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CIRCULARS

Circular No. 03-02 (CR) January 2003
Provisional Agreement

Very often, when the parties to a property transaction have reached an agreement on the basic terms, practitioners would assist the parties to enter into a provisional agreement for sale and purchase. A provisional agreement for sale and purchase is a binding document and, if not handled properly, would give rise to dispute and complaint and may even affect the transaction. Practitioners' attention is drawn to the following areas which often feature in complaints:

(1) Signing uncompleted agreement 
Practitioners should refrain from asking their clients to unilaterally sign any provisional agreement with many spaces left blank where the essential terms of the transaction (e.g., price, deposits, completion date, other conditions) have not been agreed on.

(2) Property address 
The property should be accurately described in the agreement, inclusive of any car parking space, garden or roof, if any. It is advisable to enter the exact wording of the property description in the relevant land search record as the property identifier in the agreement.

(3) Parties 
The identity of the parties (or authorized signatories) should be verified. Practitioners should be aware that an agreement may be void due to a signatory being a minor (under 18) or having lost the capacity to manage his affairs because of infirmity. In addition, practitioners should pay special attention in serving old people or those without formal income proof as such individuals may encounter difficulties when applying for mortgage loans. Such clients should be advised to ascertain their position as to the obtaining of the necessary finance before entering into any agreement.

(4) Registration of agreement 
If for any reason the parties subsequently fail to enter into a formal agreement, the provisional agreement would become the only agreement between the parties and as such is registrable at the Land Registry. The Land Registry only accepts documents of A4 size for registration. It is appropriate that provisional agreement should be printed in A4 format.

(5) Standard agreement of owners 
Some owners have standard agreement (such as in sale by auction/mortgagee/developer). In addition to fully explaining such standard agreement to the purchaser/tenant, practitioners should check their pro-forma provisional agreement against the standard agreement for conflict or discrepancy in order to protect the interest of the purchaser/tenant.

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