MONEY MATTERS: It pays to be savvy about fees charged by lawyers for property transactions
Before you engage a lawyer to act for you in any property transaction, it is prudent to ask the lawyer to give you an estimate of the legal fees and disbursements that will be incurred. This will prevent any misunderstanding or dispute when the lawyer‘s bill is issued to you, and will also allow you to know, from the outset, how much you will have to budget for this expenditure.
Check out the FAQ in HBA website: www.hba.org.my
Solicitors’ Remuneration Order (SRO)
Date of commencement — 1 January 2006
The Solicitors’ Remuneration Order 2005 (“the SRO 2005”) came into force on 1 January 2006. It was gazetted on the last day of 31 December 2005. That is why it is known as the SRO 2005 and not SRO 2006.
The previous Solicitors’ Remuneration Order 1991 (“the SRO 1991”) had been in force effective from 1 January 1992, exactly 14 years before the commencement of the new SRO 2005. The SRO 1991 has since been revoked.
Under the new SRO 2005, not only have the various schedules of scale fees been amended, but the rules governing them have also been modified to a large extent. Below are some important changes which are noteworthy.
1. Scale fees for non-contentious matters: One of the most important features of the SRO 2005 is that it introduces new scale fees for non-contentious matters (such as transfers, charges, debentures, discharges, tenancies and leases). The new scale fees can be found in the First Schedule of the Order. It applies to all transactions taking place on or after 1 January 2006.
2. New scale fees that are prevalent: Some legal fees are of a fixed sum (“fixed fee“) and others are fixed by means of a scale (“scale fee“).
For ease of reference, a brief table of the current scale fees for transfers and charges is worked out as follows: See Table 1
Check out the SRO 2005 at http://www.hba.org.my/faq/solicitor/SolicitorsRemunerationOrder2006.pdf
3. The following are some of the pertinent points made on the prevailing scale fees:
(a) Minimum fee RM300 — A minimum fee of RM300 is payable for any normal transaction worth RM30,000 or below.
For other low–medium-cost houses, the scale fee for the transfer of any property worth RM150 000 and below is 1 per cent. For example, for a dwelling house worth RM150 000 the legal fee payable is RM1,500.
(b) Simple formula — For any property worth RM1 million or below (but above RM150 000), the following simple formula may be used for computing the scale fee: Legal fee = Say, sales price of RM1 million (RM1,000,000 – first RM150,000) x 0.7% + RM1,500 = RM 7,450.
For the sale of a double-storey terraced house worth RM300 000, the scale fee is RM2,550 arrived at as follows: RM150, 000 x 0.7% + 1,500 = RM2,550.
This is the simple formula for any transaction of RM1 million or below. It is to be borne in mind that the simple formula applies only to any transaction worth RM1 million or below (but above RM150,000). The other formulae above should be applied correspondingly.
4. Flat rate of RM250 fee for a developer’s low–medium-cost house: For the purchase of a low-cost or medium-cost house governed by the Housing Development (Control and Licensing) Act 1966 (“HDA 1966”), special concession is given to the lower-income group.
RM250 – for a developer’s transaction of RM45,000 and below
Under the new SRO 2005, a flat-rate legal fee of RM250 is payable for the purchase of a low-cost or medium-cost house governed by the HDA 1966, where the purchase price is RM45,000 or below. Any sale and purchase transaction governed by the HDA 1966 is referred to as a “developer’s transaction”.
However, such special rate of scale fees applies to developers’ transactions only. It does not apply to any sub-sale, for example, a transfer between the first purchaser and a subsequent purchaser, or a transfer between two individuals, even though the price is RM45,000 or below.
If you buy a house from an individual owner at the price of RM40,000, you are to pay the usual legal fee of RM400 (i.e. 1 per cent of RM40,000), and not the special rate of RM250, simply because it is not a developer’s transaction.
5. Discounted legal fees for all developers’ transactions (sale & purchase OR housing loans): In a case where the purchase transaction is governed by the HDA 1996 ( “HDA transaction“), or where a loan is obtained to finance a HDA transaction, a lower scale of fees will apply:
See table 2
6. Developers maximising profits at the expense of the legal profession?: Such discounted legal fees are certainly to the benefit of purchasers. However, viewed from the consumers’ perspective, some may feel that the different rates of statutory discount given in developers’ transactions are designed to assist housing developers in promoting the sale of their products. Undeniably, the end result is that some purchasers will benefit from such arrangements because they are entitled to a maximum of 35 per cent discount.
No blame can be attached to anyone who regards this as a special privilege bestowed upon developers with a view to assisting them in promoting the sale of their houses. Such privilege enjoyed by developers may give rise to misgivings that the legal profession is practising unfair discrimination against a certain class of purchasers.
Purchasers in sub-sales have yet to be convinced why they are not entitled to similar rates of discount. When a purchaser buys a house from an individual seller (i.e. not a developer’s transaction), he does not enjoy the benefit of any discount; he has to pay the full scale fee for the transfer.
He may feel that he is being treated differently in an unfair way, simply because he does not buy the property from a licensed developer governed by the HDA1966. He may want to know why he is not accorded similar preferential treatment.
The developers have argued that the Sale & Purchase Agreement (S & P) under Schedules G, H, I & J are Statutory Forms under the HD Regulations and cannot be varied. Knowingly or not, the developers have failed to realise that regardless that the said S & P are in standard form, professional insurance still have to be purchased by lawyers to cover all circumstances.
7. No witnessing or attesting fee re signature of unrepresented party: It is now specifically provided that a solicitor acting for one party in the sale or purchase of a property cannot charge any witnessing fee (or attestation fee) for witnessing and attesting the signature of the unrepresented party. For example, a purchaser’s solicitor cannot charge any fee for witnessing or attesting the vendor’s signature to the S & P.
8. Where legal fees are not determined by a fixed fee or by means of a scale fee: For transactions where legal fees are not determined by a fixed fee or by means of a scale, a lawyer may only charge a fee that is fair and reasonable having regard to the circumstances of the case; the importance of the matter to the client; the skill, labour, specialised knowledge and responsibility involved on the part of the lawyer; the complexity of the matter or the difficulty or novelty of the question raised; where money is involved, the amount or value thereof; and the time expended by the lawyer. For such transactions, there is all the more reason why you should ask for an estimate of fees.
9. Other disbursements and out-goings: It is important for you to know that the fixed fee or scale fee includes allowances for the time of the lawyer and his clerk and all usual and necessary attendances, and also charges for normal copying and stationery. If you are charged an additional sum for copying or stationery, you are entitled to ask your lawyer for an explanation as to how these additional charges have been incurred.
However, the fixed fee or scale fee do not include registration fees on documents requiring registration; stamp duties; counsel‘s fees, auctioneer‘s or valuer‘s fees; travelling or accommodation expenses; fees paid on searches; costs of extracts from any register or record; disbursements reasonably and properly paid and incurred (which is required to be itemised in any bill); and cost of any extra work.
In your lawyer‘s bill, you may see an item for miscellaneous charges in the disbursement column. Such miscellaneous charges should not exceed RM50. If your lawyer has itemised all the charges and disbursements incurred on your behalf, then there should not be any more miscellaneous charges.
Conclusion: The changes made by the SRO 2005 are substantial. On the whole, fees have been increased. One of the most significant changes is the introduction of various rates of statutory discount for developers’ transactions.
Some parts of this article are abstracts from arguments by senior lawyers who are members of the Conveyancing Practice Committee, Bar Council, Malaysia and this article has been collated by the National House Buyers Association (www.hba.org.my) for Education, Information and Empowerment purposes.