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CIRCULARS

Circular No. 01-08 (CR) May 2001
Confirmor Sales

There are certain risks in confirmor sales. To protect the interests of the confirmor and the sub-purchaser, practitioners should pay attention to the following when handling this type of transactions.

1. Regarding Confirmor

     
a.   Practitioners should remind the confirmor to examine the agreement for sale and purchase between the vendor and the confirmor to see if there is any restriction on subsale.
b.   In the event of the sub-purchaser being unable to complete the subsale, the confirmor should be ready to complete the sale in accordance with the agreement for sale and purchase with the vendor. Otherwise, the confirmor will be in breach of his/her agreement for sale and purchase with the vendor.
c.   On completion, if the confirmor needs to transfer the balance of purchase price payable by the sub-purchaser to the vendor, sufficient time should be allowed for making the said transfer. It is advisable that the completion time for the subsale agreement should precede that for the original agreement for sale and purchase.
     
     
2. Regarding Sub-purchaser
     
a.   The sub-purchaser would normally have no opportunity to inspect the relevant property before he/she enters into the subsale agreement. Practitioners should alert the sub-purchaser to the risks of no inspection and try to arrange for an inspection before completion.
b.   Practitioners should explain to the sub-purchaser that the terms of the subsale agreement are subject to those of the original agreement for sale and purchase. For example, if the confirmor has accepted any structural alteration in the original agreement, the sub-purchaser has to accept the same under the subsale agreement. Attention should be paid to whether the balance of purchase price payable by the sub-purchaser is sufficient to cover the balance of purchase price payable by the confirmor under the original agreement.
c.   If the confirmor is unable to complete, the transaction may be delayed or fall through. In such an event the sub-purchaser will not be able to purchase the property and may have to resort to legal proceedings to obtain the refund of the deposits and any damages.
d.   The sub-purchaser may request the confirmor to execute an irrevocable power of attorney so that in the event that the confirmor is unable to complete the sub-purchaser may complete the transaction as the attorney of the confirmor. The sub-purchaser should be advised to seek legal advice.
     
     
3. Ascertain Confirmor has Power to Sell
     
    To ascertain whether the confirmor has power to sub-sell, an agent should carry out a land search of the relevant property before arranging for the confirmor and the sub-purchaser to enter into a subsale agreement. The agreement for sale and purchase entered into between the vendor and the confirmor should also be examined to determine the terms of the agreement, including but not limited to any restriction on subsale.
     
     
4. Disclosure of Commission
     
    If an agent acts for both the vendor and the confirmor in the original sale and purchase and also for both the confirmor and the sub-purchaser in the subsale, then the agent has to disclose to all the parties any commission receivable from the others in accordance with section 36(1)(a)(vii) of the Estate Agents Ordinance. That includes disclosing to the vendor any commission receivable from the confirmor and the sub-purchaser.


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