Know Your Rights - Buying new property

WE often come across advertisements on new property for sale with "free legal fees". Let's see if the claim is sustainable.

New property under construction for sale may either fall under the statutory format under the Housing Development (Licensing & Control) Regulations 1988 as Schedule G for landed property or Schedule H for strata property. The billings for the particular stage of construction for Schedule I for landed property and Schedule J for strata property are sold under the 10:90 concepts.

Many buyers are under the impression that their rights will be adequately protected under this format of the sale and purchase agreements and it is not necessary to appoint their own independent lawyers to attend to the sale and purchase agreements and to all necessary work that may be required to protect their interest.

Many buyers are either under the impression that some monies may be saved by not hiring their own lawyers or feel that they can use any lawyer to just attest their signatures. Some use the same lawyer who is attending to the execution of the sale and purchase agreement to prepare and attend to the security documentation for the financial institution which granted banking facilities to assist in the purchase of the property. All such decisions or stand taken are well and fine until some issue arises from the sale transaction and the buyer then discovers he is exposed and in fact has no legal representation to look after his interest. It may be difficult for any lawyer appointed at that point in time to untie the terms of the sale and purchase agreement.

In cases where the buyer did not appoint his own lawyer and pay the prescribed fees and disbursements, the lawyer who is involved in the agreement does not act for the buyer and therefore owes no duty of care to the buyer. It is a risk which is considered too risky for the buyer as it involves a substantial amount of money which may be the entire family savings. There have been cases where the land use on which the property is constructed was not even converted from agriculture to building or the developer had not fully paid the relevant land conversion premium or no relevant building plans were approved, etc or the relevant approvals required for the development and sale of the property were obtained earlier but had lapsed.

One important fact which needs to be ascertained is whether the property is free from encumbrances and if still encumbered, it has to be dealt with as soon as possible so that the buyer obtains unfettered absolute legal right to the property subject to payment of the sale and purchase price and any other payments contracted. There have been cases where even after a few sub-sale transactions, the issue of whether the property is free from any encumbrances is not addressed and the buyer does not obtain good title in law to the property.

In many instances, the shortcomings are only discovered when parties with competing interests to the property like the financier of the developer for the project where the land and the building or units erected thereon form part of the security arrangement in favour of the financier or any party which has a legal interest on the land begins to enforce its legal rights strictly according to the priority in law. If the buyer realises it on time, there may still be a chance to negotiate some form of settlement at extra expense to be borne by the buyer. Otherwise, the buyer may not get good title to the property. There have also been cases where the buyer pays cash for the property and later finds out it has not been redeemed.

If a banking facility was raised to part finance the purchase and if the lawyer appointed to attend to the sale and purchase agreement overlooked this, it may be picked up by the lawyer attending to the security documentation appointed by the financier of the buyer. This will also act as a check and balance to ensure that the property is free from all encumbrances.

The buyer must realise that the appointment of a lawyer to represent him, is not like buying motor vehicle insurance. It is a wise choice against potential risks which are very painful financially if something uneventful happens. It also requires a lot of effort to put things right and in some circumstances it may no longer be possible as the developer and landowner are in liquidation and the lawyer has stopped practising. It would also require a lot of fees and expenses to be paid to a new lawyer with relevant knowledge and experience to sort things out or to protect the interest of the buyer.

The writer, formerly a banker, is a lawyer. Comments: letters@thesundaily.com