Clauses to Look Out for in a Sale and Purchase Agreement (SPA) in Malaysia

You would have most likely come across the acronym “SPA” or the term “Sale and Purchase Agreement” in the course of purchasing real property.

Buying property is one of the biggest financial commitments most people will ever make.

Yet, many purchasers sign a Sale and Purchase Agreement (SPA) without fully understanding what they are agreeing to.

Some are misinformed that SPAs are standard agreements which follow standard conveyancing practice.

Unfortunately, that is not always the case.

While many residential property transactions in Malaysia (for purchase of new property from Developers) use statutory agreements prescribed by the Housing Development Act 1966, sale and purchase of subsale properties involve individually negotiated SPAs.

The wording of these SPAs are often drafted in favour of the lawyers client to the detriment of the opposing party who may or may not be represented by a lawyer.

If you are intending to sign a SPA without legal representation you should endeavor to understand key clauses to avoid costly disputes later.

If you are unfamiliar with how contracts work generally, you may wish to read my Contract Law in Malaysia: A Practical Guide to Contracts, Agreements and Legal Rights, where I explain how contracts are formed and enforced under Malaysian law.

Why the SPA Matters

The Sale and Purchase Agreement is the document that governs the entire property transaction.

It sets out:

• the purchase price and deposit payments;
• mode of payment and when payments must be made;
• each party’s rights and obligations;
• what happens if either party breaches the agreement; and
• how disputes are resolved.

Once signed, both the purchaser and vendor are legally bound by its terms.

Although Malaysian contract law provides certain protections, courts will generally enforce the agreement that the parties voluntarily entered into.

That is why reading the SPA carefully before signing is far easier and far less expensive than trying to challenge an unfavourable clause after completion.

1. Purchase Price and Payment Schedule

The SPA should state the purchase price clearly and also identify whether it includes furniture, fixtures and fittings.

The purchase price should also include any deposit paid by the purchaser to the vendor (or his agent) prior to or upon signing the SPA.

The SPA should clearly state:

• the agreed purchase price;
• the amount of the deposit;
• when the balance purchase price is payable;
• how payment is to be made; and
• whether any stakeholder arrangements apply.

Purchasers should also ensure there are no hidden sums payable in addition to the agreed purchase price unless these have been clearly negotiated.

2. Completion Period

Almost every SPA contains a completion period.

This refers to the time allowed for the purchaser to pay the balance purchase price and complete the transaction.

The agreement should specify:

• the completion date;
• when the completion period begins;
• whether extensions are available; and
• what happens if completion is delayed.

In Malaysia, it is common to see a “3 + 1” completion period. This typically means a 3 months completion period for payment of the balance purchase price plus an automatic extension of one month with payment of interest (usually 8%).

The completion period starts to run from the date of the SPA or where State Authority consent is required for the transfer of the property, time usually starts to run from the date State Authority consent is obtained.

3. Late Payment Interest

One clause many purchasers overlook concerns late payment interest.

If the balance purchase price is not paid within the completion period, the SPA usually allows the vendor to charge interest (usually 8%) on the outstanding purchase price.

The agreement should clearly specify:

• the applicable interest rate;
• when interest starts accruing;
• whether there is an extension period; and
• the consequences if payment remains outstanding.

A seemingly small interest rate can become significant where completion is delayed for several months.

4. Default and Termination Clauses

Every purchaser hopes the transaction proceeds smoothly.

However, the SPA should also deal with situations where either party fails to perform their obligations.

The agreement should explain:

• when a party is considered to be in default;
• whether notices must first be issued;
• whether there can be extension of time;
• when the agreement can be terminated; and
• what happens upon termination.

For example, if the purchaser fails to complete the purchase, the vendor may be entitled to terminate the SPA and forfeit the deposit provided that all other monies paid by the purchase towards the purchase price are refunded to the purchaser by the vendor.

In the event of termination, the SPA must be clear what the rights and obligations of parties are. For example, upon termination, the purchaser shall redeliver vacant possession (if vacant possession has been deliverd), redeliver the title and memorandum of transfer to the vendor and remove any private caveat lodged against the subject property.

A termination clause needs to cover all these important aspects to prevent dispute.

5. Vacant Possession

Vacant possession refers to the delivery of possession of the property by the vendor to the purchaser without any occupant – this often takes place when the vendor formally hands over the keys, access cards, car access stickers etc. to the purchaser.

Purchasers should pay particular attention to the vacant possession clause. This clause specifies:

• when vacant possession will be delivered;
• whether the property will be delivered free from occupants or subject to tenancy;
• whether all keys and access cards will be handed over; and
• the condition in which the property must be delivered.

