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Are you looking for a completed private residential property to buy in Singapore? If so, before buying you will need to exercise an Option to Purchase

Exercising an Option to Purchase occurs when someone decides to move forward with buying the property, goes ahead and signs the acceptance and pays the balance deposit, as detailed below.

This article explains what you need to know before you go ahead and exercise an Option to Purchase, covering all stages of the process, as follows:

• Option to Purchase is usually prepared by the seller’s agent, or occasionally by the seller or the seller’s conveyancing lawyer
• Buyer carefully studies the Option to Purchase
• Option to Purchase is signed by the seller
• Buyer pays the seller the Option Fee
• When the buyer decides to buy the property, he/she exercises the Option to Purchase
• Buyer lodges a caveat on the property

An Option to Purchase in Singapore is a signed sale and purchase agreement of a property between the buyer and seller. It is the prevailing way that people enter into a contract for the purpose of buying and selling property.

The property seller usually grants the buyer the option to buy the property based on the terms set forth in the Option to Purchase agreement. In return, the buyer pays the seller a certain amount of money in the form of an Option Fee.

The Option Fee is usually 1% of the purchase price of the property but this can be negotiated.

The purpose of an Option to Purchase is to give the buyer a way to “reserve” the property. In the Option to Purchase there is a stated amount of time in which no one except the prospective buyer can buy the property. This is called the Option Period.

This Option Period is typically 14 days, this too is up for negotiation unlike that of HDB’s prescribed OTP for sale and purchase of HDB resale flats which has fixed Option Period of 21 days.

Therefore, the Option to Purchase serves the buyer in that the seller is legally bound to refrain from selling the property to anyone else during the Option Period, giving the buyer time to decide whether to move forward with the purchase or not.

Who Drafts the Option to Purchase & How Do You Obtain a Copy?

The property seller’s agent or his/her conveyancing lawyer usually drafts the Option to Purchase. It is then sent to the buyer, his/her agent, or lawyer. They will then carefully read the terms set forth in the Option to Purchase and may ask to amend it by re-negotiating one or more of the terms.

It is not unusual for an Option to Purchase to undergo several drafts with continued negotiations based on input from both parties’ lawyers.

Once all terms are agreed upon, a final draft of the Option to Purchase is made, which the seller signs. This is when the buyer pays the Option Fee to the seller. 

The buyer retains the original document until which time he/she exercises the option in the buyer’s law firm office, and buyer’s lawyer returns it to the seller’s lawyer together with Option Exercise Fee typically either 4% or 9%. Together with the usual 1% Option fee, this forms the deposit.  

What Terms are Usually Included in an Option to Purchase & Why?

There are no strict guidelines for which terms must be included in an Option to Purchase.

Most of the time sellers use standard templates they get from their agents. However, this is not recommended because each Option to Purchase should be drafted to fit the circumstances of each property being sold and bought.

But if you are planning to use a standard form template, it’s important that you carefully read the terms, making sure that they are in your favour. Remember, this is a legally binding agreement.

It would also be prudent to have a lawyer review the Option to Purchase on your behalf, so that you can get his/her advice before signing it. The seller is under no obligation to change the Option to Purchase once it’s been exercised.

The following terms are essential and are therefore usually included in an Option to Purchase:

Identifying Information on Both Parties

It is important that both parties to the agreement are fully identified in the Option to Purchase. Essential details would be:

• Full names;
• Identification numbers; and
• Registered addresses.

Responsibilities of Buyer and Seller

It is essential that the Option to Purchase include the responsibilities expected of both the buyer and seller when the agreement is eventually exercised. Some of these details would be as follows:

• Amount of the Option Fee;
• When the Option Period begins and ends;
• How the Option to Purchase will be exercised; and
• That the Option Fee will be retained by the seller if the Option to Purchase is not exercised according to the OTP, on or prior to the expiry date.

Property Details

The exact property must be identified in the Option to Purchase with all particulars included some of which are as follows:

• Sale price of the property;
• Address of property as shown on the certificate of numbering issued by the Property Tax Division of the Inland Revenue Authority Singapore (IRAS);
• Whether the property is being sold on an “as is where is basis” in which the buyer is accepting the property in its current condition;
• Whether the property is being sold furnished, and if so, an inventory list must be attached;
• Whether the buyer has a right to inspect the property prior to completing the purchase;
• Whether the property is being sold with vacant possession or if the sale is subject to tenancy (if applicable);
• Whether the buyer is planning to move in sooner or later than the agreed upon date (if applicable);
• Whether there are any additions or alterations to the property or any warranty;
• Any and all conditions that the property is being sold subject to.

Property Title Information

This information is important, so that the buyer is confident that the property’s title is in order, so that ownership can be transferred. Some important details would be:

• The title has been thoroughly researched and is determined to have clear title.
• The title will have no encumbrances on completion and any claims will have been discharged; and
• The title is in good order and properly registered.

The Law Society of Singapore’s Conditions of Sale 2020 Regarding the Rights of Both Parties

A comprehensive OTP should include the Law Society of Singapore’s Conditions of Sale 2020, so that both the buyer and seller understand their legal rights as well as their responsibilities. Some of the most important conditions are as follows:

Condition 6: Rents, Profits, Outgoings and Levies until and after Completion

• The seller has the right to receive rent and profits but must pay all levies, expenses, and outgoings up to the date of completion.
• The buyer has the right to receive rents and profits and must pay all expenses and outgoings once the completion date has passed (see below).

Condition 7: Property Tax, Withholding Tax, Goods and Services Tax, and Stamp Duties

• The buyer and seller are responsible for paying their respective withholding tax and stamp duties as required.
• The buyer is responsible for paying all other taxes that may be required.

