How to Calculate Your Conveyancing Cost?

How to Calculate Your Conveyancing Cost?

It can be safely assumed that most people are not aware of the costs and charges involved in a sale and purchase of property and the provision of a loan facility. After all, the calculation of legal fees can be quite technical. Generally, a clerk of a law firm will do the calculation and quotation of the legal fees and costs for you. However, they are bound to make mistake and wrongly interpret the rules and laws governing legal fees. In this article, we will explain to you how to calculate the costs in a conveyance of property.

It may be useful to know about some features of a sale and purchase of property as follows:

1. Sale and Purchase Agreement (“SPA”) is an agreement between the vendor and purchaser for the sale of the property. It contains vital information as such the details of the property and it serves as a blueprint for the whole process of the conveyancing. The SPA will attract a nominal stamp duty of RM 10.
2. Memorandum of Transfer (“MOT”) is an instrument of transfer prescribed in Form 14A to effect the transfer of ownership from the vendor to the purchaser. It has to be stamped and registered at the Land Office or Registry. The MOT will attract a stamp duty on ad valorem basis, meaning it will be charged according to the value of the property.
3. Loan Agreement is a formal contract entered into between a borrower and a lender or financial institution which contains applicable interest rate and terms and conditions. Stamping of the Loan Agreement will attract a duty of 0.5% on the sum borrowed.
4. Charge or Gadaian is a legal instrument registered by the bank or financier at the land office over the property as security for the loan that the bank or financier provided. In the event of default, the bank will have the right to auction and sell off the property and utilise the sale proceeds to settle the debt.  
5. Stamp Duty is tax from the government as stated under Stamp Duty Act 1949, it may varies according to adjudicated value of the property or types of document. We have covered the stamp duty in our previous article.
6. Real Property Gain Tax (“RPGT”) or Cukai Keuntungan Harta Tanah (“CKHT”) is tax levied on the gains from disposal of property.

Legal fees is regulated by the Solicitors Remuneration Order 2005 (“SOR”). It is chargeable for various aspects of the conveyancing process and it may vary according to the complexity of the case. However, generally it is fixed to a scale of fees proportional to the value of the property. We have summarised and listed out the relevant sections of the SOR here.

 

Sale and Transfer

Consideration or Adjudicated value (whichever is higher)	Scale of fees
First RM 500,000-00	1% (subject to a minimum of RM 500-00)
Next RM 500,000-00	0.80%
Next RM 2,000,000-00	0.70%
Next RM 2,000,000-00	0.60%
Next RM 2,500,000-00	0.50%
Where the consideration or adjudicated value is in excess of RM 7,500,000-00	Negotiable on the excess (but shall not exceed 0.5% of such excess)

Consideration value is the purchase price of the property as agreed between the vendor and the purchaser, which is stated in the SPA. Adjudicated value is the sum as determined by the Stamp Office based on market price and their own assessment.

The above scale provides that the lawyer has the right to charge you based on consideration or adjudicated value, whichever is higher. The general norm of the legal industry is to charge based on consideration value and adjudicated value is normally disregarded.

Assuming the property you are purchasing has a consideration value of RM 850,000.00, the legal fees for the preparation of SPA and MOT will be as follows:

 

SPA and MOT

RM 500,000.00 x 1% = RM 5,000

RM 350,000.00 x 0.8 = RM 2,800

Total legal fee chargeable for this part is RM 7,800

 

Charges, Debenture, and other Security or Financing Documents

Amount Secured or Financed	Scale of fees
First RM 500,000-00	1% (subject to a minimum of RM 500-00)
Next RM 500,000-00	0.80%
Next RM 500,000-00	0.70%
Next RM 2,000,000-00	0.60%
Next RM 2,500,000-00	0.50%
Where the amount secured or financed is in excess of RM 7,500,000-00	Negotiable on the excess (but shall not exceed 0.5% of such excess)
For the principle instrument	Full scale fee
For each subsidiary instrument within the meaning of subsection 4(3) of the Stamp Act 1949	10% subject to a minimum fee of RM 300.00 and a maximum fee of RM 1,200-00)

The above scale is for a category of documents called security documents. Very often a purchaser would borrow money from the bank or financial institution to finance the purchase of the property. The preparation of the security documents such as charge and loan agreement will certainly attract legal fees.

As a loan can involve not just one but a few security instruments and documents, the SOR allows the parties to determine which instrument will be the principal and subsidiary instrument. Principal instrument will be charged fully according to the scale, whereas subsidiary instrument will only be charged at a 10% of the full scale fee subject to a minimum of RM 300 and a maximum of RM 1,200. It is a common practice to treat loan agreement as the principal instrument and charge as the subsidiary instrument.

Assuming that the loan granted for the RM 850,000.00 property is 100%, the legal fees for security documents will be as follows:

 

For principal instrument of loan agreement

RM 500,000.00 x 1% = RM 5,000.

RM 350,000.00 x 0.8% = RM 2,800.

 

For subsidiary instrument of charge

RM 7,800 x 10% = RM 780.

