Choosing your SPA/S&P and LA Lawyers
Part of the process of purchasing a property is to sign a number of agreements with numerous parties. Generally there are two agreements that purchasers are aware of: one being the Sales-and-Purchase Agreement (SPA or S&P) and the other, the Loan Agreement (LA)
The Sales-and-Purchase Agreement
The SPA is an agreement between the vendor (seller) and the purchaser (buyer). It has NOTHING to do with the bank nor the real estate agent that is representing the vendor to sell the property. Neither the bank nor the agent has the right to force the purchaser to appoint any particular law firm of their own recommendation for the purpose of drafting the SPA. In fact, it would be wise for the purchaser to refuse using the agent's recommended lawyer to avoid conflict of interests. It has to be understood that the purchaser is the one paying the SPA lawyer to represent him at a hundred percent capacity.
In the event where there is a dispute in the process of purchasing the house, the SPA lawyer has to be on the purchaser's side; however, there will be a conflict of interest when the SPA lawyer used is the one that was recommended by the agent. Will the agent continue to recommend the SPA lawyer who hassled him the last time around during a disputed past transaction? No, the agent would start recommending other lawyers instead. As such, the purchaser's interest may be jeopardized through the less-than-transparent relationship between the agent and the lawyer that he recommended.
In short, purchasers must resist the pressure to use the agent's recommend lawyer. Good lawyers are hard to come by, and you may need a lawyer’s services again for your future purchases. So do yourself a favour and start shopping for lawyers; ask around, get your recommendations from word of mouth, and start building your relationship with the lawyers by sticking with them for your future needs.
The Loan Agreement
The LA is an agreement between the borrowers and the bank. Contrary to the SPA lawyer, the LA lawyer represents the bank although the borrower is the one saddled with the burden of paying for the lawyer's services.
When appointing the LA lawyer, the purchaser does not have the full liberty as it was when appointing the SPA lawyer. Each bank has a list of panel or ad-hoc-panel law firms that are authorized to draft the LA; it is rare for a law firm to be the panel for more than just a handful of banks. Chances are the SPA law firm of your choosing may not be panel to the bank that you are borrowing from.
Choosing your lawyer
As you may now know, there are 2 main agreements that need to be signed by the purchasers and borrowers (who may or may not be the same group of people). In the process of disbursing the money to the right parties, and transferring of names on the title, letters of advice and instructions will fly to and from the law firms, valuation firms, land office, Lembaga Hasil Dalam Negeri (LHDN) and more.
In light of this mess, it is rather practical to use the same law firms to draft the SPA as well as the LA. This reduces the time taken for letter of advice and instructions to arrive from one law firm to another, which may help reduce miscommunications and misplacing the files. Although the choice of LA law firms may be limited, you are still allowed to choose from the list of panel law firms of the bank you are borrowing from.
A number of banks offer their loans with the Zero-Entry-Cost (ZEC) facility. With ZEC, the bank absorbs (they pay on your behalf) the cost of drafting the LA and the stamp duty (SD-LA) fees related to the agreement. The fees are not financed into the loan, they are simply paid for to the appointed law firm on your behalf by the bank. However, even with ZEC, it is still possible that the amount covered by the bank would come out short of the actual entry costs as quoted or invoiced by the law firm. It is imperative that the borrower understands all the details of the ZEC as stated in the LO to avoid any unexpected dues or top-up payments to cover the shortfall.
It is also important to note that the ZEC has nothing to do with any fees charged to draft the SPA and the stamp duty (SD-SPA) fees related to the agreement.
Banks would typically provide Free-Entry-Cost (FEC) facility to cover the cost of LA and SD-LA. I prefer to coin it as Financed Entry Cost. As the name suggests, the entry costs are financed into the loan. When it comes to FEC, there are a number of different ways for banks to calculate the amount to be financed.
The first method, which is preferable for the borrower is to have the entry cost placed on top of the margin of financing (MOF). With this method, the amount of financing of the property is not reduced as the financing of the entry-cost is not part of the property margin of financing.
The second method is less desirable. The FEC amount is part of the property financing cost. The total margin of financing remains and as result, the property financing is reduced to accommodate the FEC. In this case, it is as good as not having any FEC facility at all since the purchaser would still have to top up the deposit to cover the reduced property financing.
Don’t be pressured by the agents or any sales entities when purchasing your properties. Always ask for recommendations from trusted friends and family, or known experts of the industry. Agents and salesmen are expert in nothing but expert of their own self-interests – they know well what they need to do and say to further their own needs. As such, always take their advice with a grain of salt.
There are differences between ZEC, FEC, and even between the FEC facilities. It is imperative than a borrower or purchaser understands the details of each offer that he is getting before signing the LO.
Financial Faiz's Mortgage Series Ep.1, Debt-service ratio (DSR)
Financial Faiz's Mortgage Series Ep.2, Choosing your SPA/S&P and LA Lawyers
Financial Faiz's Mortgage Series Ep.3, Refinancing your property for cash
This post has been edited by wild_card_my: Apr 20 2017, 05:23 PM
Choosing your SPA/S&P and LA Lawyers