Condition 9: Interest Owed due to Late Completion

• The buyer or seller is responsible for paying the interest owed if they cause the completion to be delayed. 

Condition 15: Notice to Complete

• Either party is entitled to give the other party a Notice to Complete in writing should the sale not be completed on the agreed upon completion date. From there, the sale must be completed within 21 days.

Terms Related to How Legal Requisitions are Answered

In a typical OTP, there is a term stating that the property’s sale and purchase is subject to satisfactory answers to legal requisitions.

A legal requisition is when an application is made to the authorities in an attempt to obtain pertinent information about the property being sold.

For example:

• Legal requisitions made to the Land Transport Authority (LTA) asking if the access road to the property is private or public
• Legal requisitions made to the Public Utilities Board (PUB) asking if the land is impacted by drainage reserve.

Getting satisfactory answers to legal requisitions is vital to ensuring that the property being sold is not going to be impacted by any alterations, charges, fees, notices, or street widening schemes, or the like.

This usually becomes important when dealing with sale and purchase of non-strata property i.e. landed house, private shophouses.

Having this term included in the Option to Purchase is in the buyer’s interest because he/she finds out ahead of time what condition the property is in and whether he/she needs to take any action regarding the property.

If there are any unsatisfactory answers, a professional valuer may be called in to determine whether the situation will affect the value of the property and to what extent if any.

Balance Payment is to be Delivered to Seller’s Conveyancing Lawyer

It is essential that this term be included in the OTP, so that the lawyer representing the seller is authorised to collect all payments. These payments are then deposited into the seller’s attorney conveyancing (CVY) account for the benefit of the seller.

This safeguards the buyer’s investment should the seller’s lawyer abscond with the money, since paying the seller’s lawyer is considered to be payment directly to the seller.

Agreement on the Completion Date

The completion date is when the transfer of the property is to take place. Both parties may agree on this date, but it is typically 8 to 12 weeks from when the Option to Purchase is exercised.

Generally speaking, both parties should come to an agreement on a date when they both have enough time to prepare for the transfer of ownership.

All Sellers Must Sign

Last but not least, the Option to Purchase must be signed and dated by everyone with an ownership interest in the property, plus at least one witness.

How to Exercise an Option to Purchase

When a buyer finally decides that he/she wants to follow through and buy the property under consideration, he/she may exercise the Option to Purchase. This must be done prior to the end of the Option Period and as set forth in the Option to Purchase.

As discussed earlier, the Option Period is typically a matter of negotiation between the buyer and seller, however 14 days is common.

Buyer submits a signed acceptance copy and pays the Balance Deposit

What usually happens is that the buyer submits a signed acceptance of the OTP along with full payment of the Balance Deposit to their own conveyancing lawyer’s office, which must be witnessed by lawyer. That lawyer will then hand-deliver the exercised OTP, plus payment of the Balance Deposit to the seller’s lawyer.

The Balance Deposit is typically a matter that is negotiated between the buyer and seller, but most of the time it’s 5% or 10% of the property’s purchase price, minus the Option Fee.

Once the buyer signs the acceptance copy and pays the Balance Deposit, the sale and purchase contract for the property being transferred is concluded. The contract is dated on the date that the buyer signed the acceptance.

No additional sale and purchase agreement is necessary once the Option to Purchase has been exercised since the terms and conditions of any new agreement would probably be no different than those spelled out in the original OTP.

Lodge a Caveat

As soon as the contract is concluded, the buyer’s lawyer should lodge a caveat with the Registry of Deeds since the property is registered there under the Registration of Deeds Act or with the Registry of Titles because the property is registered there under the Land Titles Act.

The purpose of this caveat is to inform any third parties that the buyer now owns the property. This allows the buyer to be informed of any future dealings that may impact his/her newly acquired property.

The caveat would be very helpful if the seller, for example, tried to sell that same property to someone else.

What Happens if the Buyer Does Not Exercise the OTP within the Option Period?

If the buyer misses the deadline for exercising the Option to Purchase, it expires, and the seller gets to keep the Option Fee unless there is something in the OTP that states otherwise.

They buyer forfeits the Option Fee to the seller, and the seller is now allowed to sell the property to someone else.

What Happens if the Buyer or Seller Wants to Back Out Once the Option to Purchase is Signed?

If the buyer changes his/her mind after signing the OTP, he/she forfeits the Option Fee to the seller (as above).

If the seller changes his/her mind after signing the OTP, he/she must give the Option Fee back to the buyer.

Also, the buyer may want to force the seller to follow through with the sale by making a claim for specific performance against the seller for the Option to Purchase.

In deciding the case, the court would likely consider the conduct of both parties to determine whether allowing one or the other to back out on his/her contractual obligations would be unjust.

The preparation of an Option to Purchase agreement to buy a completed private residential property is not a straightforward, one-size fits all process. Additionally, the seller is under no obligation to change the terms of the OTP once it’s been signed, and the Option Fee paid.

We at Pinnacle Estate Agency are experienced in these matters and would be happy to advise you before you enter into an Option to Purchase agreement or go ahead and exercise an OTP. We can help you negotiate the most favourable terms for you and see that your legal rights as a buyer are protected. For more complex transactions, we would bring in our conveyancing lawyer partners to assist.

You can also download the standard version of Option to Purchase for Private Residential Property Template

Disclaimer: The information provided in this article does not constitute legal advice. We recommend that you get the specific legal advice you need from an experienced attorney prior to taking any legal action. While we try our best to make sure that the information provided on our website is accurate, you take a risk by relying on it.

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