What do "Free Legal Fees" really mean when buying property in Malaysia?

The recent state of the property market has led to many developers offering various freebies to prospective buyers as a means of sweetening the deal. The freebies offered usually include things like free furniture, free electrical appliances and best of all...free legal fees. 

Wait, what? Free? Really?

At least that’s what the developers’ advertisement posters and pamphlets say. Hey, free legal fees could save you a hefty chunk of your house-buying budget and maybe you could even spend that money on that gaming console you always wanted.

A fun fact before we dive into the heart of this article – developers are actually not allowed to include the the promise of “free legal fees” in their advertisements. Under Regulation 8(1A) of the Housing Development (Control and Licensing) (Amendment) Regulations 2015, the following items are banned from being stated in advertisements: 

1. Free legal fees
2. Claims of panoramic views 
3. Travelling time from other housing projects or other popular destinations
4. Projected/expected gains or returns from rental fees
5. Any other particulars which a housing developer cannot genuinely or properly lay claim to

   

While they are not allowed to advertise it, they are still allowed to give it out.

For the purposes of this article, we will be looking at the context of buying property direct from the developer as opposed to buying a second-hand home (commonly referred to as sub-sales).

What are legal fees?

When calculating the cost of buying a property, you might look at the figure quoted in the sales pamphlet and think, “Well, so this is the amount I’ll give them, and they’ll give me the key to my dream home, right?” Unfortunately, no. As a general rule, when you buy a property (new development or otherwise), you should expect to incur the following additional costs as part and parcel of the transaction:

1. Legal Fees – these are the fees you pay to whichever legal firm you have hired to represent you for the transaction and for completing all the necessary paperwork for you, including the Sale and Purchase Agreement (“SPA”),  transfer forms. The legal fees chargeable is regulated by the Solicitors Remuneration Order 2005 and lawyers have to follow the scale provided when charging you their legal fees (we will cover this in another article). The legal fees basically go higher as the price of the property increases. 
2. Disbursements  – these are basically the expenses that lawyers incur while preparing your agreements and they include things like travelling, printing, and so on.
3. Stamp duty – is basically tax you pay to the government and also varies according to the price of your property. The method of calculation is governed by the Stamp Act 1949 and we will cover this in detail in another article

If you need to bring yourself up to speed with what SPA or stamp duties are (no, not the fun collectible type), take a look at our article below to get up to speed:

[READ MORE: Ever bought a house in Malaysia and have no idea what you signed?] 

Now that you know the breakdown of things that you will be charged for (aside from the price of the house), let’s look at what it means to have free legal fees. 

Free legal fees, but representation-free too

Take a step back and think for just minute: what do you expect to get when you hear someone say “free legal fees”? 

You either think that you lucked out because you don’t have to pay a single cent to lawyers or you probably get a lil suspicious because errbadeh know that there is no such thing as free.  

So here’s the thing...developers may offer to pay your legal fees for you but that is all they pay – just the legal fees. You will have to pay for the disbursements and stamp duty. While the disbursements may not add up to much, the stamp duty surely can. If you are confused as to what you have to pay, let’s look at some mathematical equations. 

A typical invoice from the lawyers would be:

A (legal fee) + B (disbursements) + C (GST) = what you have to pay

What it means to have free legal fees:

A = what the developers pay (the “free legal fee” advertised)

B + C = what you have to pay

In essence, you do get free legal fees but it doesn’t mean that you don’t have to pay a single cent to the lawyers. Technically the developers are upholding their end of the bargain and you know now that the term “legal fees” doesn’t cover every single thing. 

All is good though, because half a loaf is better than none, so some money saved is better than no money at all. But here’s the thing you have to know – when developers pay your legal fees, it basically means that you agree to not being represented by any lawyers at all. This is because it is actually illegal for lawyers to act for both parties to a transaction:

Section 84(1) of the Legal Profession Act 1976:

“Where an advocate and solicitor acts for a housing developer in a sale...under a housing development neither he nor any member or assistant of the firm of which he is a member either as a partner or employee shall in the same transaction act for the purchaser of that property...”

What happens in a real life is that, at the signing, you will be notified by the lawyer that they are acting for the developer and advise you that you are free to seek your own legal representation. Should you choose not to do so, you will be asked to sign a letter confirming that this been explained to you. 

So, instead of having the typical scenario where each party has their own lawyers protecting their interests, the lawyers in this free legal fees scenario work for the developers and they are only obliged to protect their interests. While the lawyers will prepare the necessary paperwork and brief on you the meaning of the documents and whatever it is you are signing, their duty is to their clients, which in this scenario, are the developers. 

Maybe you’re thinking, “meh, risk, schmisk, it’s just some paperwork. What’s the worst that could happen?” 

Well, when you don’t have a lawyer protecting your interest, it means that you might be left open and you may fall prey to unscrupulous developers. But before you get mini heart palpitations and give the stink eye to every lawyer and developer you see, hang on. 

While the lawyers have to always protect the interests of their clients, it doesn’t mean that they will scam you or doing anything illegal. As a matter of fact, while they have a duty to protect their clients’ interests, their ultimate duty is to act in the interest of justice. Plus, they have a whole bunch of rules that they must follow (which will be covered in our upcoming article). So, don’t think that not acting in your interest = scamming you. 

In the cases such as Ong Kim Khoon v Gaya Filem Sdn Bhd the courts actually said that it is not illegal for lawyers to act for multiple parties but they must prove their impartiality. Further, according to rule 6.07 of Bar Council Rulings, a lawyer who has acted in the transaction for multiple parties is not allowed to appear in court if the matter goes into a dispute. This basically means that a lawyer who acts for the developer is not allowed to represent them or you in court and you both will have to look for your own lawyers to fight out the matter if it goes to court. 

Aside from that, the agreements which developers use today to sell you houses are standard contracts which are found in the Housing Development (Control and Licencing) Act 1966 (“HDA 1966”). One of the reasons this Act came into place was to provide standardised contracts so that purchasers don’t end up waiting ten years for a house that is never going to be built while the developer has gone underground. 

Long story short, there are many safeguards in place to ensure that even though you are unrepresented, you are not left out in the cold. At the end of the day, the important thing is...

Always, always, always read your contracts and ask questions

Always bear in mind that while you may not be well-versed in the law, it doesn’t stop you from reading the terms of the contract and asking the lawyer tons of questions. The lawyers are always happy to assist you with any questions and besides, you wouldn’t want sign something you don’t fully understand. Again, here’s that article that we recommend as further reading:

[READ MORE: Have you ever bought a house in Malaysia and had no idea what you signed?]

If you are a first time home buyer, it is best to do some research before taking that leap of faith. In all likelihood, most of these transactions are completed without a hitch, and you’ll have that extra money left over for a video game console to decorate your new home with.

But should something go wrong, Malaysia actually offers free legal advice which you can read more about here. Beyond that, if you have to lodge any complaints against a lawyer, you can find out how to do it here and if you have any problems against the developer, you can speak with you local Commissioner of Buildings (contact details here).