Issue 11 . Sep/Oct 2024 . Homes of Realstar
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Imagine this: After endless weekends and hours of house viewing after viewing, you have finally found the house of your dreams. After much discussion with the agent and shaking hands on an agreed purchase price, the agent hands you a wordy but apparently standard document to read through and sign. You stare blankly at the document, the legal jargon staring back at you. You try to pick out the important details while the agent explains them to you. You tell yourself, perhaps it may help to just make sure the numbers are right. But what about the other terms? They seem important as well, otherwise, they wouldn’t be included, right?
And this is when you realise you don’t quite know how to read an Option to Purchase (OTP).
The OTP is simply put the contract between you, the purchaser, and the seller setting out all the terms of the transaction. This is why we are going to break down the salient terms in an OTP for you, so you don’t find yourself in this position.
When it comes to an OTP, there are a few standard but key details you should pay attention to.
You don’t need us to tell you that the OTP should state the particulars of the parties, the property address and the purchase price correctly. But it is still worth double-checking. Mistakes can happen, especially since these details are often handwritten.
One crucial aspect to consider is the deadline to exercise the option. Typically, you’ll need to provide a portion of the initial deposit known as the “option fee” to secure the OTP. In our experience, this fee usually ranges from 1% to 2% of the purchase price. It’s of VITAL importance to take note of the expiration date. Normally, an OTP is open to acceptance for 14 days, but this period can be negotiated if both parties agree. For a purchaser, exercising the option involves signing and accepting the OTP and paying the remaining deposit balance. Your appointed solicitors will guide you through this process, but it is important to reach out to them early to allow them time to prepare the necessary. Remember, once the validity of the OTP expires, the option fee is forfeited unless the seller agrees to extend the same.
The OTP will state if the property is “sold with vacant possession / subject to an existing tenancy agreement”. Being sold with vacant possession simply means that you should have exclusive possession of the property after completion. However, if it’s sold subject to a tenancy agreement, you won’t be able to move in immediately, but only after the tenancy has expired. However, this does mean that any rental proceeds payable from the day after completion will be payable to you. To ensure a smooth transaction, the seller should provide a copy of the tenancy agreement, or your solicitors should request it in advance, before you exercise the OTP. This is to allow your solicitors to review the tenancy agreement less if it contains any terms which may jeopardise completion.
The OTP will also mention the date of completion, which typically takes place at the seller’s solicitor’s office. Rest assured, you do not need to physically attend completion, your solicitors will handle it on your behalf. The completion date can range any time from 8 to 12 weeks from the date you exercise the OTP. Regardless, the OTP will clearly state the number of weeks or a specific date. Make a note of this date, as you will still be responsible for servicing your bank loan’s monthly instalments, management corporation quarterly fees (if applicable), and property tax until completion.
Lastly, it’s important to consider any special terms negotiated with the seller. Usually, the OTP is presented in the agent’s standard form. If you have any specific requests or conditions, ensure that they are included in the OTP or have the seller’s written consent for those terms. This will help you avoid disappointments or potential loss of deposit if the seller objects to your requests after the OTP is exercised and you decide to back out of the transaction.
While seeking professional legal advice is always recommended for property purchases, keeping these points in mind can be helpful as you navigate through the process. After all, buying a property is often the most significant investment in one’s lifetime.
Hin Tat Augustine & Partners’ trust partner is Padang Trust Singapore Pte Ltd (“Padang Trust”), an MAS-licensed company. Padang Trust offers estate planning and professional Trustee services.
You can reach out to us at +65 94551940 (Tang Chi Loong, Real Estate) / +6596301612 (Serena Goh, Corporate) to find out in-depth information about the topics mentioned in this article. You can also find out more about our practices at http://htapartners.com.sg or http://padangtrust.com.sg.
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