Covid-19 and Property: 12 Legal Questions Answered by Lawyers

It is NOT business as usual in Singapore’s property market. For people who were caught in the middle of transactions during Covid-19, there are all sorts of questions and issues arising. We passed the common ones to property lawyers from Circular Law Chambers LLP:

What are some of the common issues we’re hearing about Covid-19, and property transactions?

So far, the more common questions seem to involve:

• Buyer and bank loan issues
• Seller issues
• Developer delays
• Landlord and tenant issues
• Properties held under a business

Special thanks to lawyers Lilian Lim and Thomas Ng, from Circular Law Chambers LLP for their help with the following.

Buyer and bank loan issues

Question 1: Can buyers still back out of the OTP without losing their deposit, if their income situation changes after securing it?

Background:

When buying a property, the process begins with securing an Option To Purchase (OTP). The OTP is a non-refundable deposit, usually amounting to one per cent of the property price (i.e. $15,000 for a $1.5 million property).

The OTP must be exercised within a stated time limit, typically 21 days. Once the OTP is exercised, the buyer must then go on to complete the transaction.

However, due to the Covid-19 situation, some buyers have found that their income levels have changed, partway through the process. For example, they may have been retrenched, or found  that they must wind down their existing business.

Some of these buyers have secured the OTP but haven’t exercised it; others have both secured the OTP and exercised it. But due to their change in circumstances, they now want to back out of the property purchase. Can they?

Answer:

If the option has not been exercised, the buyers may decide not to proceed with the transaction, but they would lose the Option fee.

If the buyers have exercised the option, it would be difficult for the buyers to back out of the agreement without the sellers’ consent. The buyers would lose the deposit paid and may be sued for damages if they fail to complete the transaction; so the best possible way is to negotiate with the sellers, to allow the buyers to rescind the Option.

Question 2: If a buyer has Approval-in-Principle for a loan, but their income situation changes, is the bank still obliged to give them the loan?

Background:

Approval In Principle (AIP) is sought from banks before a buyer attempts to purchase a property. This is a statement by the bank specifying how much they will lend the buyer. This removes the risk of, say, the buyer securing the OTP, but then failing to secure the loan later.

In the current situation, some home hunters have secured the AIP, which is usually valid for around a week or two. However, they find out on short notice that their income situation is about to change. But is their bank still obliged to stick to that initial AIP, as they’ve issued the document?

Answer:

No, the bank is not obliged to grant them the loan if there is a change in the income situation of the applicant(s); as the bank had granted the AIP based on the reported income.

Most banks would require the borrowers to inform the bank of any change, or to declare that the information and any representation given to them in relation to the loan application are still valid when the actual Letter of Offer from the bank is issued.

(So please, if things change right after you get AIP, don’t act blur and carry on just because the bank “already promised”. – 99.co)

Question 3: If we lose our income (or have lower income), is there any legal obligation to inform our bank?

Background:

Among recent home buyers, there’s a chance that their income has changed right after buying the property, due to Covid-19. But this is also true of long time home owners, who may have been paying their home loans for many years now. If their income changes, can they just keep quiet about it, or does their bank have to be informed?

Answer:

In some mortgage or loan agreements, there could be clauses that require you to inform the bank if there are material changes in circumstances, that could affect the security of the bank, or the ability to repay the loan. So you would need to check the terms of your mortgage or loan agreement.

Generally, the bank leaves you alone if you make your mortgage payments promptly and punctually, and there is no breach of conditions of the loan.

(P.S. For those of you who are experiencing trouble servicing your home loan, do check out our article on loan deferment due to Covid-19).

Question 4: If an overseas buyer has secured the OTP, but cannot currently travel to Singapore due to restrictions (e.g. they are in China), can they extend or back out of the OTP without consequence?

Background:

Due to travel restrictions arising from Covid-19, many foreign buyers have difficulty coming into the country to sign the needed documents. Some also want to have a final inspection of the property before going through with it, but can’t do so right now.

Answer:

The buyer could sign the option before a Notary Public or officer at the Singapore Consulate in the country where they are, and send the duly signed and witnessed option back to their lawyers in Singapore by courier. So far, our clients have managed this within two weeks.

Alternatively, the buyer could seek an extension of time to exercise the option from the buyer.

The buyer would stand to lose the option fee, and the opportunity to buy the property, if the option has been granted to him and the option fee is duly paid, but he fails to exercise the option before the expiry time and date.

Seller Issues

Question 5: For couples seeking ABSD remission, they must sell their previous home within six months of getting the new one. Can they appeal or get an extension because of Covid-19?

Background:

If you buy your new home before selling your previous one, you’re required to pay ABSD. However, married couples with at least one Singapore citizen can apply for ABSD remission, if they sell their previous home within six months of purchasing the new one. But what happens if you’re unable to sell, and will miss the deadline, due to Covid-19?

Answer:

There are no provisions that we are aware of, at this point of time, for an appeal to be made on the grounds that the previous flat is unable to be sold due to Covid-19.

(Ouch. A good reminder not to dally with the sale process of your previous home. Unforeseen events can make that time limit way shorter than you think – 99.co).

Question 6: If a seller changes their mind about upgrading – such as due to job loss from Covid-19 – can they still back out of the sale if the buyer has already secured the OTP?

Background:

Sometimes it’s the seller, and not the buyer, who wants to back out after the OTP is signed. Why? Well, many sellers are intending to upgrade, such as from their flat to a condo. But if their financial situation changes due to Covid-19, they may decide to put that on hold, and no longer want to sell their home for now.

Answer:

Once a seller grants an option to sell the property, and the buyer has secured the option, the seller  is legally bound to the terms of the option; they must sell the property to the buyer if the buyer exercises the option.

