Offer to Purchase in Malaysia: What You Should Know Before Signing

You have viewed a property, negotiated the price and finally reached an agreement with the seller.

The property agent then presents you with an Offer to Purchase, sometimes also called a Letter of Offer, Booking Form or Earnest Deposit Form, and asks you to sign it and pay an earnest deposit.

At this stage, it is easy to assume that the document is merely a preliminary formality before the Sale and Purchase Agreement is prepared.

That assumption can be risky.

Depending on how an Offer to Purchase is drafted, it may contain important terms governing the transaction and may have legal consequences once it is signed and accepted.

Before signing one, both purchasers and vendors should understand what they are agreeing to.

What Is an Offer to Purchase?

An Offer to Purchase is generally a document setting out the purchaser’s offer to buy a particular property on specified terms.

It is commonly used in a secondary market or sub-sale property transaction before the formal Sale and Purchase Agreement, or SPA, is prepared.

The document may specify matters such as:

  • the identity of the purchaser and vendor;
  • the property being purchased;
  • the agreed purchase price;
  • the amount of earnest deposit payable;
  • the time allowed for the vendor to accept the offer;
  • the period within which the SPA must be signed;
  • how the balance deposit is to be paid;
  • whether the purchase is subject to any particular conditions;
  • what happens if either party does not proceed with the transaction; and
  • whether the earnest deposit is refundable or forfeitable in certain circumstances.

Although an Offer to Purchase is usually much shorter than an SPA, this does not necessarily mean that it is unimportant.

Is an Offer to Purchase Legally Binding?

There is no single answer that applies to every Offer to Purchase.

Whether the document creates legally binding obligations will depend on matters including its wording, the terms agreed between the parties and the circumstances surrounding the transaction.

For example, there is an important difference between a document which states that the transaction is “subject to the execution of a formal Sale and Purchase Agreement” and a document which already contains all the essential terms of the sale and demonstrates an intention for the parties to be bound.

Simply calling a document an “Offer to Purchase”, “Booking Form” or “Letter of Offer” does not by itself determine its legal effect.

The contents of the document matter.

This is one reason why purchasers and vendors should avoid signing such documents on the assumption that everything can simply be changed later when the SPA is prepared.

What Is an Earnest Deposit?

In many sub-sale transactions, the purchaser pays an earnest deposit when submitting the Offer to Purchase.

For example, the parties may agree that a certain percentage of the purchase price will be paid initially as an earnest deposit, with the balance of the agreed deposit being paid when the SPA is signed.

The Offer to Purchase should clearly state:

  • the amount being paid;
  • who will hold the money;
  • whether the money is being held as stakeholder;
  • when the money may be released;
  • when it must be refunded;
  • circumstances in which it may be forfeited; and
  • what happens if the transaction does not proceed.

Purchasers should not assume that every earnest deposit is automatically refundable if they subsequently decide not to proceed.

Likewise, vendors should not automatically assume that they are entitled to retain an earnest deposit whenever a transaction falls through.

The actual position will depend on the terms agreed between the parties and the reason the transaction did not proceed.

Check the Property Before Committing

Before committing to a property purchase, the purchaser should consider carrying out appropriate preliminary checks.

Where an individual title or strata title has been issued, a title search may reveal important information including:

  • the registered proprietor of the property;
  • the title particulars;
  • the tenure of the property;
  • restrictions in interest;
  • existing charges;
  • private caveats; and
  • other registered interests affecting the property.

There may also be additional issues depending on the property concerned.

For example, consent may be required for certain transactions, the property may still be charged to the vendor’s financier, or the property may not yet have an individual or strata title.

These issues do not necessarily mean that the property cannot be purchased, but they may affect how the transaction should be structured.

What If the Purchaser Needs a Housing Loan?

This is one of the most important matters for purchasers to consider before signing an Offer to Purchase.

A purchaser may intend to finance the purchase with a bank loan, but obtaining financing should not automatically be assumed.

Questions may arise such as:

  • Is the offer conditional upon the purchaser obtaining a loan?
  • What percentage of financing must be obtained?
  • How long does the purchaser have to obtain financing?
  • What evidence must be produced if the loan application is rejected?
  • Is the earnest deposit refundable if financing cannot be obtained?

If obtaining financing is intended to be a condition of the purchase, the condition should be properly recorded.

A purchaser should be cautious about assuming that a transaction can simply be cancelled without consequence because the bank subsequently approves a lower loan amount than expected or rejects the application altogether.

The SPA Deadline Is Important

An Offer to Purchase will often provide a period within which the parties must enter into the formal Sale and Purchase Agreement.

For example, the document may require the SPA to be signed within a specified number of working days from the vendor’s acceptance.

Purchasers and vendors should pay attention to how this period is calculated.

The document should ideally make clear:

  • when the period begins;
  • whether it refers to working days or calendar days;
  • whether extensions are permitted;
  • who may grant an extension; and
  • what happens if the SPA is not signed within the stipulated period.

