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.
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| 2. |
Agreement to sell and purchase
The vendor agrees to sell and the purchaser
agrees to purchase the property specified in paragraph
3. |
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| 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. |
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| 4. |
Purchase price and manner of
payment
The price and manner of payment will be specified
in the formal agreement. |
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| 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. |
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| 6. |
Place for completion
The place for completion is usually the office
of the vendor's solicitors. |
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| 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;
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| b. |
The vendor will not warrant
the condition of the furniture or fixtures; |
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| 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 |
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| 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. |
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| 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. |
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| 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. |
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| 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. |
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| 11. |
Originals of documents
Title deeds which relate exclusively to the
property will be delivered to the purchaser. |
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| 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. |
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| 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. |
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| 14. |
Risk of property
Immediately after signing the formal agreement,
the property will be at the purchaser's risk. |
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| 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; |
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| b. |
The vendor will be entitled
to rescind the sale; |
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| c. |
The vendor may resell the property; |
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| 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; |
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| e. |
Any increase in price on resale
shall belong to the vendor; |
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| 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 |
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| g. |
The vendor may claim against
the purchaser for any other damages caused
by the purchaser's failure to complete. |
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| 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 |
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| b. |
The purchaser may claim against
the vendor for any other damages caused by
the vendor's failure to complete. |
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| 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. |
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| 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. |
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| 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.) |
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| 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). |
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| 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. |
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| 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. |
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| 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. |
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| 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. |
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| 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:
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| 1. |
Management fee deposit |
$1,800.00 |
| 2. |
Rates ($1,800 x 17/92*) |
$332.61 |
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$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:
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| Management fee ($800 x 14/31*) |
$361.29 |
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| Net balance payable by purchaser
to vendor: |
$
1,771.32 |
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* * 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.
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| 24. |
Solicitor's costs
Each party shall bear his own solicitor's costs
of and incidental to the formal agreement and
the subsequent assignment. |
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| 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. |
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| 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. |
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| 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. |
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| 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. |
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| 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. |
