by Lim Jo Yan and Mak Ka Wai
An Offer Letter between a seller and purchaser forms the framework for the sale and purchase of property, as its terms are incorporated into the sale and purchase agreement. As such, it is imperative for the seller and purchaser to include specific terms (to be discussed below) that are relevant in the sale and purchase of a luxury property.
This article aims to highlight how a purchaser may, in a sale and purchase of luxury property, utilise the clause ‘Specific Conditions’ that is typically found (but left unaddressed) in Offer Letters. We would like to highlight 3 points that should be addressed in this clause.
First, the seller and purchaser should consider whether it is selling and buying the property together with specific fixtures and fittings. For example, a purchaser may wish to purchase the property together with the Murano chandelier that caught his attention. Further, the purchaser may have assumed that the purchase price includes the Murano chandelier. For the avoidance of doubt, the purchaser should set out specifically in ‘Special Conditions’ that the property shall be sold together with the Murano chandelier. In this regard, in a luxury property, there are bound to be expensive fixtures and fittings that make the property attractive. If the purchaser intends to purchase the property together with those fixtures and fittings, the purchaser needs to expressly set out those requirements under the clause ‘Special Conditions’. A list of fixtures and fittings should be set out in the Offer Letter.
Second, the purchaser should exercise caution if the Offer Letter provides for vacant possession of the property to be delivered on an “as is where is” basis. The term “as is where is” operates in favour of the seller as it means that the purchaser is taking delivery of the property based on the state and condition as at the date of delivery of vacant possession. However, the state and condition of the property as at the date of delivery of vacant possession may fall short of the purchaser’s expectation. For example, the purchaser may wish to purchase the property together with the marble flooring in the same state and condition as at the time of execution of the Offer Letter. However, if the purchaser accepts that the property is to be delivered on an “as is where is” basis as at the date of delivery of vacant possession, this means that the purchaser will have to accept the property even though the seller replaces the marble tiles with basic cement prior to vacant possession. To avoid this situation in a luxury market, the clause ‘Special Conditions’ should state that the property is bought on an “as is where is” basis as at the date of the sale and purchase agreement (as opposed to as at the date of delivery of vacant possession).
Third, if the purchaser is seeking financing to purchase the property, the purchaser should request for the Offer Letter to provide that the purchase is subject to financing. In the event the purchaser is unable to obtain financing within the agreed period, both parties may walk away from the transaction. In contrast, in the absence of such provision, if the purchaser fails to obtain financing and is unable to proceed with the transaction, the seller is entitled to forfeit the deposit paid. In the case of a luxury property, the forfeited deposit may be a significant amount. In this regard, the purchaser should mitigate the risk of forfeiture by having such a provision in the clause ‘Specific Conditions’.
Separately, sellers or purchasers may wish to keep the transaction confidential. They may consider inserting a confidentiality clause in the Offer Letter so that parties are contractually prevented from disclosing the terms or indeed the existence of the proposed transaction.
Ultimately, it is advisable for both the seller and purchaser to seek legal advice before signing the Offer Letter.