Free legal fees — fact or myth

0 comments

FREE LUNCH?: Is there free lunch when it comes to legal fees?

A few days ago, I saw a sale brochure on computers. Among others, the brochure said “Free in-home repair after diagnosis.” The “free repair” was a promotion.

The “free repair” promotion means that if I bought the computer and it has problems, I could call a toll-free number from home. A computer expert could help resolve the problem over the telephone and the computer would be fixed immediately. The repair is free of charge.

Being a computer dud, the promotion seemed attractive. Getting a computer expert to fix the computer may cost a bomb. With the promotion, the repair cost is borne by the company.

In a sense, the “free repair” would be a freebie. In other words, something that I would normally have to pay for I would instead get for free.

Freebie: In the context of buying property from developers, freebies have been advertised and offered to woo purchasers into buying developers’ property.
Some of the freebies offered include air-conditioning, kitchen cabinets, automatic gates, club membership and legal fees. The list is not exhaustive.

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 is “free legal fees”? Is it a freebie in the truest sense of the word?

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 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 suggests 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”?

It is submitted that what actually happens is quite different. It is further submitted that 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 sale of the property.

Developer’s solicitor: In offering “free legal fees”, the developer would recommend to the purchaser a solicitor on the developer’s panel to attend to the sale and purchase agreement. If the purchaser chooses that solicitor, the developer will supposedly pay for the legal fees.

Now the irony is the solicitor attending to the sale and purchase agreement would not normally scrutinize the agreement for the purchaser. Instead, the solicitor would ensure that the developer’s rights and interests in the agreement are intact and that the purchaser duly signs the agreement and is bound by it.

From a legal point, the solicitor acting in such 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.

However, there is no solicitor acting for the purchaser to scrutinise 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 realise late in the day that the solicitor attending to the sale and purchase agreement is actually the developer’s solicitor and that the purchaser had no legal representation in the first place and hence no legal fees to pay.

The purchaser normally realises this fact when a dispute arises with the developer, 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 its 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 normally given 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 solicitors to attend to the sale and purchase agreement.

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

The law: Under the law, namely section 84 of the Legal Profession Act 1976, 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.

Further, under the sale and purchase agreement, namely Schedules G and H, the developer and purchaser must pay its 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 a right to appoint his/her solicitor. Each party bears its own solicitor’s costs.

Based on the law, whether or not the developer’s offer of “free legal fees” is legal is debatable.

The reality: In the meantime, there are two situations that might arise from the developer’s offer of “free legal fees”.

First, it is submitted that 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 agreement 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 on the developer’s panel to attend to the sale and purchase agreement.

In summary, is “free legal fees” fact or myth? I leave that for your pondering and own conclusion.

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.

Robert Tan is an Advocate & Solicitor and has written the book “Buying Property from Developers: What You Need to Know and Do” published by Sweet & Maxwell. The book is available in good local bookshops.

This article has been contributed to the National House Buyers Association (HBA) for purposes Education, Information and Empowerment.

 


Related Articles

Leave Your Comment


Leave Your Comment:

New Straits Times reserves the right not to publish offensive or abusive comments and those of hate speech, harassment, commercial promos and invasion of privacy. Your IP will be logged and may be used to prevent further submission.The views expressed here are that of the members of the public and unless specifically stated are not those of NST.