This can become particularly important where additional documentation, financing arrangements, consent or other preliminary matters have to be dealt with before the SPA can be finalised.

For foreign purchasers or purchasers signing overseas

If you are a foreign purchaser, or if you intend to execute the Sale and Purchase Agreement outside Malaysia, you should be particularly mindful of the stipulated signing deadline.

Additional time may be required for the execution of documents overseas, including arranging for the appropriate witnessing or attestation where required, as well as the delivery and return of the original documents by international courier or postal services.

These practical arrangements should be factored into the agreed timeframe from the outset to avoid unnecessary difficulty in complying with the deadline for execution of the Sale and Purchase Agreement.

Don’t Assume the SPA Can Fix Everything Later

A common misconception is:

“This is only the Offer to Purchase. My lawyer can amend everything when preparing the SPA.”

That may not always be the case.

Once important commercial terms have already been agreed in writing, attempting to introduce substantially different terms at the SPA stage may result in disagreement between the parties.

For example, disputes may arise later concerning:

  • whether furniture or fittings are included;
  • vacant possession;
  • existing tenancies;
  • completion periods;
  • extensions of time;
  • financing conditions;
  • repairs to the property;
  • outstanding maintenance charges;
  • special conditions;
  • apportionment of expenses; or
  • the consequences of a party withdrawing.

If a particular term is important to your decision to purchase or sell the property, it is preferable to address it before signing rather than assuming it can be negotiated afterwards.

Purchasers Should Pay Attention to These Terms

Before signing an Offer to Purchase, a purchaser should pay particular attention to:

1. The purchase price

Ensure that the agreed purchase price is correctly stated.

2. The property description

Ensure that the document clearly identifies the property being purchased.

3. The earnest deposit

Check the amount, the person receiving it and the circumstances in which it may be refunded or forfeited.

4. Financing

If the purchase depends upon obtaining a housing loan, consider whether an appropriate financing condition should be included.

5. The SPA signing period

Ensure that sufficient time is provided for the SPA to be prepared, reviewed and finalised.

6. Special conditions

Record any important agreement concerning furniture, existing tenants, vacant possession, repairs, approvals or other matters.

7. Default provisions

Understand what may happen if either the purchaser or vendor subsequently fails or refuses to proceed.

Vendors Should Review the Offer Carefully Too

An Offer to Purchase is not only important to purchasers.

A vendor should also ensure that the terms accurately reflect the deal before accepting the offer.

For example, the vendor may need to consider:

  • whether the offered purchase price is correct;
  • whether the proposed completion period is acceptable;
  • whether the purchaser is requesting a financing condition;
  • whether the property is sold with vacant possession;
  • whether any tenancy must be dealt with;
  • whether fixtures or fittings are included;
  • whether the property is currently charged to a bank;
  • whether consent is required for the sale; and
  • whether any special arrangement requested by the purchaser is acceptable.

A vendor should therefore avoid signing an Offer to Purchase merely because the purchase price appears acceptable without considering the other terms attached to the offer.

Can You Change Your Mind After Signing?

This depends on the document and circumstances.

A person should not assume that he or she has an automatic right to withdraw from a property transaction simply because the SPA has not yet been signed.

Likewise, the legal consequences of a party refusing to proceed cannot be determined merely by looking at whether an earnest deposit has been paid.

The wording of the Offer to Purchase and the parties’ conduct must be considered.

If a dispute has already arisen, legal advice should be obtained before issuing demands, forfeiting or releasing deposits, or treating the transaction as terminated.

Should a Lawyer Review the Offer to Purchase Before You Sign?

For a property purchase involving a significant financial commitment, obtaining legal advice early can help identify issues before the purchaser or vendor becomes committed to particular terms.

Your lawyer may be able to check matters such as:

  • the wording of the Offer to Purchase;
  • the title particulars;
  • restrictions in interest;
  • existing encumbrances;
  • financing conditions;
  • special conditions;
  • timelines for execution of the SPA; and
  • the consequences if the transaction does not proceed.

It is usually easier to address an issue before an Offer to Purchase is signed than to attempt to renegotiate it afterwards.

Conclusion

An Offer to Purchase may appear to be a simple document used to secure a property while lawyers prepare the formal Sale and Purchase Agreement.

However, it should not automatically be treated as a mere administrative formality.

It may record the price, deposit, deadlines, conditions and other important terms upon which the purchaser and vendor have agreed to transact.

Whether you are purchasing or selling a property, take the time to understand the document before signing it.

A few minutes spent checking the terms at the beginning of a transaction may prevent considerably more complicated disagreements later.

Disclaimer: This article is intended to provide general information only and does not constitute legal advice. The legal effect of an Offer to Purchase depends on the wording of the particular document and the circumstances of each transaction. Independent legal advice should be obtained where necessary.

Read more:

How Much Are the Legal Fees for a Sale and Purchase Transaction in Malaysia?

Foreigner Consent in Malaysia: What Foreign Property Purchasers Need to Know

How Long Does a Subsale Property Transaction Take in Malaysia?

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