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Transfer by Contract of Sale

Conveyancing Law 1 (Universiti Teknologi MARA)

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Transfer by Contract of Sale

The second mode of transfer prescribed under the law of conveyancing and land
law in Malaysia is transfer by contract of sale. This type of transfer majorly governed
under the law of contract in ensuring whether all of the elements for valid contract have
been fulfilled. The process requires the transferee to pay specific amount of monetary
consideration in exchange for the transfer of indefeasibility upon the title of the land by
the transferor.

The concept of transfer by contract of sale can be divided into 3 stages, namely;
pre-contract, execution of contract and post contract. Firstly pre-contract. It is the duty of
transferor or vendor, and transferee or purchaser, to appoint their own solicitors acting
on their behalf. The modern approach has prohibited, per Legal Profession Act 1976,
single solicitor to act on behalf of both parties as conflict of interest may arose.

First Stage: Pre-Contract

Before execution of contract, it is the duty of the VS to ascertain several matters,

including the vendor’s ownership upon the land, for example if he is appointed as
trustee or holder of Power of Attorney. Secondly, VS must ascertain the material details
of the land. This includes both which can be visibly and legally interpreted. If the land is
subject to RII, mandatory consent must be obtained from State Authority if not the
transfer be rendered void. Transfer which is defective under Section 340(2) of NLC
shall also be rendered null. As for estate land, in pursuance of Section 214A of NLC,
consent from Estate Land Board must be obtained before any transfer is conducted, as
illustrated in the case of Rengamah a/p Rengasamy v Tai Yoke Lai & Anor, in which
the contract is subject to condition provided by Estate Land Board. Nonetheless, it is not
the duty of VS to apply for such consent as the duty lies of the vendor himself. VS only
bound to give credible advice in facilitating such transfer. Thirdly, terms of sale
agreement. VS must prepare the specific terms of such transaction in satisfaction of the
vendor and in accordance of law, including purchase price, deposit and duration of
payment. (DPD) Fourthly, if applicable, VS must prepare relevant document in relation
to transfer, including RPGT Form 1A or 3.

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As for the purchaser’s solicitor, he is also subject to several duties which need to
be perfected before any contract of sale is executed. Firstly, making enquiries with
client. It is compulsory to make enquiries before initiating any transaction as this is the
basic step for a valid and safe purchase. In addition, enquiries shall be done as it is the
duty of the PS to prepare relevant documentation including Form 14A, RPGT 2A and
502, Form 19B for entry of private caveat and 19G for withdrawal of private caveat. As
for Sale and Purchase Agreement, the law in Malaysia does not specify which solicitor
shall prepare such but in practice, specifically in West Malaysia, it is the duty of PS as
he is also responsible in preparing relevant documentation on behalf of his client.

The first matter which needs to be ascertaining by PS is details of the purchaser.

Ensuring the necessary details of purchaser is important in order to ensure that the
purchaser is not prohibited from becoming registered proprietor of such land. It is crucial
that the purchaser falls under the language of Section 43 of NLC as a fit party to the
contract. In Anthony Ting Chio Pang v Wong Bing Seng, it was held that the solicitor
is negligent in determing the details of the purchaser, by only relying on report of lost of
the identity card. Besides that, in practice, PS must also consider where the money
which will be utilized in purchasing the land is obtained from, in order to prevent that the
money obtained from illegal sources.

Secondly, details of the property. This includes conducting land search upon the
land which is intended to be purchased. Conducting land search is crucial in order to
obtain necessary information of the land which then be used in preparing relevant
documentation of the transfer. PS usually conduct private search per Section 384 of
NLC as result can be obtained quickly in order to settle the contract within stipulated
time, as compared to official search under Section 385 of NLC. Among the importance
are (DESCA). Failure to conduct land search will amount to professional negligence on
behalf of the PS, as seen in the case of Ngeoh Soo Oh v G Rethinasamy, in which
purchaser had suffered severe monetary loss due to PS failure to conduct competent
land search which clarify that the land is under acquisition. On behalf of purchaser, it is
their right to insist that land search is conducted before purchase price is paid, stated in
the case of Chow Yoong Hong v Tai Chet Siang. Nonetheless, even though it is less

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time consuming, conducting private search has its own risk, as it is not bound by
compensation under Section 386 of NLC if there is any form of errors, as seen in the
case of Tiara Kristal Sdn Bhd v Pengarah Tanah dan Galian Wilayah Persekutuan.

