vendor solicitors to receive the monies to refund into the vendor CPF account and delivering the discharge document. So from these five capacities, the number of solicitors involved could be just one. One solicitor acting for the vendor, the bank and CPF board. Everybody. Two, a solicitor acting for the vendor and bank alone, but another solicitor acting for the CPF board. 19:50 or three, which is one for the vendor, one for the bank, and yet another for the CPF board. For the purpose of this lecture, we\'ll be taking the position that there are three solicitors acting in this sale transaction. One for each vendor, bank and CPF board respectively. So you can see the function of each capacity separately. So we begin with the vendor solicitors. What is he to do? One. 20:19 He has to serve the notices of redemption to both the bank and the CPF board. Two, obtain the following from the vendor. A check for the seller stamp duty if required, delivered to the IRS within 14 days of concluding the contract and obtaining the stamp duty cert. Copies of the current property tax bill and maintenance invoice. Copy of the tenancy agreement together with a stamp duty certificate. Three, conducting a title search. 20:49 on the property and a bankruptcy search on the vendor just to ensure things are in order and we don\'t get any surprises. 4. To prepare the draft Digital Total Discharge of ModGage TDM and the draft Digital Application to Notify Total Discharge of CPF Charge, ANDC, for approval by the bank solicitors and CPF 21:17 and digital ANDC to the bank solicitors and the CPF board solicitors for them to procure execution of the documents. 5. To obtain the title deed from the bank solicitors on undertaking to return it to the bank without demand if the sale is aborted. 6. Forwarding the title deed to the purchaser solicitors for inspection on the purchaser solicitors undertaking to return it as well without demand. 21:45 if the sale is aborted. 7. Receiving the draft transfers from the purchaser solicitors, approving the same and obtaining the engross transfer from them. 7. To receive draft transfer from the purchaser solicitor, approve draft, then receive engross transfer for vendors execution. 8. To prepare the documents listed on this slide. 22:15 9\. Obtaining the initial redemption statement from the bank solicitor and the final redemption statement from the CPF board solicitors. 10. Preparing the completion account and mode of payment and forwarding to the purchaser solicitors before legal completion. 11. Attending to the vendor to 1. Witness the vendor\'s execution of all those documents mentioned 22:42 Transfer IRA seller stamp duty declaration form, letter of confirmation and letter of authority. Obtaining the original tenancy agreement and stamp duty cert, any spare keys, access cards relating to the property. Explaining the completion account to the vendor. Informing him of the amount of sale proceeds due to him on completion. 23:05 12\. Preparing all documents required for and to attend completion. 13. After completion, delivering the cashier\'s orders for the sale proceeds to the vendor, e-filing the notice of transfer to the inland revenue to inform them of the change of ownership and sending a letter to the tenant to inform him of the change of ownership. For the management corporation, the purchasers will be sending the notice of change of ownership. 23:34 upon receiving information that the TDM and ANDC have been registered to inform the banks and the CPF board solicitors accordingly. Next, the bank solicitors. What is he to do? One, obtaining the TDM from the vendor solicitor. Two, forwarding the TDM to the bank for execution. Three, obtaining the initial and final redemption statements from the bank and forwarding it to the vendor solicitors. 24:04 for obtaining the title deed if not electronic and forwarding to the vendor solicitors. 24:13 5\. Preparing all documents required for and to attend completion. 6. After completion, to obtain the cashier\'s orders for the redemption monies and delivering it to the bank before usually 10 am the next working day. 7. Obtaining the final notice of registration of the TDM from the vendor solicitors and informing the bank. Now, the CPF board solicitors. What is he to do? 24:43 1\. Obtaining the ANDC from the vendor solicitor. 2. Digitally signing the ANDC on behalf of the CPF board. 3. Obtaining the redemption statement from the CPF board and forwarding it to the vendor solicitor. 25:02 4\. Preparing all the documents required for and to attend completion. 5. Obtaining the cashers orders for the monies to be refunded to the vendor\'s CPF account and delivering it to the CPF board by the close of the next business day. 6. Obtaining the final registration particulars of the ANDC from the vendor solicitors and informing the CPF board. B24 REP - Lecture 4 Sale of residential property - Vendor registered proprietor Amount payable to the bank CPF monies to be refunded Seller Stamp duty Other fees What if the sale proceeds are **[not enough]** to repay the bank and CPF Board? - CPF **[requirements]** for legal completion - How to secure a purchaser Who prepares the contract for sale? - Types of Contract - **[1. Option to purchase (For resale property)]** - **[Sailent options:]** 1) Property address check against title search confirm with clients 2) Price take clients\' instructions 3) Vendors\' particulars check against title search and also