Perhaps many of us are aware that when purchasing a property, buyers are required to sign both the Provisional Agreement for Sale and Purchase (the Provisional Agreement) and the Formal Agreement for Sale and Purchase (the Formal Agreement). But why is it so? What are the differences between them and points to note when signing them? What are the rights and obligations brought along by these Agreements? If the property involved is mortgaged, in which Agreement will the details be listed?

Property Information:
Both the Provisional Agreement and the Formal Agreement include essential information of the transaction, including the names of the purchaser and seller, their ID card numbers and correspondence addresses, information of the property, the transacted price, transaction date and the amount of stamp duty. If the property is sold or purchased together with the roof top or any parking lots, such information will also be inserted in both Agreements. However, compared to the Provisional Agreement of which the information is extracted from the Land Registry, the Formal Agreement includes more detailed information, including the land lot number, the number of undivided shares, the Government’s lease terms and the details of the Deed of Mutual Covenant.

Payment:
It is necessary that both the seller and purchaser have come to a consensus on the payment terms, including the initial deposit (usually 3% to 5% of the transacted price) and further deposit (usually 10% of the transacted price) when signing the Provisional Agreement. As for the Formal Agreement, it will detail the transacted price and payment method in accordance with the Provisional Agreement.

Breach of the Agreement or Inability to Complete the Transaction:
It is prescribed in the Provisional Agreement that if the buyer breaches the agreement, the seller is entitled to collect the initial deposit from the buyer and then sell the property to another person at will. In general, the seller cannot raise other requisitions after collecting the deposit. On the contrary, if the seller breaches the contract, not only does he need to return the deposit to the buyer, but he is also required to cover the commission charged by the real estate agent.

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If the buyer backs out upon the signing of the Formal Agreement, he may lose all the deposits paid and be sued by the seller for compensation if the latter has sold the property to another person at a price lower than the price stated in the breached contract. On the other hand, if the seller fails to complete the transaction, he has to refund the deposits received and may be required to compensate for the buyer’s loss.

The Handling of Title:
When signing the Provisional Agreement, the real estate agent will include the basic information of the seller and the property obtained from the Land Registry. However, when it comes to the Formal Agreement, the seller is required to provide proof of his title to the property and title deeds dating back at least 15 years from the date of the Formal Agreement through his solicitor. If the purchaser has any doubt about the seller’s title to the property, he could raise requisitions on the title and withdraw the transaction if the seller’s solicitor fails to provide relevant documents.

The Handling of Mortgage:
When drafting the Provisional Agreement, the real estate agent will include some basic information pertaining to the property’s mortgage status, such as the bank to which the property is mortgaged. However, when signing the Formal Agreement, the seller shall pledge to completely settle the mortgage repayment before the transaction is completed so that the property could be conveyed to the purchaser without any mortgage limitations.

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