News and Views

Free Legal Fees – Fact Or Myth

March 24, 2024
MALAYSIA
Datuk Chang Kim Loong is the Honorary Secretary-General of the National House Buyers Association

Freebies have been advertised and offered to attract purchasers to buy developers' property because choices are now abundant, though pricing is on the exorbitant side.

Some of the freebies include air conditioning, kitchen cabinets, automatic gates, club memberships, and legal fees. The list is not exhaustive as property development is a competitive game.

However, among the freebies offered to purchasers, legal fees require objective analysis. The freebie on legal fees normally appears in sale brochures and advertisements as "Free Legal Fees" or "Legal Fees Borne by Developer" or other words to that effect.

Now, what are "free legal fees"? Is it a freebie in the truest sense of the word? The question is: Are buyers really enjoying a waiver of such legal fees?

Meaning of “free legal fees”

Generally, "free legal fees" would mean that the developer will pay for the legal fees on the sale and purchase agreement. However, the offer of free legal fees may not cover disbursements such as stamp duties, search fees, registration fees, printing charges, purchase of documents costs, etc., and the purchaser will have to pay for them.

In other words, the offer of "free legal fees" would, in its plain and obvious meaning, suggest that the legal fees the purchaser would have to pay to the solicitor would instead be paid by the developer. It would, therefore, be understood that if the purchaser had appointed a solicitor, the developer would pay for the solicitor’s fees.

However, is this what actually happens when a purchaser buys property from a developer who offers "free legal fees"?

What happens is actually quite different. An erroneous understanding of "free legal fees" exists in the housing development industry, much to the dismay of purchasers having disputes with developers concerning the purchase of the property.

Developer’s Solicitor

In offering "free legal fees," the developer would recommend to the purchaser a law firm on the developer’s panel to handle the sale and purchase agreement and its related transactions. Correspondingly, the same law firm will be tasked with the loan documentations as a packaged deal. If the purchaser chooses that law firm, the developer will supposedly absorb the legal fees. Quite obviously, the developer takes the view that such arrangements represent a cost-saving to the purchaser as well as facilitate and expedite dealings.

Now, the irony is the solicitor of the law firm attending to the sale and purchase agreement would not normally scrutinize the agreement for the purchaser to understand in layman's language but would say that it is a ‘standard agreement.’ Instead, the solicitor would ensure that the developer’s rights and interests in the agreement are intact, and the purchaser duly signs the agreement, thus being bound by it.

From a legal standpoint, the solicitor acting in such a manner would actually be acting for the developer. The solicitor is, therefore, the developer’s solicitor, and being the developer’s solicitor, the developer would have to pay the solicitor’s fees. Therefore, there is nothing free about it as far as the purchaser is concerned. It can only be considered free if the buyer receives independent legal representation and does not have to pay for it.

Hence, there is no solicitor acting for the purchaser to scrutinize and protect the purchaser’s rights and interests in the agreement. The purchaser is without legal representation, and since the purchaser has no solicitor acting for the purchaser in the agreement, there are no legal fees for the purchaser to pay.

Unfortunately, many purchasers realize late in the day that the solicitor attending to the sale and purchase agreement is actually the developer’s solicitor, and the purchaser had no legal representation in the first place and legal fees to pay.

The purchaser normally realizes this fact when a dispute arises with the developer, and the purchaser asks the solicitor for help and is informed that the solicitor who attended to the sale and purchase agreement is actually the developer’s solicitor.

Purchaser’s Solicitor

What would happen if the purchaser appoints another solicitor who is not on the developer’s panel of solicitors to attend to the sale and purchase agreement? How would the offer of “free legal fees” be affected?

In principle, the solicitor so appointed will scrutinize the sale and purchase agreement for the purchaser. The solicitor will act for the purchaser, and consequently, there are legal fees for the purchaser to pay the solicitor.

In this situation, the developer and purchaser will each have their own solicitor. Each party will have solicitor’s fees to pay.

If the developer’s offer of “free legal fees” were taken seriously, it would follow that the developer would have to pay for the purchaser’s solicitor’s fees because it is arguable that the developer’s offer of “Free legal fees” or “Legal fees borne by developer” is clear and broad enough to cover such a situation. The purchaser would, therefore, be entitled to claim on the offer and have the developer pay for the purchaser’s solicitor’s fees.

However, most developers would refuse to pay for the purchaser’s solicitor’s fees. The reason given normally for the refusal is that the offer of “free legal fees” is subject to the condition that the purchaser chooses the solicitor on the developer’s panel of law firm to attend to the sale and purchase agreement.

