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Offer, Acceptance and Contract

 

 

ID-10061495 

 
1. What is an offer to purchase/rent?
 
When you decide to purchase/rent a property, the agent will write up an offer to the seller/landlord, on your behalf. It is an offer to purchase/rent based on the terms and conditions agreed upon by both parties in earlier negotiation. This letter is often known as the Letter of Offer. It is usually accompanied by an Earnest Deposit for purchase/rent.
 
 
2. What is an Earnest Deposit?
 
As the name suggests, the Earnest Deposit is a sum of money paid by the buyer/tenant to the seller/landlord as a guarantee that the buyer/tenant is genuine and will undertake to prepare the formal Sale and Purchase Agreement/Tenancy Agreement, as the case may be. The amount of the Earnest Deposit is usually between 2% to 3% of the puchase price for purchase, and one month's rent for rental.
 
 
3. What is an acceptance?
 
When the seller/landlord agrees to all the terms and conditions in the Letter of Offer, s/he indicates acceptance by signing, usually at the bottom section of the Letter of Offer. This letter thus becomes the Letter of Offer and Acceptance.
 
 
4. What happens if the seller/landlord does not agree to any of the terms and conditions of the offer?
 
When presented with the Letter of Offer, the seller/landlord can either accept, reject or renegotiate any of the terms and conditions of the offer. If new agreement is reached after renegotiation, amendments may be made or a new Letter of Offer may be written. If renegotiation fails, the Letter of Offer, together with the Earnest Deposit, are returned to the buyer/tenant.
 
 
5. What are contained in a Letter of Offer and Acceptance?
 
The Letter of Offer and Acceptance contains the basic and essential terms and conditions of purchase/rental such as details of property, price, schedule of payments, fixtures and fittings included, date of handing over the property, etc. This letter is also known as a Preliminary Contract.
 
 
6. When does a contract to buy and sell comes into existence?
 
To amount to a legally enforceable contract, the Letter of Offer and Acceptance must contain the following elements:
  • There must be a written and signed offer by the purchaser.
  • There must be a signed acceptance by the seller.
  • There must be a clearly defined subject matter, ie. the correct property details.
  • The terms and conditions must be certain or capable to be made certain later.
  • There must be a consideration - ie. an Earnest Deposit to purchase/rent.
  • Both parties must have intentions to create legal relations, and are aware of entering into a contract, not merely negotiating.
  • Both parties must have capacity to enter into the contract, eg. seller's ownership of the property, both parties are of legal age (18 years and above), have sound minds and not under coercion or undue influence.

 

7. Can an offer be withdrawn before acceptance? 

An offer usually has a validity period. If the seller accepts within the validity period, a contract comes into existence. Otherwise, the offer lapses. The offer can be rescinded (withdrawn) by the buyer anytime before the seller accepts, but this must be effectively communicated to/received by the seller. 

 

8. What happens if the seller aborts the deal after the Letter of Offer and Acceptance is signed? 

If the seller aborts (backs out from) the deal after signing the Letter of Offer and Acceptance, the buyer can either ask for compensation (usually the refund of the Earnest Deposit plus a same amount as compensation), or initiate a legal action for Specific Performance attempting to compel the seller to proceed with the sale. 

 

9. What happens if the buyer aborts the deal after the Letter of Offer and Acceptance is signed? 

If the buyer aborts (backs out from) the deal after signing the Letter of Offer and Acceptance, the Earnest Deposit will be forfeited to the seller and the deal ends. 

 

10. What is a Sale and Purchase Agreement? 

A Sale and Purchase Agreement is a formal and more elaborate contract, containing all the complete and final terms and conditions of the sale and purchase. It is stamped, and is effectively enforceable in a court of law. 

 

11. What are contained in the Sale and Purchase Agreement?

A Sale and Purchase Agreement commonly contains provisions such as identification of the seller/buyer, details of property and encumbrances/restrictions, price and schedule of payments, consent from state authority if required, execution of Memorandum of Transfer (MOT), delivery of required documents, delivery of property, retention of property gain tax (RPGT), apportionment of quit rent, compulsory acquisition (by the authority), removal of encumbrances, inability to register transfer, warranties, costs, notices, binding on successor, and other obligations of both parties as well as the consequences of defaults.
 


12. Who prepares the Sale and Purchase Agreement?

The Sale and Purchase Agreement is usually prepared by the purchaser's solicitor, who liaise with the seller's solicitor to arrive at agreement of all the terms and conditions.

 

13. What happens if the seller aborts the deal after the Sale and Purchase Agreement is signed? 

The seller may be liable to pay damages (compensation) to the buyer, who may alternatively choose to file for Specific Performance to compel the seller to complete the sale. 

 

14. What happens if the buyer aborts the deal after the Sale and Purchase Agreementis signed?

The buyer stands to lose the down payment made, which usually amounts to 10% of the purchase price. 

 

by Aaron Lee, Property Street

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