Thirdly, making extra enquiries. Besides enquiries with the purchaser, PS also
have the duty to make enquiries with regards to the vendor and the land itself. This
includes making enquiries with relevant authority such as Tenaga Nasional Berhad to
determine if there is any sort of arrears in payment upon the land. For the vendor, PS
has the duty to determine the basic requirement which need to be satisfied by the PS,
including falls under the language of Section 43 of NLC, and is not bound by any
bankruptcy proceedings per Insolvency Act 1967.

Fourthly, site inspection. PS shall advise or preferably, inspect the land together
with the purchaser before entering into contract to purchase the land. This is to
determine the physicality of the land itself, including the existence of any buildings on
such land, or if there is any tenant, lessee or occupier on the land.

Second Stage: Execution of Contract

After all the pre-contract necessities have been complied with, the next stage is
execution of contract. Under this stage, the primary purpose is to enforce a valid sale
and purchase agreement between the vendor and purchaser. In establishing a valid
SPA, there are four components which need to be determined. Firstly, date of the
agreement. This is to determine when is the exact and precise moment the contract is
to be enforced.

Secondly, recital. Under this component, it mainly involves the basic details of
the agreement involving both parties. The details of parties and property must be
precisely prepared. Besides that, side factor of the parties must also be taken into
consideration, for example if the vendor is a trustee, the transaction shall be governed
under Trustees Act, and if he is executor, he may only sell or charge the land subject to
restriction of will under Section 60(a) of Probate and Administration Act. On behalf of
the court, when application for recital approval is obtained, several factors must be

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taken into consideration, including reasonableness of price, age of beneficiaries of the

vendor and consent from adult beneficiaries of the purchaser. (RAC)

Thirdly, terms and conditions of the sale. This is the most fundamental
component of any sale and purchase agreement. All relevant terms shall be specifically
stated in clarifying both vendor and purchaser of the contract. Terms and conditions can
be divided into 4 major parts, namely; rights and obligations of the vendor, rights and
obligations of the purchaser, common obligation and miscellaneous.

Rights and obligations of the vendor: Ensure the transfer free from
encumbrances/problem. To accept
purchase price as agreed.

Rights and obligations of the purchaser: Payment of deposit, ascertaining mode

of payment, pay purchase price
within time, mode of payment of BPP,
agree on terms if default in payment.

Miscellaneous terms: Back up plan and to determine status of SPA if anything

happened (vendor refused to proceed, purchaser
failed to pay, State Authority refused consent, land
suddenly subject to Land Acquisition Act, act of
God, supervening impossibility)

Common obligation: Performance of contract, duration of payment, mode of

payment, time of execution.

In addition, SPA shall also be prepared by considering conditional terms as well

as preparing general clause of the agreements. Remedies shall also be clarified in the
SPA, in the event of frustration or breach of contract. Failure to do so will render the
injured party to receive remedies per discretion of the court. In the case of Palmerston
Holdings Sdn Bhd, it was held that as the SPA does not provide relief of specific
performance, injured party may only be entitled to liquidated damages.

Fourthly, signing and attestation clause. After all the necessary procedures of
execution contract stage has been complied with, the final step is to execute the
contract by way of signing of the agreement. Both parties must sign the agreement in
front of their solicitor, and further attested by qualified individuals such as notary public.

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Deposit

Under the concept of transfer by contract of sale, monetary consideration is one

of the vital elements which act as the key in receiving indefeasibility of title from the
vendor towards the purchaser. Deposit is part of monetary consideration from the
purchaser. Literally, deposit can be defined as part payment of purchase price from the
purchaser towards the vendor upon the signing of sale and purchase agreement. In the
case of Sun Properties Sdn Bhd v Happy Shopping Plaza Sdn Bhd, deposit was
expressed as part payment, which is advanced payment by purchaser in favour of
vendor. However, it does not act as security, as illustrated in the case of Warren v Tay
Say Geok, as purchaser may lose the deposit if he repudiated the contract.