For sub-sale properties, purchasers should also clarify whether existing tenants remain in occupation or whether the property will be delivered vacant.

This distinction can significantly affect your plans if you intend to move in immediately after completion.

6. Existing Tenancies

Some properties are sold subject to existing tenancy agreements.

In such cases, the SPA should clearly state:

• whether vacant possession or legal possession will be given;
• whether the tenancy continues after completion;
• whether the security deposit will be transferred; and
• who is entitled to rental collected before and after completion.

Purchasers buying investment properties should review the tenancy documents carefully before signing the SPA.

7. Condition of the Property

Unlike developers selling new properties, vendors selling sub-sale properties generally sell them on an “as is where is” basis.

This means purchasers often accept the property’s existing condition unless the SPA provides otherwise.

Before signing, purchasers should:

• inspect the property thoroughly and document the inspection by taking photographs;
• identify any defects;
• clarify which fixtures are included; and
• ensure any agreed repairs are recorded in writing.

Verbal promises made during negotiations may become difficult to enforce if they do not appear in the SPA.

I once had a client tell me that the property agent had promised him that the property will be sold subject to various repairs and renovations to be done by the vendor but at the time of drafting the SPA, the vendor claims that he did not agree such terms.

As a best practice, ensure that any terms regarding the condition of the property are first stated in the booking form/ offer letter.

8. Fixtures, Fittings and Furniture

Disputes frequently arise over items that purchasers assumed were included.

For example:

• air-conditioners;
• built-in cabinets;
• water heaters;
• kitchen appliances;
• curtains and blinds;
• lighting fixtures; and
• security systems.

If it has been agreed that the sale will include fixtures, fittings and furniture, a good practice would be to mention this in the offer letter and inlude an inventory list.

This will prevent any dispute during the drafting of the SPA.

9. Conditions Precedent

Some transactions cannot proceed immediately because certain events must first occur.

These are known as conditions precedent.

Examples include:

• obtaining State Authority consent;
• obtaining financing approvals where expressly agreed; or
• obtaining any other relevant document necessary for the sale of the property (i.e. court order etc.)

The SPA should clearly explain:

• what conditions must be fulfilled;
• who is responsible for fulfilling them;
• the timeframe involved; and
• what happens if they are not satisfied.

10. Risk

The SPA should indicate when the risk relating to the property passes from the vendor to the purchaser.

This can become important if the property is damaged before completion.

Purchasers should understand:

• who bears the risk before completion;
• whether insurance should be maintained; and
• whether either party has obligations following unforeseen damage.

11. Apportionment of Outgoings

Property ownership involves ongoing expenses beyond the purchase price.

The SPA usually addresses how these expenses are divided between the parties.

Common examples include:

• quit rent;
• assessment rates;
• maintenance charges;
• sinking fund contributions;
• utility deposits; and
• rental income where applicable.

A properly drafted SPA should specify how these sums are apportioned as at the completion date.

12. Representations and Warranties

Some SPAs contain representations or warranties made by the vendor.

These may relate to matters such as:

• ownership of the property;
• absence of litigation;
• authority to sell;
• compliance with laws; or
• existing encumbrances.

Purchasers should ensure these statements accurately reflect the property’s status.

Should You Sign the SPA As It Is?

Never sign a SPA without first reading it.

Many purchasers mistakenly believe SPAs are non-negotiable and are standard form agreements.

While statutory agreements used for certain developer sales contain prescribed terms, sub-sale and many commercial property transactions allow the parties to negotiate provisions before signing.

Depending on the circumstances, it may be possible to negotiate clauses relating to:

• completion timelines;
• vacant possession;
• default provisions;
• warranties;
• special conditions;
• repair obligations; and
• responsibility for certain costs.

Having the SPA reviewed before signing is often far cheaper than resolving a dispute after the transaction has gone wrong.

Final Thoughts

An SPA is far more than a formality. It is the document that determines your rights and obligations throughout the property transaction.

While clauses relating to the purchase price and completion period often receive the most attention, provisions dealing with default, vacant possession, conditions precedent, existing tenancies and property condition can be just as important.

Taking the time to understand these clauses and seeking legal advice where necessary can help you avoid expensive surprises and ensure that the agreement accurately reflects what both parties intended.

If you’d like to better understand how contracts operate generally, explore my Contract Law in Malaysia: A Practical Guide to Contracts, Agreements and Legal Rights where we explain the principles that govern legally enforceable agreements in Malaysia.