Why is the first 10% payable to seller upon signing of SPA, and the 20% (if loan at 70%) not payable but held in client's account of the lawyer later on?
Let us go back to contract procedure first. If you could remember, contract in its most basic condition is where there is an offer, acceptance and consideration paid. The deposit of 10% signifies consideration partly paid. It is not refundable at the stage of signing SPA as by then, the buyer would have secured the financial facility to purchase the property. It is also “contingent” to the contract (S.32 CA50). A conditional contract has become unconditional at this stage of signing of SPA. Any reason which the buyer fails to proceed with the sale, the 10% is forfeited to the Vendor. The conveyancing lawyer should have made detailed studies of the land title, any caveat, lease or charge which can be detrimental to the dealing of this property to the purchaser. At this instance, the lawyer should have checked if the parties to the contract (SPA) are legally fit to come to contract. This is part of S.11 of CA50 - a minor, or bankrupt or person with unsound mind cannot come to a contract.
Therefore, the purchaser pays the 10% and the money can be paid to the Vendor soon after. After this, SPA takes over. However, the 20% cash payment later (loan is only 70%) differs from the 10% deposit because that is in post SPA stage. It forms part of the obligations in the SPA. The money of 20% is like one of your check boxes in SPA. It is kept in client’s account. The other obligations are like
- Approval (or consent) for transfer by land office
- Valuation by JPPH and Stamp duty
- RPGT forms
- Outstanding rates to local government are paid
Hence, the 20% is held by the stakeholder until all the obligations are fulfilled.
*S.11 Who are competent to contract.
Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject.