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Monograph : Conveyancing Contents
(3) Formal Agreement for Sale and Purchase
 
 

The formal agreement for sale and purchase is usually prepared by the vendor's solicitors for the approval of the purchaser's solicitors and comes after a provisional agreement for sale and purchase in a conveyancing transaction. Like a provisional agreement, there are no standard forms for a formal agreement. The terms and conditions contained in a formal agreement are in greater detail and cover a wider range of matters than a provisional agreement, although it also incorporates the basic terms as agreed between the parties in the provisional agreement. A formal agreement usually contains or deals with the following provisions or matters:

1.

Particulars of the vendor and the purchaser

These will be particularised in the formal agreement.

   
2.

Agreement to sell and purchase

The vendor agrees to sell and the purchaser agrees to purchase the property specified in paragraph 3.

   
3.

Property

Particulars of the property will be set out in the formal agreement. A land search of the property at the Land Registry will reveal the description of the property according to the Land Registry record, including equal undivided shares in land, the lot number of the land on which the property stands and postal address of the property. An example of the description of property appearing in a formal agreement may read: "All That 1/1,000th equal undivided part or share of and in Section A of Inland Lot No.1234 together with the exclusive right to the use occupation and enjoyment of All That Flat A on the 8th Floor of Block 8 of Lucky Garden, 8 Luck Street, Hong Kong". 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 in the formal agreement.

   
4.

Purchase price and manner of payment

The price and manner of payment will be specified in the formal agreement.

   
5.

Completion date

The completion date and time will be specified in the formal agreement. The completion time is usually between 9am and 5pm if the completion date falls on a day from Monday to Friday or between 9am and 1pm if it falls on a Saturday.

   
6.

Place for completion

The place for completion is usually the office of the vendor's solicitors.

   
7.

Furniture and fixtures

If the price includes furniture and fittings, such items should be listed in the formal agreement and the following provisions are usually included:

a. The furniture and fixtures will be sold on an "as is" basis;
   
b. The vendor will not warrant the condition of the furniture or fixtures;
   
c. The vendor will warrant that the furniture and fixtures are not subject to any hire-purchase agreement and are free from any other encumbrances; and
   
d. Failure by the vendor to comply with this clause will not entitle the purchaser to withdraw from the purchase (that is, the purchaser has to complete) and the only remedy the purchaser has is to claim damages against the vendor.
   
8.

Good title

The vendor agrees to prove and give good title to the property at his expense and shall at the like expense produce attested or certified copies of documents required to be produced under S.13 of the Conveyancing and Property Ordinance. In brief, the vendor has to prove good title by producing to the purchaser title deeds of the property dating back at least 15 years from the present transaction. It is of vital importance to the purchaser that the title of the property should not be affected by any major defects which adversely affect its marketability.

   
9.

Requisition on title

Requisition on title has to be raised with the vendor's solicitors within a specified period of time, usually within seven working days of the receipt of title deeds by the purchaser, failing which the purchaser shall be deemed to have accepted title.

   
10.

Purchaser's insistence on requisitions

If the purchaser insists on any requisition which the vendor is unable to resolve, the vendor shall be at liberty to annul the sale by giving to the purchaser a stated period of notice, for example, not less than seven days' written notice. Unless such requisition has been withdrawn in the meantime, upon expiry of the said notice, the formal agreement will be annulled and the purchaser entitled to the return of all deposits paid without compensation whilst all the title deeds will be returned to the vendor.

   
11.

Originals of documents

Title deeds which relate exclusively to the property will be delivered to the purchaser.

   
12.

Encumbrances and easements

The property will be sold subject to and with the benefit of the terms and conditions of the government grant and Deed of Mutual Covenant relating to the property. 

   
13.

Vacant possession

Unless the property is sold subject to an existing tenancy, the vendor shall deliver vacant possession of the property to the purchaser upon completion.

   
14.

Risk of property

Immediately after signing the formal agreement, the property will be at the purchaser's risk.

   
15.

Purchaser's failure to complete

If the purchaser fails to complete according to the formal agreement, the vendor will have the following remedies:

a. All the deposits paid by the purchaser (usually not exceeding 10% of the price) will be absolutely forfeited to the vendor;
   
b. The vendor will be entitled to rescind the sale;
   
c. The vendor may resell the property;
   
d. If the price on resale by the vendor is lower than the price stated in the formal agreement, the purchaser shall be liable for the deficiency in price arising from the resale and all incidental expenses;
   
e. Any increase in price on resale shall belong to the vendor;
   
f. The vendor is entitled to register at the Land Registry a memorandum signed by the vendor alone to rescind the sale and to vacate the registration of the formal agreement; and
   
g. The vendor may claim against the purchaser for any other damages caused by the purchaser's failure to complete.
   
16.

Vendor's failure to complete

If the vendor fails to complete according to the formal agreement, the purchaser will have the following remedies:

a. All the deposits paid shall be returned to the purchaser; and
   
b. The purchaser may claim against the vendor for any other damages caused by the vendor's failure to complete.
   
17.

Specific performance1

If any party fails to complete according to the formal agreement, the other party may claim specific performance of the formal agreement either in lieu of or in addition to a claim for damages against the defaulting party.

   
18.

Time of essence

Time shall be of the essence of the formal agreement (that is, both parties shall strictly comply with the time limits mentioned in the agreement). Regarding the time for completion, it has been held by the court in a number of cases that even if the purchaser was only a few minutes late in tendering the balance of purchase price on the date of completion, the purchaser was in breach of the agreement as time was of the essence. Thus, for example, if the time for completion is stated as at or before 5pm on 31 December 2001, the purchaser has to tender the balance of the purchase price to the vendor at or before 5pm on 31 December 2001 and any delay beyond 5pm will render the purchaser in breach of the agreement and may entitle the vendor to forfeit the deposits and rescind the sale.

   
19.

Property sold on "as is" basis

The property will be sold on an "as is" basis. The purchaser has inspected the property and has accepted its physical condition. No warranty is given by the vendor on the physical condition of the property. (See also Chapter 2, paragraph 14.)

   
20.

Orders or notices before completion

The formal agreement may deal with:

a. Orders or notices issued by any government authority before completion requiring the vendor to demolish or reinstate the property or any part thereof: such notices/orders are usually the result of unauthorised alterations/structures affecting the property and as such, give rise to requisition on title. It is usual to provide in the formal agreement that in such event, the vendor shall bear the cost for such demolition or reinstatement and the purchaser may elect to rescind the formal agreement and be refunded all the deposits paid (unless the vendor has disclosed the existence of such unauthorised structures/alterations before the provisional agreement and the purchaser has accepted the same).
   
b. Orders or notices issued by the government or the incorporated owners or the manager of the building before completion requiring the vendor as a co-owner to contribute to the cost of repair or renovation to the common areas or facilities: whether the vendor or the purchaser should bear such cost is a matter of contractual agreement between the parties. Therefore, the issue is best raised and agreed between the parties at the provisional agreement stage to avoid dispute at the formal agreement stage or thereafter.
   
c. Orders or notices issued under the Lands Resumption Ordinance, Town Planning Ordinance etc., before completion requiring resumption of the property: it is usual to provide in the formal agreement that in such event, the purchaser may rescind the agreement and be refunded all the deposits paid.
   
21.

Vendor's solicitors as agent

The vendor will declare that the vendor's solicitors are the vendor's agent for the purpose of receiving all money payable to the vendor and that payment of any money to the agent shall be a sufficient discharge of the purchaser's obligations to pay under the formal agreement.

   
22.

Stamp duty

All stamp duty payable in respect of the Provisional Agreement, formal agreement and subsequent assignment shall be paid by the purchaser. In the event that the price stated in any of the said documents is not accepted by the Collector of Stamp Revenue as representing the true consideration of the property, the additional stamp duty charged by the Collector of Stamp Revenue in accordance with his valuation of the property shall also be borne and paid by the purchaser.

   
23.

Apportionment of outgoings

All outgoings of the property shall be paid by the vendor up to (exclusive or inclusive of the day of completion to be agreed between the vendor and purchaser) completion and as from (inclusive or exclusive of the day of completion to be agreed between the vendor and the purchaser) completion all outgoings shall be paid by the purchaser. All outgoings shall be apportioned between the vendor and the purchaser. Usually, the outgoings which need to be apportioned include the management fee deposit, management fee, rates and government rent. What normally happens is that on or before completion, the vendor provides his solicitors or estate agent with receipts for the relevant deposits and outgoings for them to work out an apportionment account. The account will show what amount is owed and by whom. The party who has to make a payment to the other party according to the apportionment account will pay the amount, sometimes upon completion and sometimes after completion. In any event, the purchaser should receive the originals of the relevant receipts.

Example

The vendor and the purchaser agree to complete the sale and purchase of the property on 15 December 2001. The vendor has paid rates of $1,800.00 for the months from October to December 2001 but has not paid the management fee of $800 for the month of December 2001. The management fee deposit is $1,800.00. On the basis of the vendor paying up to but exclusive of the day of completion, the apportionment account will be as follows:

Apportionment Account

Amount payable by the purchaser to the vendor:

1.

Management fee deposit

$1,800.00

2.

Rates ($1,800 x 17/92*)

$332.61

--------------------------

$2,132.61

* There are 17 days from 15 December to 31 December. There are 92 days in the months of October, November and December.

Less: amount payable by vendor to purchaser:

Management fee ($800 x 14/31*)

$361.29

------------------------

Net balance payable by purchaser to vendor:

$ 1,771.32

==============

* * There are 31 days in the month of December. There are 14 days from 1 December to 14 December.

In respect of other utility charges, such as water, gas and electricity, the normal practice is for the vendor to obtain a refund for the relevant deposits from the utility companies directly and for the purchaser to pay deposits to the utility companies in order to open accounts in the purchaser's name. The vendor will also be advised to record meter readings of utilities upon completion in order to ascertain the liabilities of the vendor towards such charges.

   
24.

Solicitor's costs

Each party shall bear his own solicitor's costs of and incidental to the formal agreement and the subsequent assignment.

   
25.

Discharge of existing mortgage

The parties are aware that the property is presently subject to the mortgage more particularly set out in the formal agreement. The vendor undertakes that the vendor will, on or before completion of the sale and purchase of the property, pay to the mortgagee the amount required to obtain a release of the property so that the property will be assigned to the purchaser free from the said mortgage. The vendor's solicitors shall write or have already written to the mortgagee for the amount payable to obtain a release of the property.

   
26.

Vendor's capacity

In most cases, the vendor will assign the property as beneficial owner (other capacities include trustee, confirmor, mortgagee and personal representative). The capacity in which the vendor is expressed to assign in the subsequent assignment of the property decides the covenants for title implied in such assignment. In brief, if the vendor assigns in the capacity of beneficial owner, the implied covenants for title will be more comprehensive and protective to the purchaser than if the vendor assigns in other capacities.

   
27.

Inspection by purchaser's mortgagee

The vendor shall allow the purchaser's mortgagee to view the property once for valuation purpose upon reasonable prior notice being given to the vendor before completion.

   
28.

Final inspection by purchaser

The vendor shall allow the purchaser to view the property once before completion and upon reasonable prior notice being given to the vendor to verify delivery of vacant possession.

   
29.

Third party clause

The vendor declares and confirms that no third party has any right or interest in the property. In the event that there is any third party claim against the property on or before completion, the vendor shall forthwith refund to the purchaser all the deposits paid and without prejudice to the purchaser's right to claim against the vendor for all damages sustained by the purchaser by reason of the vendor's failure to complete the sale in accordance with the terms of the Formal Agreement.

1 The right to claim specific performance is usually expressly excluded in the provisional agreement.  (See also Chapter 2, paragraphs 11 and 12.)

 
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