HBA: An Increase in Legal Fees will be Offset by Legal Forms of Discounts
Datuk Chang Kim Loong is the Honorary Secretary-General of the National House Buyers Association
The National House Buyers Association (HBA) refers to the Solicitors’ Remuneration Order 2023 (SRO 2023), which was gazetted and implemented on 15th July 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). It replaces the Solicitors Remuneration Order 2005, which was revised in 2016 and again, in 2017.
The SRO 2023 was approved by the Solicitors Costs Committee chaired by the Chief Judge of Malaya under Section 113 of the Legal Profession Act, 1976.
Impact on Homebuyers / Borrowers and Discounts
The last few years have seen challenging times for many people, including professionals and lawyers too. In a nutshell, in line with the rising cost of living and doing business since the last revision of the SRO 2005 (revised in year 2017 hereinafter referred to as ‘SRO 2017’), the SRO 2023 reviewed upwards the schedule of fees that lawyers can legally charge and offer discounts and rebates.
Please refer to Table 1 below for the comparison of the fees chargeable.
We have analysed the possible impact to prospective house buyers on the increase in legal fees payable for properties/loan value under different scenarios, ranging from:
• affordable properties costing RM300,000
• mid-range properties costing RM500,000 and RM750,000
• high-end properties costing RM1,000,000 and RM1,500,000
Our findings in Table 2 can be summarised below:
Although the new SRO 2023 does increase legal fees payable for both the SPA and Loan Agreements, the increase can be considered reasonable as the last revision was almost six years ago (2017). Malaysia and the rest of the world have seen a rise in the cost of living due to Covid-19 and global economic disruptions.
In our examples above, the increase in legal fees (being property valued at RM300,000 up to RM1.0 million) between SRO 2017 and SRO 2023 was at 25% or at a compounded annual rate increase of 3.79% per year, which is within the expected range of inflation rate of 3% to 4%.
For properties valued at RM1.5 million, the increase in legal fees is about 30%. The compounded annual rate of increase between SRO 2017 and SRO 2023 is 4.47%, marginally higher than the expected inflation rate of between 3% to 4%.
The increase in legal fees between SRO 2017 and SRO 2023 is also very minimal in comparison to the Consideration / Loan Value of the property. Based on our examples above:
It is also to be noted that the SRO 2023 also charges a lower legal fee of between 25% and up to 50% for properties governed under the Housing Development Act, i.e. bought directly from housing developers. There is a higher percentage of discounts than SRO 2017, which reflects 25% to 35% for properties purchased under the HDA.
For properties under HDA where the Consideration / Loan Value is above RM1.0 million, the discount under SRO 2023 of 50% is higher than the discount available under SRO 2017 of 35%. Hence under our example below, the fees payable for properties under HDA are valued at RM1.0 million; there is no increase in legal fees to be paid.
Please refer to Table 3 to Table 5 for the actual increase in legal fees payable for HDA properties.
As the increase in legal fees is reasonable and insignificant compared to the property value or loan amount, it is not expected to cause a domino effect towards the rising cost of living or house prices.
Frequently asked questions
We have posed several questions that will probably be in most home buyers’ and tenants’ minds.
Q1) How would a potential increase in legal fees affect homeowners or first-time homebuyers?
HBA: Most people can only afford to buy one property in their lifetime, and a small minority might be lucky enough to afford a second property for long-term investment. Hence, such a ‘one-off’ increase is not expected to impact their daily living expenses compared to the rise in petrol, toll or utility charges incurred daily.
Q2) Could the increase in legal fees also affect rent fees for future tenants?
HBA: No, it will not because many estate agents now have their standard Tenancy Agreement that they adopt with their ‘cut & paste’ to suit the arrangement between landlord and tenants.
On top of that, the Government have highlighted that new legislation has been proposed to govern the rights of the tenants with the entitlement of the landlords under the proposed: ‘Residential Tenancy Act’. With the coming of the new legislation, a standard template will be made mandatory with ‘fair and reasonable’ terms and conditions in the Tenancy Agreement. Hence, the need for the involvement of lawyers (to draw up a Tenancy Agreement) will be minimised.
Q3) What is the appropriate increase in legal fee structure to ensure lawyers' financial well-being while ensuring consumers aren't too heavily affected? (e.g., fees increased within the expected range f inflation rate)
HBA: We think the increase in legal fees is in tandem with current times.
Q4) Do you think an increase in maximum legal fee discounts would be enough to compensate for the rise in overall legal fees?
HBA: Yes, the increase in legal fees is offset by legal discounts. Discounts and rebates are now legalised, and consumers are at liberty to negotiate their fees (legal) on purchases and loans.
This article is written by Datuk Chang Kim Loong, the Honorary Secretary-General of the National House Buyers Association: www.hba.org.my, a non-profit, non-governmental organisation (NGO) manned by volunteers. He was also a Councillor with the then Subang Jaya Municipality Council (now conferred Subang Jaya City Council status) from year 2008 – 2018.
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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