Free legal fees – fact or myth?

• Is it a freebie in the truest sense of the word? Are buyers really enjoying a waiver of such legal fees?

To woo purchasers in a competitive property market, developers often offers various freebies, including air-conditioners, kitchen cabinets, automatic gates, club memberships and legal fees.

However, among these, what is often advertised as “free legal fees” or “legal fees borne by developer” requires a more objective analysis.

Is it a freebie in the truest sense of the word? Are buyers really enjoying a waiver of such legal fees?

Meaning of “free legal fees”

Generally, “free legal fees” would be taken to mean that the developer will pay the legal fees on the sale and purchase agreement (SPA). (Buyers are supposed to understand, normally, that does not cover disbursements such as stamp duties, search fees, registration fees, printing charges, purchase of documents costs, etc, which the purchaser will have to pay for.)

In its plain and obvious meaning, “free legal fees” would suggest the legal fees the purchaser is supposed to pay to the solicitor would instead be paid by the developer. Therefore, doesn’t that mean if the purchaser had appointed a solicitor, the developer would pay for the solicitor’s fees? 

However, is this what really happens? Not quite, it seems. Instead, an erroneous understanding of “free legal fees” exists in the housing industry.

Developer’s solicitor

In offering “free legal fees”, the developer would recommend to the purchaser a law firm on the developer’s panel to attend to the SPA and its related transaction. Correspondingly, the same law firm will be tasked with the loan documentations as a packaged deal.  If the purchaser chooses that law firm, the developer will supposedly absorb the legal fees. Quite obviously, the developer takes the view that such arrangements represent a cost-saving to the purchaser as well as to facilitate and expedite dealings.

Now the irony is, the solicitor of the law firm attending to the SPA would not normally scrutinise the agreement for the purchaser and help him/her understand the terms and conditions in layman language, but would say that it is a “standard agreement”. On the other hand, the solicitor would ensure the developer’s rights and interests in the agreement are intact, which the purchaser is bound by once he/she signs on it.

From a legal point, the solicitor acting in such manner would actually be acting for the developer. The solicitor is therefore the developer’s solicitor, and as such, the developer would have to pay the solicitor’s fees.

Consequently, there is no solicitor acting for the purchaser to scrutinise and protect the purchaser’s rights and interests in the agreement. The purchaser actually has no legal representation. 

Unfortunately, many purchasers realise this only when a dispute arises with the developer; whereupon the purchaser, expecting help from the solicitor, is informed that the solicitor is actually the developer’s solicitor.

Purchaser’s solicitor

What would happen if the purchaser appointed a separate solicitor who is not on the developer’s panel? How would the offer of “free legal fees” be affected?

In principle, the solicitor so appointed will scrutinise the SPA for the purchaser. The solicitor will act for the purchaser and consequently, the purchaser should duly pay for the legal services.

In this situation, the developer and purchaser will each have its own solicitor, each with its own attached fees.Where the purchaser is unrepresented by a solicitor in the SPA, the offer of “free legal fees” is not really “free” because the purchaser has no solicitor acting for the purchaser, and thus no legal fees to pay. Therefore, there is nothing free about it as far as the purchaser is concerned. It can only be considered free if the buyer receives independent legal representation and does not have to pay for it.

If the developer’s offer of “free legal fees” were taken seriously, it would follow that the developer would have to pay for the purchaser’s solicitor’s fees because it seems clear and broad enough to cover such. The purchaser would therefore be entitled to claim on the offer and have the developer pay for the purchaser’s legal representation. 

However, most developers would refuse to pay, citing that the offer of “free legal fees” is subject to the purchaser choosing the solicitor on the developer’s panel.

When this happens, the developer’s offer of free legal fees would seem hollow and the developer may possibly risk being sued for misrepresentation and damages.

Legal Profession Act

Section 84 of the Legal Profession Act 1976 states that a solicitor who acts for the developer in the sale of property under a housing development must not act for the purchaser in the same transaction. 

Further, under the SPA, namely Schedule G (Landed property), Schedule H (Stratified property), Schedule I (Landed property 10:90 concept) and Schedule J (Stratified property 10:90 concept), the developer and purchaser must each pay his/her own solicitor’s costs.

The above laws suggest clearly that the developer’s solicitor must not act or purport to act for the purchaser. The purchaser has a right to appoint his/her solicitor.

Thus, is the developer’s offer of “free legal fees” legal? The reader should ponder on the arguments.

(To find out the latest rates on legal fees, read: Increase in legal fees will, however, be set off by (legal) discounts)

(To find out why you must use your own lawyer, read:  Property Chat - Why you need lawyers in property transactions, unlike buying cars (Part 1) & Property Chat - Why you need lawyers in property transactions, unlike buying cars (Part 2))

This article is co-written by Robert Tan, one of the legal advisors of the National House Buyers Association (HBA) and HBA honorary secretary-general Datuk Chang Kim Loong. HBA is a voluntary non-government and not-for-profit organisation manned wholly by volunteers.

HBA can be contacted at: 
Email: [email protected]
Website: www.hba.org.my 
Tel: +6012 334 5676

The views expressed are the writer’s and do not necessarily reflect EdgeProp’s.