When this happens, the developer’s offer of free legal fees would seem hollow, and the developer may possibly be exposed to being sued for misrepresentation and damages.

Legal Profession Act

Section 84 of the Legal Profession Act 1976 states that a solicitor who acts for the developer in the sale of property under a housing development must not act for the purchaser in the same transaction.

Furthermore, under the sale and purchase agreement, namely Schedule G (Landed property), Schedule H (Stratified Property), Schedule I (Landed Property 10:90 concept), and Schedule J (Stratified Property 10:90 concept), the developer and purchaser must pay their own solicitor’s costs.

The above laws suggest clearly that the developer’s solicitor must not act or purport to act for the purchaser. The purchaser has the right to appoint his/her solicitor. Each party bears its own solicitor’s costs.

Thus, is the developer’s offer of “free legal fees” legal? The readers should ponder on the arguments.

The Reality

Meantime, two (2) situations would possibly arise from the developer’s offer of “free legal fees”.

First - where the purchaser is unrepresented by a solicitor in the sale and purchase agreement, the offer of “free legal fees” is not really “free” because the purchaser has no solicitor acting for the purchaser in the agreement and thus no legal fees to pay.

Second - where the purchaser is represented by a solicitor in the sale and purchase agreement, the purchase has a solicitor acting for the purchaser in the transaction and thus has legal fees to pay. The developer would be bound to honour the offer of “free legal fees” and pay the solicitor’s fees or possibly risk being sued for misrepresentation and damages.

In reality, most developers fail to honour the offer of “free legal fees” in the second situation. Instead, the purchaser is asked to pay the solicitor’s fees and informed that the offer would only apply if the purchaser chooses the solicitor (law-firm) on the developer’s panel to attend to the sale and purchase agreement.

In summary, Is “Free Legal Fees” Fact Or Myth? There is nothing free about it as far as the buyer is concerned. It can only be considered free if the buyer receives legal representation and does not have to pay for it.

Hopefully, the next time you buy property from a developer and read about “Free Legal Fees” or “Legal Fees Borne by Developer” or other words to that effect, you would remember reading this article and exercise your rights accordingly.

What are the prevalent legal fees in Property transaction when you buy from a housing developer? Are legal fees discounted for standardized sale & purchase OR housing loan)

The Solicitors’ Remuneration Order 2023 (SRO 2023) has been gazetted and has been implemented on 15.7.2023.  The SRO 2023 governs the legal fees that lawyers can charge in Malaysia in respect of Sale and Purchase Agreements (SPA) and financing agreements involving immovable properties (land and building) as follows:

In a case where the purchase transaction is governed by the Housing Development (Control and Licensing) Act, 1966 ("HDA transaction"), or where a loan is obtained to finance a HDA transaction, the following lower scale of fees will apply:

(a) RM500  if purchase price or the loan sum (as the case may be) is RM50,000 or less;

(b) 75% of the applicable scale fee specified above, if the purchase price or the loan sum (as the case may be) is above RM50,000 but not more than RM250,000;

(c) 70% of the applicable scale fee specified above, if the purchase price or the loan sum (as the case may be) is above RM250,000 but not more than RM500,000;

(d) 65% of the applicable scale fee specified above, if the purchase price or the loan sum (as the case may be) is above RM500,000 but not more than RM1,000.000;

(e) 50% of the applicable scale fee specified above, if the purchase price or the loan sum (as the case may be) exceeding RM1,000.000

Why must you use your own lawyer?

The first rule of conveyancing is ‘buyer and seller must engage their own lawyer.’ Consult a lawyer right from the start and not after you have paid the deposit. Reasons to use your own lawyer:

Under the law, you are deemed to have read and understood every document you have signed. Furthermore, promises made by the seller or someone else about the deal may not be enforceable if the promises are not in writing unless you can provide proof of the same.

A lawyer cannot represent both the vendor and purchaser – if you are using the vendor’s panel lawyer, often, when disputes happen, the lawyer is unlikely to represent you against their bigger client.

A lawyer in general practice will be able to complete your purchase; however, lawyers with a focused real estate/conveyancing practice may prove a better choice if you are unsure of what to do or have complications in your purchase agreement or mortgage. While you may think that you cannot afford the services of your own lawyer, consider whether you can afford not to.

This article is co-written by Robert Tan, one of the legal advisors of the National House Buyers Association (HBA) and Datuk Chang Kim Loong, Hon Sec-Gen of the HBA, a non-governmental and not-for-profit organisation manned by volunteers.

Disclaimer: Any opinions expressed are entirely the author’s own and do not necessarily reflect the views of PropertyGuru and its entities.

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