Total legal fee chargeable for this part is RM 7,800 + RM 780 = RM 8,580.

 

Preparing, Filing or Witnessing Miscellaneous Documents

For witnessing execution of a document		RM 50 for first and RM 10 for each subsequent copy
For witnessing execution of a document and giving an attestation certificate		RM 100 for first and RM 10 for each subsequent copy
Forms under sections 108-113 of the Companies Act 1965 [Act 125]		RM300 per set
CKHT	Form 1A	Not less than:	RM 400
	Form 1A (each additional party)		RM 200
	Form 2A		RM 300
	Form 2A(each additional party)		RM 200
	Form 3		RM 100
	Form 3 (each additional party)		RM 100
	Form 502 (for each vendor)		RM 150
Filing of any other form with an appropriate authority		RM100 per form
Entry of private caveat including the required statutory declaration		RM 200 for first title and RM 50 for each subsequent title
Withdrawal of caveat		RM 150 for first title and RM 50 for each subsequent title
Statutory declaration		RM 100 per document
To certify a document		Not exceeding RM25 for first certification and not exceeding RM10 each subsequent certification of the same document
Letter of undertaking		RM 100 per document

 

We have come to a part where it is getting more technical and very few have really discussed this.  

Each of the parties is legally obliged to file CKHT forms at the LHDN to notify the LHDN about their disposal of property and the gain or loss that they made from the sale.

1. CKHT Form 1A is to be filed by the vendor for his or her declaration of the disposal of the property. In practice, the vendor him or herself will pay for this cost.
2. CKHT Form 2A is to be filed by the purchaser for his or her declaration of the acquisition of the property.
3. CKHT Form 3 is dispensation form where it is only required to be filed if the vendor opines that he is not liable to be taxed for RGPT and he does not want the purchaser to retain and remit 3% of the purchase price (usually taken from the deposit), also known as retention sum, to the LHDN. Since the passing of Budget 2019, all properties are now subject to a minimum of 5% of real property gain tax even if it is disposed after 5 years. As such, the CKHT Form 3 is, for now, redundant.  
4. CKHT Form 502 is the form for the remittance of the 3% retention sum by the purchaser to the LHDN.

For the purchaser, it is only required to file Form 2A and Form 502. As such, the legal fees involved is only RM 200 + RM 150 = RM 350.

Besides CKHT, there are witnessing of execution, registration of company charge, statutory declaration, entry of caveat, withdrawal of caveat, letter of undertaking and etc. All these are the fees chargeable in the SOR. Some fees are definitely chargeable to either one of the parties, but some may or may not be chargeable as it depends on the circumstances. All these are the costs payable in a normal conveyancing process which are fixed in a scale of fees.

There are costs chargeable which are not fixed and Order 3 of the SOR, which is a bit tricky to interpret, provides for that. It states that the following costs and fees are not covered by the SOR:

(a)        fees payable on the registration of documents requiring registration;

(b)        stamp duties or fees;

(c)        counsel’s fees, auctioneer’s or valuer’s fees;

(d)       travelling or accommodation expenses;

(e)        fees paid on searches;

(f)        costs of extracts from any register or record;

(g)        other disbursements reasonably and properly paid and incurred (which shall be itemized in any bill of costs rendered by the solicitor to the client);

(h)        the cost of any extra work;

(i)         fees relating to any business of a contentious nature;

(j)         fees relating to any proceeding in any court; and

(k)        miscellaneous expenses not exceeding RM100.

It means that for these items there is no fixed scale but lawyers are allowed to charge their clients according to the circumstances of the case. They are mostly disbursements which cannot be precisely estimated.

There appears to be some sort of a double negative expression at Item (k) which in effect has set a limit of RM100 for miscellaneous expenses. Order 3 of the SOR also prohibits lawyers from charging clients for the following items by deeming to include them into the fixed scale:

(a)       allowances for the time of the solicitor and his clerk and all usual and necessary attendances

(b)       charges for normal copying and stationary.

As such, a lawyer is not allowed to charge you for photocopying and also for their usual and normal time spent if the lawyer is providing conveyancing service covered by the SOR. It is surely an innovative way of telling what the lawyer can or cannot charge, namely by including or excluding disbursements from the fixed scale, even it is excluded it still can tell you that you cannot exceed RM100 for the miscellaneous expenses.

In brief, you will have to pay: (A) legal fee + (B) disbursements, such as stamp duty, fee paid on searches, registration fee and etc + (C) SST. We have already covered how to calculate your stamp duty in the previous article.

We hope we are able to help you to understand more about your conveyancing costs to some degree. But if you are a serious person and interested in knowing more about how to calculate the legal fees and costs in minute detail, and you have felt we have saved ourselves some efforts by not explaining to you sufficiently about the miscellaneous document part, we do accept intern at our firm where we will specially train you on how to calculate the legal fees and costs in a professional way for 6 months. But you will have to do some other works as well. And no, we don’t pay honorarium for intern who wants to learn the way of legal fees calculation, that itself is already so rewarding.