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Monograph : Conveyancing Contents
(2) Provisional Agreement for Sale and Purchase  
 

In the property market in Hong Kong, it is common practice for the vendor and purchaser to enter into a provisional agreement for sale and purchase ("Provisional Agreement") of property, through either estate agents or solicitors. Although there are no standard forms, the following are usually provided or dealt with in the provisional agreement:

1.

Name, address and HKID number of vendor

The vendor's name, address, Hong Kong Identity Card number or other identification document details are stated in order to correctly identify the vendor. Estate agents should check the vendor's Hong Kong Identity Card or identification document details against the name of the registered owner for the property in the Land Registry to ensure the vendor is the registered owner before arranging for the vendor to sign the agreement.

(If the vendor is a limited company, the name, Business Registration Number and registered office of the limited company should be stated.)

   
2.

Name, address and HKID number of purchaser

The purchaser's name, address, Hong Kong Identity Card number or other identification document details are stated in order to correctly identify the purchaser.

(If the purchaser is a limited company, the name, Business Registration Number and registered office of the limited company should be stated.)

   
3.

Description of property

Generally speaking, the property's postal address is sufficient to identify the property. However, if the price includes a car park or flat roof or roof, the same will constitute part of the property and have to be clearly stated.

   
4.

Price

The agreed price for the property is expressed in either words or figures or both.

   
5.

Manner of payment

a. Initial deposit – this is usually payable by the purchaser to the vendor upon signing the provisional agreement (the amount of initial deposit to be paid is a matter of contract to be agreed between the vendor and the purchaser but is usually equivalent to 3%-5% of the price). However, if the property is in negative equity (that is, the balance of the purchase price is insufficient to repay the outstanding mortgage loan), the initial deposit should be made payable to the vendor's solicitors as stakeholders, for the purchaser's protection.
   
b.

Further deposit – this is usually payable to the vendor upon signing a formal agreement for sale and purchase ("formal agreement") on or before a specified date (normally, the initial deposit and further deposit will add up to 10% of the price). However, if the property is in negative equity, the further deposit should be made payable to the vendor's solicitors as stakeholders for the purchaser's protection.

   
c. Balance of price – this will be payable upon completion, with completion taking place on or before a specified date.
   
6.

Property free from undisclosed encumbrances

The property will be sold to the purchaser or his nominee(s) or sub-purchaser(s) free from encumbrances save as otherwise provided in the agreement. Generally speaking, encumbrances are charges or other liabilities to which the property is subject. Common examples of encumbrances include mortgages, charges, charging orders, etc. These should be discharged by the vendor on or before completion unless the vendor and the purchaser expressly agree otherwise in the provisional agreement.

   
7.

Delivery of vacant possession

The vendor shall deliver vacant possession of the property to the purchaser on completion unless the vendor and the purchaser expressly agree otherwise in the provisional agreement. It is the vendor's obligation to ensure that all occupants move out of the property and that furniture and electrical appliances not sold together with the property are removed from the property at or before completion. If the property is sold subject to tenancy, this has to be expressly stated in the provisional agreement and no vacant possession will be delivered to the purchaser.

   
8.

Vendor's solicitors

The vendor will specify a firm of solicitors who will represent him in the transaction.

   
9.

Purchaser's solicitors

The purchaser will specify a firm of solicitors who will represent him in the transaction.

   
10.

Legal cost and stamp duty

Usually, each party will bear and pay his own legal costs and the purchaser will pay all the stamp duty.

   
11.

Purchaser's default

Should the purchaser fail to complete pursuant to the agreement, the vendor shall be entitled to forfeiture of the initial deposit paid and thereafter the vendor shall have no further claim against the purchaser. (Note, however, some agreements may provide the alternative that the vendor shall be entitled to enforce specific performance, that is, compel the purchaser in court to proceed with the purchase of the property according to the terms of the agreement.)

   
12.

Vendor's default

Should the vendor fail to complete pursuant to the agreement, the vendor shall refund the initial deposit to the purchaser and compensate him with a sum equivalent to the amount of the initial deposit and thereafter the purchaser shall have no further claim against the vendor. (Note, however, some agreements may provide the alternative that the purchaser shall be entitled to enforce specific performance, that is, compel the vendor in court to proceed with the sale of the property according to the terms of the agreement.)

   
13.

Estate agent's commission

In consideration of the services provided in connection with the sale and purchase transaction, the estate agent is entitled to receive an agreed and specified commission from the vendor and the purchaser respectively. The amount and payment of the commission is subject to the respective estate agency agreements entered into by the estate agent with the vendor and the purchaser respectively. An estate agent who is agent for both the vendor and the purchaser in a transaction and is entitled to receive commission from both should disclose the fact to both the vendor and the purchaser.

   
14.

Property sold on "as is" basis

The property will be sold to the purchaser on an "as is" basis. The property will be sold and delivered to the purchaser in such physical condition as at the time the agreement is signed. It should be noted that sale on an "as is" basis does not protect the vendor from failure to disclose the existence of unauthorised alterations or structures affecting the property. Unless the purchaser accepts such unauthorised structures/alterations, the purchaser may challenge the title of the property on this basis.

   
15.

Defaulting party to pay commission

If either party fails to complete the sale or purchase, he shall immediately compensate the estate agent the total amount of the commission stated in the agreement. However, if the court finds that the amount stated as payable by a defaulting party is in the nature of a penalty (as opposed to liquidated damages), the purpose of which is to punish the defaulting party rather than to compensate the reasonably foreseeable loss of the injured party, as where it far exceeds such loss of the injured party, this will not be recoverable.

   
16.

Defaulting party to pay stamp duty

If either party fails to complete the sale or purchase, the defaulting party shall pay the stamp duty or reimburse the innocent party who has paid the same.

   
17.

Particular terms

Particular terms agreed between the parties have to be stated in the agreement, for example, where the purchase price includes a list of furniture or where the vendor allows the purchaser to enter the property for decoration before completion, or whether the vendor or the purchaser should bear any cost of repair/renovation works to the common areas/facilities required by an order/notice issued by the competent authority or Incorporated Owners before completion.

   
18.

Acknowledgement of receipt of initial deposit

The vendor will acknowledge receipt of the initial deposit by signing the receipt clause (if the property is in negative equity, the initial deposit should be paid to the vendor's solicitors as stakeholders for the purpose of discharging the existing mortgage).

Stamp duty (currently $100) is payable on a provisional agreement for sale and purchase relating to a residential property if the formal agreement for sale and purchase is signed more than 14 days from the signing of the provisional agreement.

 
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