Things You Should Know About Sale and Purchase Agreement in Malaysia

The SPA is a crucial element in your home buying journey. Signing a Sales and Purchase Agreement, or more commonly abbreviated as ‘SPA’, means you’re ready to seal the deal, so think twice before penning down your name! But don’t panic, we’re here to walk you through the ins and outs of the SPA.  

What is a Sale and Purchase Agreement? 

A Sales and Purchase Agreement refers to a contract between a seller and a buyer pertaining the details of a property purchase. The SPA is drafted by the seller's lawyer and is signed by both parties. The terms and conditions within an SPA are legally binding and must be mutually agreed by both parties.  

The purpose of an SPA is to protect the interests of both parties from any unwarranted changes on the T&Cs. However, an SPA is not required if your house of interest is auctioned or inherited. Here are some important pointers you need to know: 

What are the types of SPA in Malaysia? 

Different property types require separate documents: 

1. Brand new property

This refers to a new property you purchase directly from a developer. When purchasing this type of property, you should refer to the Housing Development (Control and Licensing) Regulations 1989, which highlights two key schedules: 

   i. Schedule G: Landed Individual Title, for landed properties such as terrace houses and Semi-Ds. 

   ii. Schedule H: Strata Title, for property units like condominiums or apartments with shared common facilities such as swimming pools and parking spaces. 

2. Subsale property

This refers to a pre-owned property you purchase from an existing owner. Purchasing this type of property usually requires a Deed of Assignment. 

What are the procedures of SPA? 

You’ve got your eyes fixed on your dream property, so what next?  

Firstly, sign a Letter of Acceptance (LOA) after choosing on a bank that offers you the best loan rates.  

Secondly, proceed with the signing of the SPA, followed by a payment of 10% deposit of the total purchase price within two weeks after signing the LOA, which is the conventional payment procedure. 

Thirdly, after the SPA is signed off, the agreement must be brought to the Inland Revenue Board of Malaysia (IRB), or more popularly known as LHDN, to be stamped to legalise the document. 

Finally, you’ll have to sign the Loan Agreement, a contract between the buyer and the bank. And you’re good to go! 

What are the important legal terms in the SPA? 

Vetting through an SPA may give you a massive headache, especially if you’re unfamiliar with the technical terms and law school lingo. It’s highly advisable for you to appoint a lawyer instead. Here are some common phrases to keep an eye out for: 

Defect liability period: This serves as a warranty period upon purchasing a new property from the developer, which holds the developers accountable for any defects. 

Vacant possession: This refers to the moment when you get your house keys and have full access to your newly purchased property, which should be free from any external interference such as construction or previous tenant occupancy. Typically, you’ll receive the keys in 24 months for landed properties and 36 months for stratified properties upon signing the SPA. 

Liquidated damages: This refers to the sum that the developers have to pay you if they fail to deliver the vacant possession on time which is essentially specified in the SPA, commonly at a rate of 10% per annum of the property’s price. 

Indemnity clause: This clause insures you as the indemnified party, where you’ll be entitled to receive compensation for any breach of contract by the other party, plus additional payment for any losses or damages inflicted. 

What are the costs of the SPA? 

The costs of drafting an SPA rest on the shoulders of the buyer, which is inclusive in the legal fees. The SPA charges are as follows: 

Both stamp duty and legal fees for the SPA are calculated based on the property’s price. For example, a stamp duty of 1% will be charged for the first RM100,000 of the property price, which can go up to 4% for property prices above RM1 million. 

Can you terminate the SPA? 

Yes, you may cancel the SPA under certain conditions. But it comes with a handsome price. A penalty of 10% of the property purchase value will be imposed on whichever party that decides to cancel the SPA. If you bought your house at RM450,000, you’ll have to fork out RM45,000 – oh, the hole in your wallet!  

Buying a home isn’t like grocery shopping which you can easily complete under 20 minutes. It’s an intricate and lengthy process that requires utmost precision – so don’t rush the process and take your time! You can also check out some of our property listings, where you can enjoy more great deals such as exemptions on stamp duty and memorandum of transfer under the government’s Home Ownership Campaign (HOC) initiative. Don’t ever sign a contract that you can’t make heads or tails of – otherwise you might get tangled in a sticky situation legally and financially if you violate any conditions. 

First time buying a house and don’t have a single clue of what you’re doing? Read up on our blog about tips on buying a home and guide on choosing the right investment property!