particulars against client's NRICs 4) To confirm with clients who are the purchasers 5) Payment Structure (i) Payment of 1% purchase price on issuance of Option (ii)Payment of balance 5% purchase price (less Option Fee) on exercise of Option -(iii)Payment of balance 95% purchase price (subject to adjustments for apportionment etc.) on completion - **[Importance of stake-holding of Option Exercise Monies]** In the event the purchase is not completed due to seller\'s default, the monies will be easier to refunded to the buyer **[Stakeholding Clause (Paid to the Lawyer\'s stakeholding account)]** From a purchaser\'s perspective, it is generally considered preferable to have the deposit held as stakeholders on the basis that if the purchase does not complete due to the vendor\'s default, it may be easier to obtain a refund of the deposit (where such refund is due). From the vendor\'s perspective, the vendor would prefer to have the deposit paid to him directly. If the purchaser is prepared to consider non-stakeholding of deposit, the purchaser\'s solicitor may wish to consider whether there are encumbrances on the property or whether the vendor can show that the balance purchase price is more than sufficient to discharge the encumbrances. Ultimately, whether there is stakeholding depends on the terms of the contract between the parties and is a commercial decision to be taken by them. **[Property is sold subject to Tenancy.]** As purchaser\'s solicitors, we should review tenancy agreement, especially on rent, security deposit, option to renew, to see whether there is any restriction on assignment by landlord and any right of first refusal in favour of the tenant to buy the property. **[How will the option be exercised?]** by: - Delivering (by hand) the Option to Purchase with Acceptance - Copy signed by the purchaser to the vendor\'s solicitors; and - Payment of balance deposit \*If cheque bounced, then it is considered late acceptance **[Legal requisitions (For the Government Authorities to respond)]** Legal Requisitions Take clients\' instructions on unsatisfactory replies and where the road line plan shows a road line or reserve, one should request the seller\'s lawyers for the developer\'s architect's confirmation that the affected area has been incorporated into the approved development plans or that the affected area does not cut into the building line of the property and sending replies and plans to valuers for confirmation that the valuation is not affected or that the affected area does not cut into the building line of the property. For road line plan, besides looking out for road reserve, we should also check that the property is not landlocked. Normally, banks require legal requisitions to be conducted no more than 6 months before completion. **[Completion timeline]** - Time for legal requisitions - Financing arrangements - Seller\'s usual redemption notice period of 2 months /3 months for some older mortgages **[Payment of Commission]** On completion, the balance sale price is not paid to the vendors solely but the mode of payment would include the vendors\' mortgagee, charge, agent (for commission) and solicitor (for fees). Notwithstanding such clause, pursuant to the Conveyancing and Law of Property (Conveyancing) Rules, the purchaser\'s solicitors are still obliged to check the mode of payment. Look at what Categories A, B and C payees are on your own and the importance of letter of authority for partial payment of sale proceeds for Category C payees. **[Compulsory acquisition]** In the event there is any compulsory acquisition (by the government), the Purchaser may rescind the contract. What is the timeline for payment of stamp duty? What is the importance of lodgement of caveats? - **[What is the timeline for lodgement of caveats?]** caveat has to be launched by the purchaser solicitor when the purchaser exercises the option or when the agreement is signed - **[2. Sale and Purchase Agreement (for uncompleted properties)]** - Payment due to the developer must be made within 14 days, failing which, late payment interest. **[When is stamp duty payable?]** Within 14 days of the date of the Sale and Purchase Agreement -- the Developer's lawyers will date the SPA after the Developer has signed the SPA. Thereafter, the Developer's lawyers will inform the Purchaser's lawyers of the date of the SPA. **[Progress payments to the Developer]** are typically made into a Project Account instead of directly to the Developer. Purchase repudiates the SPA if refuses to pay. Vendor forfeits the instalments paid and can repossess the house to resell. **[Defects Liability Period]** is 12 months, but covers only defects Developer is obliged to rectify. Mortgage documents - Completed properties 1) Mortgage 2) Assignment of Rental Proceeds (Sometimes required) Uncompleted properties 1) Deed of Assignment (of the Mortgagor's rights under the SPA) 2) Mortgage-in-escrow Property tax needs to be proportioned between the purchaser and vendor - Terms of the Contract - 3\. Deposit - **[4. LSCS 2020]** - Condition 5.1 - Condition 10.1 - 5\. Sale is subject to tenancy - 6\. Sale includes items in inventory list - 7\. Satisfactory replies to Legal Requisitions - 8\. Sold on \"as is where is\" basis - 9\. Condition to negate any oral representations, warranties, promises made by V - Non-merger clause - Capacities and the number of solicitors - Duties of Vendor\'s solicitors - Duty of CPF Board\'s solicitors