When private property buyers enter into an Option to Purchase (OTP) agreement, they may find that the OTP could state that the sale of the property is subject to either the Law Society Conditions of Sale 1999 or 2012. The Conditions of Sale are a set of documents that define the rights and obligations that both the seller and buyer must adhere to when entering into a property transaction.
The Bar Association’s Conditions of Sale are not necessarily included in every OTP and may be attached to an OTP if the various parties decide to include them in the agreement.
The Law Society Conditions of Sale are updated by the Law Society of Singapore, which amends the conditions from time to time in accordance with the constantly changing legislation. The Law Society also provides guidelines for transfer of property to help individuals better interpret the terms set out in the Conditions of Sale.
In OTP agreements, either the 1999 Conditions of Sale or the 2012 Conditions of Sale may be used, depending on which set of documents is most appropriate for the particular transaction. Four key clauses contained in the Law Society Conditions of Sale 1999 or the 2012 Conditions of Sale are:
1. THE AS IN AND WHERE IS CLAUSE
According to the Law Society Conditions of Sale 1999, the buyer acquires the property in its true condition as presented to him and if he discovers defects of which he was not aware, he cannot cancel the purchase or claim damages from the seller.
The AS IN AND WHERE IS CLAUSE in the Law Society Conditions of Sale 2012 is subject to conditions 5 and 10. Condition 5 requires the seller to “deliver the property in the same state and condition as it was at the date of the election of the contract date, whichever is earlier (apart from fair wear and tear), unless the parties have otherwise agreed.”
This means that the seller is now responsible for the condition of the property until the transaction closes, even though they have already sold the property and are just waiting for the closing. Buyers can hold sellers liable if the condition of the property at the close of the transaction differs from the condition the property was in when the OTP was exercised, with the exception of normal wear and tear.
Condition 10 states that the seller has not made any unauthorised extensions or alterations to the property. If the seller has made renovations to the property without official approval before the sale, the buyer can claim damages from the seller if they have to carry out the unauthorised renovations in the future.
This condition is beneficial to buyers because it ensures that the transaction is transparent and they will not be surprised by corrective costs in the future if the seller fails to disclose unauthorized changes. Sellers who do not want to be held liable for unauthorized renovations can disclose the changes to the seller and include a clause in the sales contract stating that the buyer is aware of the changes and cannot make any claims against the seller.
2. THE TAX CLAUSE
The TAX CLAUSE is designed to clarify who is liable to pay the Goods and Services Tax (GST) where the contract does not specify whether the purchase price of the property includes GST and whether the transaction is subject to GST. Condition 7 of the Conditions of Sale 2012 states that if the property is subject to tax but the contract does not mention whether the purchase price includes GST, the buyer is liable to pay GST.
3. The default interest clause
Condition 9 of the Conditions of Sale concerns a late payment interest clause. This clause sets out who is liable for late payment interest if the completion of the transaction is delayed, how much interest is payable and how the interest is calculated.
If completion is delayed through the fault of a party, that party will be liable to pay interest on late payment as liquidated damages. The Law Society Conditions of Sale 1999 state that interest on late payment is calculated on the basis of an equivalent amount of 10% per annum, pro rata according to the number of days of delay until completion of the sale.
The Law Society’s 2012 terms of sale reduce this rate to 8 per cent per annum, pro rata by the number of days late in completing the sale. The lower rate may reflect lower market interest rates.
4. THE SPECIAL CONDITIONS CLAUSE
This SPECIAL CONDITIONS clause refers to Condition 16 which states that if there are any special conditions to the contract of sale between the Seller and the Buyer, those special conditions will prevail even if they conflict with the Law Society Conditions of Sale 2012.
This ensures that the seller and buyer have the freedom to negotiate special terms and conditions and add them to the contract of sale without having to worry about whether these additional terms conflict with the Law Society Conditions of Sale 2012.
This article is not intended to be an exhaustive explanation of the Law Society’s 1999 and 2012 Conditions of Sale, but is intended to give you a better understanding of some aspects of these documents in case you encounter the Conditions of Sale when entering into an OTP agreement.
Please consult an attorney to obtain proper legal advice regarding the terms and conditions of sale applicable to you in your private real estate transaction.
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