Purchase of a private residential property involves legal documentation which includes the signing of a contract. Once the deposit is made and the contract is signed, the Buyer is legally bound to make the balance payment of the purchase price and complete the legal documentation by the completion date stipulated in the contract.

Some Buyers might not be able to pay the full balance payment to complete the purchase. This article explores the legal consequences that such buyers could face, whether they are buying from Developers or from Sellers in the resale market.

Purchase of a resale property

Aside from sale of uncompleted residential properties by Developers, there is no prescribed contract for the sale and purchase of a private residential property. The most common contract is by way of an Option to Purchase (Option) where the Seller grants an Option to the Buyer for a stipulated period in consideration for an option fee. Upon the exercise of the Option by the Buyer, a sale and purchase contract is formed. Parties then have to complete the process by the scheduled completion date in accordance with terms of the Option.

Most Option formats do not have specific clauses dealing with the failure to complete. However, most if not all Option formats, incorporate the Law Society of Singapore’s Conditions of Sale 2012. One should note two pertinent conditions here, namely condition 9 that deals with Late Completion Interest, and condition 15 that deals with a Notice to Complete. These conditions will apply unless they are specifically amended by the terms of the contract.

If the Buyer fails to complete the purchase on the scheduled completion date, the Seller can choose to extend the completion date, and also charge the Buyer (as provided in condition 9) for late completion interest (as liquidated damages), from the day following the scheduled completion date up to the actual completion day, at 8% per annum on the balance of the purchase price.

In cases where the Buyer fails to complete despite extension given, the Seller can apply to court for an order to compel the Buyer to specifically perform his side of the contract. This remedy might not be given by the court, particularly when the Buyer lacks the financial or legal capability to complete the purchase.

Most Sellers might prefer to rescind the contract so that they can proceed to resell instead of spending time and money to go to court. In such case, the Seller must consider condition 15 where it is stated, among other things, that upon service of a Notice to Complete, parties must complete the transaction within 21 days after day of service of notice (excluding date of service) and time will be of the essence of the contract. If the Buyer fails to comply with the terms of any effective Notice to Complete given by the Seller, the Seller may, among other things, forfeit and keep any deposit paid by the Buyer and resell the Property. If upon any resale contracted within one year after the scheduled completion date the Seller suffers a loss, the Buyer must pay to the Seller, as liquidated damages, the amount of such loss. The liquidated damages will include all costs and expenses reasonably incurred in such resale or attempted resale but the Seller must give credit for any deposit and any money paid on account of the purchase price.

Purchase of property from a housing developer

The sale and purchase of private residential properties from the Developer is governed by the Housing Developers Rules. There is a prescribed form of the Sale and Purchase Agreement (SPA) that can be used by the housing developer, subject to such modifications pre-approved by the Controller of Housing. For purpose of this article, we will refer to the relevant clauses in this prescribed form of SPA.

The Buyer’s primary obligation is to pay the Purchase Price by progressive instalments in the manner set out in the SPA. If the Buyer fails to pay any or any part of any instalment of the Purchase Price, the Buyer is liable to pay interest on the unpaid amount to the Vendor, calculated on a daily basis at 2% per annum above the Base Rate (defined as average of the prevailing prime lending rates of DBS Bank, OCBC and UOB, per annum rounded down to nearest one-eighth of 1%) as provided under clause 6 of the SPA. The prevailing interest rate chargeable is 6.75%.

While the Developer can sue a delinquent Buyer for the unpaid instalment(s) of the Purchase Price, it is likely to choose to terminate the SPA and look for another buyer. In such instance, the Developer relies on clause 7 of the SPA which gives it the right to treat the SPA as repudiated by the Buyer if any or any part of any instalment of the Purchase Price and interests remain unpaid for more than 14 days after the expiry of the relevant due date for payment. In order to exercise this right, the Developer has to give to the Buyer a written notice, of not less than 21 days, of the Developer’s intention to treat the SPA as repudiated. The SPA shall be annulled after the notice has expired unless the unpaid instalments and interest are paid within the notice period.

Upon annulment of the SPA, the Developer has the right, among others, to resell the unit as if the SPA has not been entered into. The Developer can recover from the instalments previously paid by the Buyer all interest, property tax, maintenance charges and other amounts owing and unpaid under the SPA, as well as all costs incurred (if any) by Developer to recover possession (other moneys owing) as at the date of the annulment, and also forfeit 20% of the Purchase Price from instalments (excluding interest) previously paid.

The terms of the SPA is also clear that the Developer cannot claim for or forfeit more than the sum of 20% of the Purchase Price and other moneys owing, even if the Developer suffers a loss exceeding 20% of the purchase price upon resale of that unit.

Purchase of executive condominiums from developers

The contractual position is substantially similar for the purchase of executive condominiums from Developers. However, pursuant to announcement made by the Ministry of National Development on 9 December 2013, the relevant clause 7 (as well as clause 19 relating to non compliance with EC rules) was amended such that the amount that can be forfeited by the Developer is 20% (where the leasehold estate commences before 1 January 2014), and 5% (where the leasehold estate commences on or after 1 January 2014). Although the apparent reason for this change is to relieve significant financial hardship of young couples who could not fulfil the eligibility requirement of marriage for ECs, the lowered cap (of 5%) in the forfeiture amount applies to all situations including those cases where the default by the Buyer is due to failure to pay any part of the purchase price (covered by clause 7).

Conclusion

Buyers are advised to plan ahead their financial arrangements including setting aside enough to pay for any part of the purchase price that cannot be covered by a housing loan or CPF moneys. This should be done before the signing of a binding contract so as to avoid unnecessary financial loss.

An edited version of this article first appeared in The Business Times Singapore on 19 March 2015