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20180621 Can sign SPA without making payment?

20180621 (Thu)

Can you sign the Sale & Purchase Agreement (SPA) without completing the 10% down payment?

Yes, in most cases, the lawyer would allow you to sign. Why?

In the beginning, a contract of SPA is based upon the initial agreement contingent to it. See S.32 CA50 ‘Contingent Contract’. What it means is booking fee, securing loan guarantee and paying up the remaining 10% of the portion. And, time is an essence, so it should have been completed within the time frame agreed after making the booking.

Failure to such will render the subsequent step – signing of SPA, unable to proceed. For example, failure to secure a loan guarantee will enable the purchaser to call off the deal, and take back his booking fee. In contrast, failure to pay the remaining 10% is not a condition for calling off the deal, and the booking fee of 3% shall be forfeited to the vendor/developer.

Hence, when a purchaser does not honour his remaining 10% payment to the vendor/developer, the Pre-SPA stage is yet to be fulfilled. How then can he sign the SPA?

Indeed, the purchaser cannot sign the SPA. However, as the lawyer is not the party to engage in the Pre-SPA stage (Estate Agent or owner himself is), he is making his assumption that it will be completed. Therefore, he asks the purchaser to pay up the remaining 10% to the vendor/developer before the vendor/developer signs the SPA. In this context, the lawyer is being flexible to the purchaser, despite the “time is the essence” element for signing the SPA together with the paying up the remaining 10%.

In real life, many things can delay the signing of SPA. One of it is this remaining sum. Purchaser could have difficulty in coming out with this sum. A 7% of RM1mio is RM70,000! Not everyone can find RM70,000 in cash although the bank has guaranteed the RM900,000. If the loan is just 80%, the subsequent 10% (RM100,000) needs to be paid after signing of SPA. This RM100,000 would come later, not before the signing of SPA. On the other hand, the 7% (3% booking fee of the 10%) should be paid before entering into the SPA.

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