OPTION TO PURCHASE (“OTP”)

Also known as Agreement to Purchase/Option Form/Booking Form, which entered between the Owner of the property and the Intended Purchaser when the Intended Purchaser decided to purchase the Property. The Owner, ie the Vendor grants the Purchaser an option to purchase the property based on the terms and conditions in the OTP, in return of a sum of money from the Intended Purchaser called the Earnest Deposit or Option Fee. It binds between the Vendor and the Intended Purchaser legally upon the execution.

Q : What are the important information that must be included in the OTP?

1. Details and the Ownership of the Property

   The full and accurate property address must be stated on the OTP. The parties may refer to the latest assessment receipt (cukai harta) to ascertain the correct address of the property. It is also advisable for the Intended Purchaser to conduct a land search before the execution of the OTP in order to ascertain the ownership of the property.

2. Purchase Price

   The Purchase Price, which is agreed upon by both parties, which will later be stated in the sale and purchase agreement.

3. Earnest Deposit

   It also known as booking fee, which is a sum paid by the Intended Purchaser to the Vendor upon signing of the OTP in order to secure the purchase of their desired unit.

4. Balance Deposit

   The agreed sum to be paid by the Intended Purchaser to the Vendor upon execution of the sale and purchase agreement.

5. Duration

   The agreed duration or timeline for the Intended Purchaser and the Vendor to sign the Sale and Purchase Agreement should be clearly stated on the OTP. In the event the Intended Purchaser fails to execute the Sale and Purchase Agreement within the duration, the Earnest Deposit can be forfeited by the Vendor. Vice versa, in the event the Vendor fails to execute the Sale and Purchase Agreement within the agreed duration, he must refund the Earnest Deposit to the Purchaser together with the agreed liquidated damages as stated in the OTP.

6. Completion Period of the Sale and Purchase Agreement

   The completion period of the Sale and Purchase Agreement shall be decided and determined at the stage of signing of the OTP. Normally the completion date will be 3 months from the date of the sale and purchase agreement or from the date the condition precedent of the sale and purchase Agreement (if any) is fulfilled, subject to both parties’ mutual agreement.

7. Special Conditions

   For example, albeit that the Property is normally to be sold on an “as is where is basis”, in order to attract the Intended Purchaser to enter the sale and purchase of the property, the Vendor may offer and undertake to repair leakage problem of the property or to provide fixtures and fittings. Any such special conditions that are agreed upon must be stated in the OTP in order to enable the sale and purchase lawyer to incorporate the same to the Sale and Purchase Agreement, failing which the Vendor may refuse to perform the agreed repair work on the basis that it is not agreed in writing.

Q : What are the common errors or problems of an OTP?

1. OTP only signed by one of the co-owner

   There is a possibility that the co-owner is not agreeable to the sale of the property and refuse to execute the sale and purchase agreement.

2. Silent on the existing tenancy

   If the property to be sold is subject to an existing tenancy, both the Vendor and the Intended Purchaser shall reach a mutual agreement prior to the execution of the OTP, as to whether the tenancy would be terminated upon the sale and delivery of vacant possession to the Intended Purchaser, or the tenancy would be assigned to the Intended Purchaser at the completion of the sale. Dispute might arise at the completion of the sale and purchase agreement if this is omitted from the OTP.

3. Silent on the list of fixtures and fittings

   In the event the parties agree to include certain fixtures and fittings in the sale of the property, the parties are advisable to take photos of all the fixtures and fittings and attached the same with the OTP.

4. Omitted to state the date of signing of the OTP

   This will create ambiguity in determining the deadline and duration to sign the sale and purchase agreement.

5. Omitted to sign initial at the amendment

   In the event any amendment is made on the OTP, both parties must initial at the amendment to avoid any dispute or argument arise as to possibility of tampering the documents.

In a nutshell, OTP is the first agreement entered between the Vendor and the Intended Purchaser prior to the execution of a sale and purchase agreement. The terms and clauses of the OTP will be incorporated in the Sale and Purchase Agreement which to be executed between the parties. As such, it is highly advisable for the parties to consult a lawyer prior to the execution of the OTP, to ensure that the OTP has consisted of adequate and complete information that protect their interest.

This article is written by 

Yeo Soo Peng
Partners, Low & Partners

Christine Sai Swee Kee
Associate, Low & Partners