The following are the usual documents in a real estate acquisition:
The letter of intent (also commonly referred to as the memorandum of agreement) is usually the first document signed in a real estate acquisition. The main purpose of this document is to provide an exclusivity period in favor of the buyer during which the seller may not solicit any sale proposal from third parties. The purpose of the exclusivity period is to allow the buyer to conduct due diligence, and negotiate the terms of the sale with the seller.
The letter of intent will also include the basic terms of the sale, but such terms will generally not be binding on the buyer and seller, except for the provision on exclusivity.
The sale and purchase agreement documents the parties’ agreement for the sale and purchase of the real estate on a specified date, upon the occurrence/satisfaction of certain conditions. It contains, among others: (i) the description of the real estate subject of the sale and purchase; (ii) the commercial terms of the sale and purchase (e.g., the purchase price, the schedule of payment of the purchase and which party shall bear what types of taxes); (iii) any pre-closing, closing and post-closing conditions/deliverables; and (iv) the representations and warranties of each party.
Either before or after the signing of the sale and purchase agreement, the buyer and its advisors (legal, environment, technical) will have commenced due diligence on the real estate.
The deed of sale is the document under which the seller transfers the real estate to the buyer. This document is fairly straightforward, sets out the basic terms of the transaction and cross-refers to the sale and purchase agreement for the other terms. This is the document that is submitted to the tax authorities when paying the applicable taxes, and in case of sale of land, to the Register of Deeds when applying for a transfer certificate of title to be issued to the buyer.
A seller usually gives the following representations and warranties:
For land and other types of real property, the sale becomes legally binding on the parties on the date specified in the deed of sale. In most cases, the sale becomes binding on the parties upon the execution of the deed of sale (i.e., the parties sign the deed of sale only when all the conditions to closing have been complied with).
In the case of land, under the Torrens system, the sale will bind third parties only upon its registration with the Register of Deeds.
For sale of land and other types of real property, as between the parties, title is transferred from the buyer to the seller on the date specified in the deed of sale. In most cases, title is so transferred upon the execution of the deed of sale (i.e., the parties sign the deed of sale only when all the conditions to closing have been complied with).
In the case of sale of land, under the Torrens system, from the perspective of third parties, title is transferred from the buyer to the seller only upon registration of the deed of sale with the Register of Deeds.
The seller is the statutory taxpayer of the following types of taxes due in a real estate sale:
The law does not designate which between the seller and the buyer is the statutory taxpayer for the documentary stamp tax.
In addition to the foregoing taxes, the other costs arising from a real estate sale are the registration fees assessed by the Register of Deeds and notarization fees.
In almost all sale transactions, the seller bears the income tax and the local transfer tax. With respect to the other taxes and costs, there is no uniform practice as to which party shoulders them.