In terms of amount, the law in Malaysia does not provide specific amount which
need to be paid in order to be considered as deposit. Nonetheless, the court accepted
that the amount shall be around 10% to 20% of the purchase price agreed. In the case
of Linggi Plantations v Jegatheesan, the court held that payment more than 10% of
purchase price may also be considered as deposit, which similarly seen in Lee Yew Hin
v Kow Lup Ping.

Functions (Complete/Serious/Payment/Caveat/Breach)(CSPCB)

In the event of default on behalf of purchaser, the vendor may forfeit the deposit
obtained as part payment of the agreed purchase price. It may act as an award, in
which the vendor receives money without the need to surrender his proprietorship over
the land. However, right to forfeit deposit is not provided under any written statute and
cannot be impliedly induced by vendor. Thus, vendor with the assist from vendor’s
solicitor shall include forfeiture clause within the sale and purchase agreement. Once
the clause is incorporated within the agreement, vendor need not prove any loss
suffered due to default on behalf of the purchaser, as seen in the case of Morello Sdn
Bhd v Jacques (International) Sdn Bhd. In Master Strike Sdn Bhd v Sterling Height
Sdn Bhd, the court highlighted that payment of purchase price is a fundamental
obligation and breach of such goes to the root of the agreement, allowing vendor to
forfeit the deposit.

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The amount paid which to be forfeit; even though seems to be part of court’s
consideration by applying reasonable man test; is immaterial. So long that the forfeiture
clause is incorporated in the agreement, it is lawful for the vendor to forfeit the deposit,
as seen in the case of Happy Shopping Plaza Sdn Bhd v Sun Property Sdn Bhd, in
which it was upheld that the forfeiture of RM 1,000,000 as deposit by the vendor is
lawful per the forfeiture clause, regardless of huge amount of money.

Stakeholder

In general, stakeholder can be defined as an independent party who holds the

money and documents in relation to transaction conducted, pending the completion of
certain tasks. For transfer by contract of sale, stakeholder is appointed in order to
resolve the situation of deadlock; situation whereby the vendor will not surrender his
proprietorship over land until he receives the monetary consideration and the purchaser
will not surrender his money unless he is guaranteed to possessed the proprietorship
after the consideration on his behalf is satisfied. Stakeholder plays an important role in
preventing conflict of interest between both vendor and purchaser.

In the case of Tan Suan Sim v Chang Fook Shen, it was held that stakeholder
undertakes to release purchase price only once the transfer is duly registered, and in
the event of default, the money will be refunded and title deed will be returned to
appropriate party. Solicitors usually appointed as stakeholder, and any sort of breach of
undertaking will amount to disciplinary offence per Section 92(b) of Legal Profession
Act.

Stakeholder bears status as independent party regardless of his appointment.

Traditional approach in the case of Kuldip Singh v Lembaga Letrik Negara illustrates
that although the money has been transferred by the purchaser to the stakeholder; in
which she absconded, the money was deemed to have yet been paid towards the
vendor thus rendering loss to the purchaser. To distinguish, slightly modern practice
provides a contrast view, as in the case of OCBC v Lee Lee Fah, in which although the
stakeholder absconded with the money, the purchaser deemed to have paid to the
vendor thus rendering proprietorship to be transferred to the purchaser.

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Third Stage: Post-Contract

Although all the necessary procedures in executing the agreement have been
satisfied, the transfer is yet to be completed and enforceable under the law. Firstly,
purchaser’s solicitor must ensure that all relevant documents; including SPA and Form
14A have been completed, duly executed and attested in accordance of Section 211 of
NLC, witnessed by qualified person under 5th Schedule of NLC.

Secondly, lodgment of private caveat. This step is mandatory in order to; not only
protect the purchaser’s interest, but also to ensure that the vendor performed as what is
agreed in the sale and purchase agreement. Private caveat need to be lodge as
registration of transfer may take certain period of time, thus ensuring purchaser’s
interest is protected before the transfer is completed and documented on the RDT. Per
Section 323(1)(a) of NLC, the burden of proving lies on the purchaser to prove that he
is indeed possess caveatable interest over the said land, further approved in the case of
Million Group Credit. In Ong Chat Phang, a purchaser is said to have caveatable
interest once the SPA has been signed and deposit has been paid towards the vendor.
That being said; stated in the case of Macon Engineering, valid SPA is the ultimate
proof to show that the purchaser indeed possess caveatable interest via signing of the
agreement.