Developer delays

Question 7: If a developer is unable to complete the project on time, due to Covid-19, are developers still required to compensate the buyers for the delay (e.g. can the buyers claim late interest form the developer?)

Background:

All construction and renovation work has ceased for the duration of the circuit breaker. This has given rise to fears about delayed completion dates, for under-development properties. In most cases however, the Sale & Purchase Agreement does say buyers can claim compensation for delays. But can they still claim if the delay is due to Covid-19?

Answer:

Yes, under the terms of the Sale and Purchase Agreement, the buyers are entitled to compensation if there is a delay in the delivery of vacant possession of the property to the buyers, as the prescribed agreement does not contain any force majeure clause dealing specifically with epidemics.

Question 8: Is there any word on whether developers will still be obliged to pay the ABSD if they can’t complete and sell all the units within five years?

Background:

Developers have to pay a hefty ABSD of up to 25 per cent of the land price, if they can’t complete and sell the whole development in five years. This actually matters to buyers and investors as well – the reason is that, if developers only have a handful of units left and are close to the deadline, they sometimes offload the remaining units at a discount rather than pay the ABSD.

Answer:

No word yet, as it’s too early.

(Darn. We have no doubt developers will press for this though, if delays continue to be a major issue. Like us on Facebook, we’ll update you as we get more news).

Landlord and tenant issues

Question 9: Some tenants of condo units have given their Letter of Intent (LOI), along with their goodwill deposit; but they now discover most of the condo facilities will be closed due to Covid-19. If the tenants back out before signing the Tenancy Agreement (TA), can they still get their goodwill deposit back?

Background:

Before signing the TA, tenants hand over a deposit with the LOI. This deposit is meant to be converted to their security deposit later. However, Covid-19 has resulted in the closure of condo facilities; some tenants now want to back out, as it’s no longer “worth it” to rent a condo unit. Can they?

Answer:

LOIs may contain a clause stating that if the TA is not signed between the parties within a certain period, for whatsoever reason, the deposit shall be refunded in full. Neither party shall have any further claims against the other.  If there is such a clause, the tenants should be able to get their deposit back.

If there is no such clause, the tenants can try to seek the agreement of the landlord to get their deposit back.

It may be also difficult to argue that the closure of the condo facilities due to Covid-19 measures leads to frustration of the LOI.  Generally, the main intention behind a LOI or a TA is to obtain exclusive possession of a unit in a condo, and the use of the condo facilities are ancillary to the rental of that unit.

Question 10: For tenants who have already signed the TA, can they break the lease or demand compensation from the landlord, on the basis of closed condo facilities?

Background: Some existing tenants have begun to complain that the closure of facilities was “not part of the deal”, and that the landlord should be giving discounts or changing the monthly rent to compensate for this.

Answer:

Once the TA has been signed, tenants will usually not be allowed to break the lease or demand compensation from the landlord unless of course, the landlord agrees, or unless there are terms and conditions in the TA which allow the tenants to do so.

For example, the TA may have a force majeure clause dealing specifically with epidemics. Depending on how this clause is drafted, the tenant may have a right to terminate the lease.  Again, this depends on the exact wording of the clause and the circumstances. However, it is not usual for residential TAs to have a clause dealing specifically with epidemics. Most residential TAs only have clauses dealing with what happens when the premises are destroyed, or rendered inhabitable by damage.

Again, it may be difficult to argue that the TA was frustrated due to the closure of condo facilities and Covid-19 (See the question above – 99.co)

Properties held under a business

Question 11: If the property is kept under our business, and our business goes bust, what happens to the property? Can we just take over servicing the loan, and keep the property for ourselves?

Background:

Some property owners purchase their units through a company that they own (the reasons are too complex to get into here; suffice it to say there are some advantages to doing so, such as tax reasons). With some of these owners being forced to wind down the company for whatever reason, many want to know if they can just “take over” the property loan from their former company, and retain the unit.

Answer:

There are provisions in the mortgage and loan agreement that, if the owner  company is wound up or is under liquidation, the financial institution is entitled to recall the loan and require the loan to be fully repaid.

In these circumstances, it would not be as simple as just taking over the servicing of the loan and keeping the property for the business owner. Once the business fails, and the company is wound up, there may be other creditors, and these debts would also be required to be satisfied.  The company’s assets are seized and realised with the proceeds from the seized assets being used to pay off the company’s debts and liabilities.

(Best bear this in mind, before deciding to buy a property under your business in future – 99.co).

Question 12: Previously on 938 Live,* you mentioned that certain demographics – such as business owners dealing with volatile market situations – can benefit from putting properties in trust for their children. Do you see any examples of such a move paying off, in a Covid-19 situation like this when businesses risk closure?

*Catch us with Susan Ng on Open House, on CNA 938 on Saturdays 10 am to 11 am

Background:

Home owners who face higher risks, such as the self-employed or those running small businesses, often buy properties on trust for their children. Situations like Covid-19 may highlight the benefits of doing this.

Answer:

If the properties were bought in trust for their children more than five years ago, these properties will be beyond the reach of the creditors, if the parents’ business fails during this Covid-19 crisis.

Do you have any more questions about your property transactions affected by Covid-19? Reach out to us on Facebook, and we’ll try to get you the answers.

For those of you with immediate and pressing concerns though, do reach out to firms like Circular Law Chambers LLP or other relevant legal professionals first; best to go straight to the experts, as this outbreak can result in complex, unprecedented situations.

What are your thoughts on Covid-19 and the property market? Voice your thoughts in our comments section or on our Facebook community page.

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