Acquisition of Real Property
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Acquisition of Real Property Start Comparison
What are the usual documents involved in such transactions?

The following are the usual documents in a real estate acquisition:

  • Letter of intent

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.

  • Sale and purchase agreement

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.

  • Due diligence report

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.

  • Deed of sale

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.

What are the warranties given by a seller to a buyer?

A seller usually gives the following representations and warranties:

  • Land
    • The seller is the absolute, legal and beneficial owner of the land, possesses good and marketable title to the land, and has the absolute right, title and interest to sell, transfer and convey the land to the buyer
    • The land is free and clear of all claims, charges, mortgages, liens, encumbrances, leases, tenancies, licenses or other rights of occupation, options, rights of pre-emption, rights of first refusal and other agreements affecting the same and the seller has exclusive and unfettered possession of the land
    • All outstanding taxes, fees, charges and assessments in respect of the land have been paid
    • Commencing on closing date, the buyer shall have valid and legal title and shall enjoy full and peaceful possession of the land
    • There are no covenants, restrictions, burdens, stipulations, easements, grants, conditions, terms, overriding interests, rights or licenses affecting the land which are of an unusual or onerous nature or which adversely affect the use or intended use of the land, and there are no matters which adversely affect the value of the land
    • None of the facilities necessary for the enjoyment and use of the land or any part of them are enjoyed on terms entitling any person to terminate or curtail the same
    • The present use of the land is the permitted use under zoning and planning laws and regulations
  • Environmental matters
    • The seller and any present occupier or user of the land have not engaged in or permitted any operations or activities upon the land involving the use, storage, handling, release, treatment, manufacture, processing, deposit, transportation or disposal of any hazardous substance, or any substance regulated by environmental law
    • In relation to the land, there have not been nor are there any threatened or pending civil or criminal actions, notices of violations, investigations, administrative proceedings or written communications from any regulatory authority under any environmental laws against the seller, so far as the seller is aware, there are no facts or circumstances which may give rise to the same
  • Litigation
    • The seller is not engaged whether as plaintiff or defendant or otherwise in any civil, criminal or arbitration proceedings or any proceedings before any tribunal in relation to the land, and there are no proceedings threatened or pending against the seller in relation to the land, and there are no facts which are likely to give rise to any such litigation or proceedings
  • Taxation matters
    • The seller is not involved in any dispute with any tax authority concerning any matter likely to affect the land and no such dispute is likely
    • There is no unsatisfied liability for tax relating to, affecting, or for which a lien is created on, the land
    • The seller has not received notice that any examination or audit with respect to any tax on or affecting the land is in progress, nor any notice from any tax authority of its intention to commence such examination
When is the sale legally binding?

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.

When is title transferred?

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.

What are the costs usually shouldered by the parties?

The seller is the statutory taxpayer of the following types of taxes due in a real estate sale:

  • Income tax
  • Value-added tax (which, being an indirect tax, may be passed on by the buyer to the seller)
  • Local transfer tax
  • Capital gains tax

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.