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4. Sale and Purchase of a flat (Written SPA (Expressions 'PA' or…
4. Sale and Purchase of a flat
Procedure
V+P sign
agreement
for S/P
Deposit paid (usually 10% agreed PP)
Agreement
completed
on agree date
P pays balance of PP, V assigns flat to P
(If agreement provides vacant possession will be given to P, flat must be vacant on completion. V must hand over keys to enable P to take possession)
Agreement and assignment should be
registered
under LRO Cap. 128
Registration does not confer title
Failure to register makes document void against equity's darling
s3(2) LRO
Parties
involved
in S/P
Owner/V
and
P
Banks
lend money to finance P's purchase provided the loan is secured by a mortgage of the flat by the P to bank/mortgagee
This
loan
is usually made immediately before completion so it can be used to pay PP on completion.
The
mortgage
is created on completion immediately after the assignment
(
Abbey National Building Society v Cann
)
V's loan must be repaid and mortgage released before P completes his purchase.
It is implied that a flat is sold free from V's mortgage unless the agreement provides expressly to the contrary.
Documents
SPA
: V + P
Release from mortgage
(discharge/sometimes property is released from the mortgage by a receipt for all monies endorsed on or attached to the mortgage
s56 CPO
): V's mortgagee + V
Assignment
: V + P
Mortgage
: P's mortgagee + P
Documents should be registered in LR in this order to ensure the priority of interests created.
Assignment - owners' register
SPA, release, mortgage - encumbrances register
Formalities
3 transactions
Discharge from mortgage
SPA
New mortgage
Preliminary negotiations
Parties sign SPA containing agreed terms based on oral negotiations
Oral negotiations are usually not binding. Parties only become bound when they sign written agreement:
s3 CPO
There are exceptional cases where parties might be bound by oral agreement.
Written SPA
(Expressions 'PA' or 'FA' have no legal significance)
'
Provisional agreements
' drafted by an estate agent in preliminary negotiations are usually binding on the parties
PAs are short; prepared by estate agents. Parties enter into them without prior legal advice. Brief containing only essential details of transaction
PA usually provides P will pay price in 3 instalments
Preliminary deposit on signing PA
Further deposit on signing FA
Balance of PP on completion
Man Sun Finance
(Purpose of PA and some of the terms)
Problems after signing PA
V owner of flat? Cannot show title deeds which prove ownership where PA is signed. LR is not evidence of title. But V shown as registered owner gives some comfort that P is dealing with the owner of the flat.
Can P obtain loan from bank? Relatively easy in HK depending on financial status, age and condition and value of the flat
Risk with how terms affect party. No legal advice on whether they are advantageous, what they mean or whether parties can comply with them. Case law shows slight difference in wording in PA may make significant difference to parties' rights and obligations
Where FA not signed on time or further deposit not paid on time:
Terms of PA must be read carefully. Qs of construction often arise over whether further deposit is payable and whether there is obligation to sign FA
Time is usually of the essence.
Time for signing FA of the essence because parties usually proceed on that basis
Wong Wai Chi Ann
Volatile market in HK makes time of the essence in HK
Kyong Sil v Jia Wieli
PA usually subject to implied term that V will give good title. If
V doesn't have good title
, he will be in breach of contract. V can disclose defects in title and provide that P will not object to defects, but this is rarely done before PA is signed
FA
refers to SPA prepared by V's solicitors containing detailed terms on which the transaction will proceed
In some transactions, parties may sign a PA w/o signing FA; vice versa
If parties sign a
formal agreement
, this usually replaces PA
FA is usually prepared by V's solicitor and terms are approved by P's solicitor before its signed
If flat is mortgaged, V's solicitor would first obtain title deeds from V's mortgagee bank
Time limit for registering SPA at LR
Which agreement should be registered at LR to protect P's interest - FA/PA
Mortgagee is entitled to title deeds
If flat owner sells free from mortgage, the mortgage is redeemed (loan repaid and property released) on completion, not before
Mortgagee is entitled to title deeds after SPA signed
P entitled to title deeds after completion of sale
Deeds = proof of title
. Whoever owns the property holds the deeds.
Instructing
solicitors
Only solicitors can prepare conveyancing docs:
s47(1)(a) Legal Practitioners Ordinance Cap 159
Either V/P can do their own conveyancing but in practice P is unlikely to be able to conduct a purchase because when instrument is registered under LRO, the memorial must be verified.
Each party to a transaction instructs their own solicitors
The HK Solicitors' Guide to Professional Conduct Para 9.04; Rule 5C Solicitors' Practice Rules
Solicitor cannot represent both V+P where there is a conflict of interest or a significant risk of it between the parties. Para 9.01 HKSGPC
Exception
:
Rule 5C(6)(c) SPR: solicitor can act for both mortgagor and mortgagee
Consent/Non-consent scheme. Even here solicitor should consider whether there is conflict of interest or a significant risk of a conflict
V's solicitor prepares release from mortgage on behalf of both parties
P's solicitor prepares mortgage on behalf of both parties