In lodging private caveat, several procedures need to be followed by the

caveator. First, per Section 323(2) of NLC, application to lodge private caveat must be
made in Form 19B and be attested per Section 211 and 5th Schedule of NLC. In
addition, per Section 323(3) of NLC, application shall be accompanied with prescribed
fee, grounds of application which is verified by Statutory Declaration, and description of
land or undivided share of the land. Statutory Declaration, on the other hand, must be
prepared in accordance of Statutory Declaration Act, signifying the name applicant or
the firm acting on behalf of the applicant, amount of deposit, details of property and the
caveatable interest, further signed before the Commissioner of Oath.
(Name/Money/Property/Interest)(NMPI).

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Once the application is approved, the Registrar will lodge the caveat via
endorsement on RDT under his hand and seal. It is worth noting that caveat is not
subject to any stamp duty and last for 6 years per Section 328 of NLC. Form 19A will
also be served to the proprietor as a notice that he will no longer be able to deal with his
land until the caveator withdraw his caveat upon the land.

Thirdly, preparation and payment of RPGT. Besides lodgment of caveat, RPGT

Form must also be prepared by both vendor’s and purchaser’s solicitor. On behalf of
purchaser, Form RPGT 2A must be file before the Inland Revenue and payment of
RPGT must be made within 60 days of the conclusion of SPA, stated under Section
13(2) of RPGT Act. The purpose of Form RPGT 2A is to notify the specific date of
purchase in order to be counted by the Inland Revenue for future dealings. In addition,
Form 502 must be submitted together with retention sum of 3% from purchase price to
the Inland Revenue, within 60 days from the date of sale and purchase agreement per
Section 21B of RPGT Act. Penalty will be imposed for failure to do so.

On behalf of vendor, if the sale is made after 5 years after acquiring the property,
RPGT need not be paid and done in Form RPGT 3. Whereas if the sale is made within
5 years, payment of RPGT is compulsory and be done in Form 1A. Calculation is as
follow;

First Step: Untung kasar: Harga jual - Harga beli

Second Step: Untung bersih: Untung Kasar – Expenses (Legal fees,

renovation etc)

Third Step: RPGT: Percentage RPGT x (Untung bersih – Exemption (if

applicable))

Any application for exemption shall be done in Form RPGT 3 per Section 9 of
RPGT Act 1976. If the vendor is exempted from RPGT, the purchaser also need not
pay 3% retention sum.

If the caveator wishes to withdraw private caveat, application shall be done in

Form 19G by notifying the Registrar per Section 325(1)(a) of NLC. Then, Registrar

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shall cancel the caveat and stating his reason on the RDT per Section 325(2)(a) of
NLC, and notification will be given per Section 325(2)(b) of NLC.

Payment of Balance Purchase Price

For settlement of balance purchase price, there are two modes which can be
utilized by the purchaser, namely; payment by case or by bank loan. Nonetheless,
payment of balance purchase price depends on the status of the property itself, whether
it is free from encumbrance or subject to existing charge.

For property which is free from encumbrance, as stakeholder of the purchaser,

purchaser’s solicitor must ensure that he receives the balance purchase price from the
purchaser before relevant documents can be adjudicated. Once the balance had been
received, purchaser’s solicitor may proceed for adjudication of Memorandum of
Transfer, PDS 15, copy of SPA and title deed, by way of stamping at the Stamp Duty
Office. The primary purpose is to enable the Stamp Office authority to evaluate the
property and determine the amount of stamp duty payable by the purchaser. Once the
property has been evaluated, notification or “Notis Taksiran” will be issued and
purchaser’s solicitor needs to pay the amount within 30 days of its execution per
Section 47 of Stamp Act 1949. Failure to do so is subject to penalty under Section
47A of Stamp Act 1949. Next, presentation of document shall be made per Section
292(1) of NLC and subject to payment of fees under Section 293(1) of NLC.

Considering all the steps have been complied, the date of presentation is
deemed to be the date of registration although the presentation of MOT may be rejected
and endorsement of RDT has yet been carried out. That being said, the balance
purchase price can be forwarded to the vendor’s solicitor whereas title deed shall be
forwarded to the purchaser’s solicitors.

(Duit-Adju-Evaluate-Notice-Present-Registration-Forward-Deed)(DAENPRFD)

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