OWNERS looking to sell their property will have to be a lot more careful about the process, following a recent landmark court ruling on a Balestier condo.
The ruling, which centred on what constitutes a binding contract, found that the owners did not honour the terms of an agreement. They were ordered to pay damages to the potential buyer.
Experts say the ruling puts the onus on sellers and buyers to ensure they are fully aware of the wording and terms of any document they sign in a sale process.
The dispute arose after Ms Sandra Chew issued an "offer to purchase" document for the unit at the Montebleu condominium in Minbu Road for $920,000.
Her estate agent, Mr Adrian Thoo, gave the document to owner Woo Kar Wai and his wife.
An "offer to purchase" is a formal written offer from a buyer to the seller, expressing serious interest in the property.
"This practice has been around for a long time and most agencies use it or something similar," said ERA Realty key executive officer Eugene Lim. "A written offer shows more seriousness."
It differs from the Option To Purchase (OTP) form, which is given to the buyer by the seller at a later stage in the process.
"In practice, real estate agents and buyers or sellers regard the Option To Purchase as the sole binding contractual document," said Rodyk & Davidson real estate lawyer Lee Liat Yeang.
In this case, Mr Thoo gave Ms Chew's offer to purchase to the Woos on Feb 11, 2010. It stated that she would pay $920,000 and included a cheque for 1 per cent of the price, or $9,200, which served as option money.
The written offer, signed by Ms Chew and prepared by her agent, stipulated that the "option period" for the transaction should be "three days". The Woos would have to accept or reject the offer within that period.
If the Woos accepted it, they then had to deliver the Option To Purchase form to Ms Chew's agent within the same three days.
If they rejected the offer, they had to refund the $9,200 to Ms Chew, also within the three days.
The three-day option period was another point of contention. When the Woos received Ms Chew's offer to purchase on Feb 11, they banked the $9,200 cheque and signed an OTP form.
Ms Chew's agent saw this on Feb 12 and noted that it gave Ms Chew only until the afternoon of Feb 13 to exercise the option - a period that fell right in the middle of the Chinese New Year break.
The agent wanted the term extended but when he returned on Feb 13, the amendment had not been done. This left Ms Chew with only a few hours to decide.
The court ruled that asking Ms Chew to exercise the option by Feb 13 breached the terms of the offer.
Ms Chew tried to exercise the option on Feb 17, the first working day after Chinese New Year, but the Woos' solicitors' office was closed.
She tried again the next day but the Woos rejected it, saying that the OTP deadline had expired.
Judicial Commissioner Lionel Yee noted that by banking the money and keeping it beyond the three-day deadline, the Woos had entered into a contract and were now bound by its terms. These included the three-day deadline to refund the $9,200 if they wanted to reject the offer.
"The money was, in fact, still in his (Mr Woo's) account as at the date of the trial," he added.
Rodyk's Mr Lee told The Straits Times that buyers and sellers must now be more careful about wording as that can determine whether the offer letter can be a binding contract.
Crucially, the offer to purchase letter did not include the exact phrase "subject to contract", a clause that can serve as a safety net as it gives buyers and sellers leeway for negotiations prior to the signing of an actual contract, said Mr Lee.
He added that as the clause was not included, the court ruled that Ms Chew's offer to purchase itself became a legally binding contract.
If buyers and sellers do not want to be bound by the written offer, they should include a clause saying the sale is "subject to contract", Mr Lee said.
The Woos later sold the condo in July 2010 for $1.05 million, well up on the $920,000 Ms Chew had offered in February.
This story was first published in The Straits Times on Aug 10, 2013To subscribe to The Straits Times, please go to http://www.sphsubscription.com.sg/eshop/