REP 3 - Contracts for Sale of Property PDF

00:00 Welcome. This lecture is about preparing and concluding contracts. 00:08 The objectives of this lecture are to explain how contracts are concluded, briefly inform you what the major terms of every contract are, introduce the law society\'s conditions of sale, compute stamp duty on a contrac...

00:00 Welcome. This lecture is about preparing and concluding contracts. 00:08 The objectives of this lecture are to explain how contracts are concluded, briefly inform you what the major terms of every contract are, introduce the law society\'s conditions of sale, compute stamp duty on a contract, ascertain when withholding tax and GST apply, and explain to you when and why a caveat should be lodged. 00:36 There are many ways as to how a contract may be concluded. It may be by way of an option to purchase, a sale and purchase agreement, an exchange of correspondence, or by prescribed agreements under the Housing Developers Control and Licensing Act, the Sale of Commercial Properties Act, by way of a tender. It may be also by way of a public auction, or a put-in-call option agreement. 01:06 or by oral contracts evidenced by a memorandum in writing. For the purposes of this segment, we will elaborate on the first two ways. That\'s option to purchase and sale and purchase agreement. For an option to purchase, in the ideal world, the vendor solicitor prepares a draft. He then sends it to the purchaser solicitor who reviews it and amends the draft if needed. 01:36 At this stage, both parties negotiate the terms. When the terms are settled, the vendor signs the option and the purchaser hands over the 1% option fee to the vendor in exchange for the signed option. Now the purchaser is given two weeks to exercise the option by signing the acceptance copy and paying the 4% to the vendor or to the vendor solicitor\'s conveyancing account if the property is mortgaged. 02:06 Now, if the purchaser chooses not to exercise the option within the two week period, the vendor is entitled to retain the one percent option fee and he is free to put the property up for sale again. Today, it is all too common for readymade options to be prepared by housing agents in readiness at a viewing. If the price is agreed, the agent usually pressurizes the purchaser. 02:34 to part with a 1% option fee in exchange for the signed option. Now, the purchaser usually does so, being persuaded by the agent, because it\'s a standard form contract, and all the terms are usually found in most agreements. So both the vendor and the purchaser instruct their solicitors only after this exchange. So in such a case, having a ready-made contract may mean that there may be clauses unfavorable. 03:03 to the purchaser. Another way in which a contract may be concluded would be by way of a sale and purchase agreement. Here again the vendor solicitor prepares a draft. The purchaser solicitor reviews and amends the draft if needed and again the parties negotiate the terms. When the terms are settled, both the vendor and the purchaser sign the sale and purchase agreement. 03:31 Completion usually takes place within eight to 10 weeks after the option is exercised or the agreement is signed. On the day of the exercise of option, bankruptcy searches on the vendor, if the vendor is an individual, would be conducted. Now, if the vendor is a company, then company winding up in judicial management searches would be done on the vendor. A title search would also be done on the property. 04:00 Now, what are the major terms that can be found in every agreement? Besides stating the property and price, you will find such clauses in every contract. A clause on title. Now, you\'re not just buying the physical property, you are also buying title to the property. So it has to be properly deduced and free from encumbrances on completion. 04:26 Another major clause would be whether or not the property is sold with vacant possession or subject to tenancy. This is crucial because if your client were to buy the house with a view to owner occupying it, the property cannot be sold subject to tenancy. Another clause would be the property being sold on an as-is, where-is basis, where the purchaser buys the property. 04:53 with full notice as to the actual state and condition of the property regarding access, repair, drainage, area and all other respects. Another major term would be legal requisitions. Now, what are legal requisitions? These are questions sent to various government departments to ascertain whether or not there are any outstanding notices for the vendor to comply with. An example would be 05:23 Should property tax be left unpaid? Is the property affected by any MRT lines or road reserves? Options have been described in case law as a ready-made contract, with the purchaser being allowed to rescind only if replies to legal requisitions are unsatisfactory. So if you act for the purchaser, it is crucial to define very clearly. 05:51 What constitutes unsatisfactory replies? In every contract, you will find the law society\'s conditions of sale being incorporated. There\'s a set of conditions called the law society\'s conditions of sale, and these conditions are fair to both parties. What are some of the terms of the law society\'s conditions of sale? Now these concern briefly apportionment of outgoings. 06:20 property tax, levies and rent, interest for late completion, time being of the essence, and the procedure regarding service of notice to complete. Next, we come to stamp duty, because stamp duty is payable on the contract within 14 days from the exercise of the option or the date of the agreement. We\'ll also need to calculate the buyer stamp duty, or BSD for short. 06:50 Now displayed on this slide is the latest BSD rates as of 15 February 2023. Now, there is a separate segment on the topic of the additional buyer stamp duty and the seller stamp duty. Just a quick word about the seller stamp duty and the law society\'s conditions of sale. Interestingly enough, condition 7.4 of the 2020 conditions provide for the purchaser\'s lawyer 07:20 from the monies due to the seller, should the seller fail to pay stamp duty. So these amounts can be deducted and taken to be as payment of the purchase price that is due to the seller. Next, withholding tax. Now withholding tax applies to where the vendor is not a resident in Singapore for income tax purposes, but is assessed to be a property trader under section 10.1a. 07:50 of the Income Tax Act. Also refer to section 45D of the Income Tax Act for the liability of the purchaser solicitor to withhold tax in such situations. Goods and Services Tax, also known as GST. Now GST is chargeable on the sale or lease of commercial properties where the vendor is a taxable person. For more details, look for the second and fourth schedules. 08:19 of the GST Act. Let\'s take a look at condition 7.2 of the Law Society\'s conditions of sale, where the vendor is accountable for goods and services tax on the purchase price. The purchaser shall pay all goods and services tax, if any, is imposed by law and payable in respect of the sale of a property under the Goods and Services Act. 08:48 Now, finally, after the contract is signed, the purchaser solicitor needs to lodge a caveat. Now, why do you lodge a caveat? The caveat protects the purchaser by serving to notify third parties of the purchaser\'s interest, enabling the purchaser to be notified of subsequent dealings in the property. It prohibits registration of any other instrument claiming a conflicting interest. And finally, should there be conflicting claims? 09:18 early notification may give the purchaser priority. So, as mentioned before, the caveat has to be launched by the purchaser solicitor when the purchaser exercises the option or when the agreement is signed. Now, that is all for this segment. Thank you. B24 REP - Lecture 3 Preparation of contract and concluding contracts - How contracts are concluded - By option - Sale and Purchase agreement - Major terms of contract - Law Society's Conditions of Sale 2020 - **[What is the effect of late completion?]** Late payment interest is imposed - How to compute Stamp Duty on a contract - **[Calculation]** - If deficient duty is paid or SSD/ABSD is unpaid, a penalty of up to **[4 times]** the amount of deficient duty may be imposed. Declarations from the seller and the purchaser are mandatory by IRAS. - Withholding tax and GST - GST - 7.2 LSCS 2020 - When and why to lodge a caveat