This post is part of an on-going series. Please read the following earlier posts for context:
- DIY legal documents for conveyancing transactions — can we really do it without lawyers?
- DIY legal documents for conveyancing transactions — why some people think you don’t need lawyers in a sale and purchase of property.
In the previous post, we’ve seen how the over-simplified concept of the conveyancing process — the ideal in their minds — leads some to think that it isn’t necessary for lawyers to be part of the process.
Let’s now take a quick tour of some of the basic issues that come up in a conveyancing process so that we can appreciate the reality of a sale and purchase transaction.
Do note that this is a very basic run-through the issues (I was given a 10-15 minute time-slot in the event) and is intended for a non-lawyer’s comprehension.
1 — TITLE OR NO TITLE?
The first issue affects the legal basis of the entire transaction — does the property have a title or not? What does that mean?
The title is the legal document or ownership of the property — so, how is it possible that there is no title? Well, for example, if you’re buying a condominium, at the point of sale there will be a big title document — the master title — covering the whole piece of land on which the entire condo building (or the several blocks of condos) sits. Later on, this title will be divided into smaller strata titles for each individual unit.
Before the strata title is issued, there will be instances where people are selling and buying units — in essence, they are doing so “without a title”.
When a property is transacted “without a title” the legal basis of the transaction changes — instead of a registered transfer of title at the land office, legal documents are created to assign the rights to the new buyer. If this second buyer then sells the property and the strata title still hasn’t been issued, there will be another assignment. If in between, one of the buyers takes a loan to purchase the property, there will be an assignment to the bank, and then it will have to be reassigned before the next buyer can assign it to his bank.
In the absence of a title, the proof of ownership lies in this chain of assignment of ownership documentation. It obviously can get quite complicated.
For simplicity, we will put aside the transactions which take place “without a title” and focus on the more common transactions, which are the transactions where there is an individual title to a property.
2 — ENCUMBRANCES
The next issue is whether there are any encumbrances on the title to the property.
A simple land title search will reveal whether there are any existing encumbrances.
The most common encumbrance is a charge. A charge usually exists where the existing owner took a loan to finance the purchase of the property. A charge is a legal instrument registered on the property by the bank as security for the repayment of the loan.
While this charge exists, the property is “locked” and cannot be sold/transferred until the charge is removed or discharged.
Where a charge exists on a property which is the subject of a sale and purchase transaction, in order to release the property to be sold, we have to go through a redemption process.
A redemption process essentially involves redeeming the property from the bank by repaying whatever is owed to the bank as a result of the initial loan. The sale and purchase transaction will usually be structured in such a way that a portion of the purchase price paid by the new buyer is used to repay the bank and redeem the property, so that it can be transferred to the new owner.
As part of the redemption process, the bank will then sign all the necessary documents to discharge the charge.
It’s very important that this redemption process is carefully set out in the sale and purchase agreement to ensure that the timings and payments and exchanges of documentation are properly coordinated. Many buyers have found themselves stuck, having paid the 10% deposit, because the sale and purchase agreement didn’t sufficiently provide for the process, and the bank or bank’s lawyers are moving very slowly and not doing what is required of them to keep the transaction moving.
I will go into this more when dealing with sale and purchase agreements in the next post.
3 — RESTRICTIONS-IN-INTEREST
Another item which will be revealed in the land title search is whether there are any restrictions-in-interest on the property title.
The most common sort of restriction-in-interest is the requirement for State Authority consent. This means that the consent of the State Authority or land office of the particular State is needed before you can deal with (charge or transfer) the property.
The problem is that the application process is very different in each State. There are different forms, timelines, supporting documents, and fees. These requirements also change all the time.
Even lawyers struggle with this uncertainty sometimes, and have to consult lawyers from other States as to the little nuances of the particular land offices.
The time required to obtain the consent can be anything from two to six months, depending on the State — and this is without taking into account any complications which may arise.
If you are taking a bank loan to purchase property, I mentioned earlier that the bank will also want to enter a charge on the title. This charge also requires the State Authority’s consent if the relevant restriction-in-interest is present on the property title.
Similar to encumbrances, it’s crucial that the restrictions-in-interest are clearly and comprehensively provided for in the sale and purchase agreement (to be addressed in the next post) to avoid situations where the transactions are severely delayed, or stuck without a possibility of progressing to completion.
4 — ADMINISTRATIVE FORMS AND FILINGS
Another element of a sale and purchase transaction are the more administrative issues.
These are things which some say are all that lawyers are useful for really — getting all the forms for the land office, real property gains tax, goods and services tax etc filled up and filed properly.
A buyer may also want to register a private caveat on the title while the transaction is in progress. If you don’t know what a private caveat is, perhaps you should consult a conveyancing lawyer!
5 — STAMP DUTY
A buyer will need to pay stamp duty on the title transfer document. This is the part where most first-time buyers get a heart attack, because if you think legal fees are high, wait until you see the stamp duty.
Paying the stamp duty isn’t as simple as turning up at the stamp office with a chequebook. You have to go through the adjudication process, where the transfer documents are submitted to the stamp office. The stamp office will then (weeks later) issue a notice stating how much stamp duty is payable.
Although there’s a formula to calculate stamp duty, the stamp office will not always agree with the valuation of the property in the sale and purchase agreement. The actual stamp duty will be based on the valuation by the stamp office.
6 — PRESENTATION OF TRANSFER (AND DISCHARGE AND CHARGE) DOCUMENTS
Once everything is in place and the purchase price has been paid, the presentation of the transfer documents can happen.
This is where the official forms/documents are submitted to the land office to effect the change of ownership.
If there was an existing charge (due to the seller having taken a loan earlier) and there is a new charge (due to the buyer taking a loan now), the discharge and charge documents are also presented together.
It can be a confusing process for an inexperienced lawyer to go through, and small mistakes in the contents of the forms (or using the wrong forms) can result in the presentation being rejected. It’s crucial that the details are completely accurate.
Now that we’ve gone through a very simplified tour of a basic conveyancing transaction, the next post will explain how all these elements come together in the form of a sale and purchase agreement.