A caveat may be entered by the Registrar on the register document of land title to prohibit the enforcement of registration, endorsement, or entry on the register document of title thereto. A caveat is commonly used as a mechanism to protect purchasers’ interest prior to the completion of a sale and purchase agreement.
However, the issue is whether an agreement to purchase grants a purchaser the right to caveat a property?
In Loo Kian Aik & Anor v Aliran Raya Sdn Bhd & Anor [2023] MLJU 2499, the High Court discussed the general rights granted to a purchaser under an agreement to purchase.
Background Facts
The Defendants (Aliran Raya Sdn Bhd & Anor) agreed to sell and the Plaintiffs (Loo Kian AIk & Anor) agreed to purchase two pieces of land (the Lands) via an agreement to purchase dated 11 July 2022 (“ATP”). Pursuant to the ATP, the Plaintiffs paid the earnest deposit of RM 96,000.00.
A dispute arose as the Plaintiffs alleged that the Defendants had failed, refused or neglected to complete the sale of the Lands. The Plaintiffs commenced an action against the Defendants to seek for specific performance for the sale of the Lands.
Further, the Plaintiffs filed a caveat in the Lands with the belief that there was a caveatable interest in the Lands granted to them via the ATP. The Defendants sought to cancel the caveat which has led the Plaintiffs to file an application to the court as to preserve the caveat.
The issue before the court was whether the ATP has granted the Plaintiffs a caveatable interest in the Lands.
The Plaintiffs’ Case
The Plaintiffs argued that they have a caveatable interest in the Lands based on the following:
The ATP was a legally binding agreement between the parties.
The earnest deposit had been paid by the Plaintiffs.
The parties almost reached the execution stage of the sale and purchase agreement if it was not due to the last-minute changes on the terms of the sale and purchase agreement as requested by the Defendants.
The Defendants’ Case
The Defendants contended that the ATP did not grant the Plaintiffs any caveatable interest in the Lands based on the following:
The earnest deposit paid by the Plaintiffs was refundable and was to be treated as a forfeitable part payment.
The ATP was subject to the execution of the sale and purchase agreement by the parties.
The terms and conditions of the sale and purchase agreement have not been concluded by the Parties.
The Court’s Decision
The High Court noted the following submissions that were not disputed:
No sale and purchase agreement has been executed by the Plaintiffs and Defendants as the parties were still in negotiations to finalise the terms and conditions of the sale and purchase agreement.
The ATP was a legally binding contract between the parties in view that the parties and subject matter of the ATP were certain and that the earnest deposit had been paid to the Defendants.
Whether The ATP Gives Rise To A Caveatable Interest In The Lands?
The High Court held that the ATP was an illustration of the parties’ intention to sell and purchase the Lands, and its binding effects shall only extend to the duties, obligations of the parties to execute the sale and purchase agreement, which included the consequences of either party’s failure to execute the sale and purchase agreement.
In view that the ATP provided for consequences in relation to the failure of either party to execute the sale and purchase agreement, it provides either party with an option to withdraw from the transaction via the refusal of execution of the sale and purchase agreement. Hence, the ATP cannot be deemed a conclusive document for the sale of the Lands.
ATP Was A Mere Contract To Contract
As the parties have entered into negotiation for the terms and conditions of the sale and purchase agreement, this illustrated that the ATP was not intended to be the only and conclusive document which governs the transaction of the Lands. The court highlighted that the ATP was a mere contract to contract, instead of the sole governing contract for the transaction of the Lands. The court referred to the case of Charles Grenier Sdn Bhd v Lau Wing Hong [1996] 3 MLJ 327, where it was emphasised that an agreement to make an agreement does not result in a contract.
Payment Of Earnest Deposit Does Not Confer Caveatable Interest
Further, it is decided by the court that the Plaintiffs’ payment of the earnest deposit was insufficient to confer any caveatable interest in the Lands. Pursuant to the case of Institut Teknologi Federal Sdn Bhd v IIUM Education Sdn Bhd [2007] 7 MLJ 23, the payment of earnest deposit, which was refundable did not provide for a caveatable interest in the said land and mere pecuniary interest in a land does not entitle one to lodge a caveat.
The execution of the ATP provides the Plaintiffs with a future interest instead of present or existing registrable interest in the Lands as illustrated in the case of Score Options Sdn Bhd v Mexaland Development Sdn Bhd [2012] 6 MLJ 475. Hence, the court found that in view that the sale and purchase of the Lands was subject to the execution of the sale and purchase agreement, the Plaintiffs’ rights into an interest in the lands have not ripened yet.
Sale And Purchase Agreement Was Not Ready For Execution
In addition to that, the court found that as the Defendants have yet to conclude the negotiations on the terms and conditions of the sale and purchase agreement, it must be deemed that the sale and purchase agreement has yet to reach the stage where it was ready for execution, which conferred the Plaintiffs with registrable and caveatable interest. As illustrated in the case of Murugappa Chettiar Lakshmanan v Lee Teck Mook [1995] 1 MLJ 782, until and unless there was an enforceable contract for the sale of a land entered by the parties, negotiations for a contract, regardless advanced, do not amount to a contract.
Conclusion
The High Court concluded that the Plaintiffs failed to illustrate and satisfy that they have registrable and caveatable interests in the Lands as the sale and purchase agreement had not been signed.
Hence, it is of utmost significance for a purchaser in a transaction for the purchase of land or property to understand that although an agreement to purchase had been signed by the parties, the registrable and caveatable interests will only be conferred to the purchaser upon the execution of a sale and purchase agreement, which shall be deemed as the binding and conclusive agreement for a transaction.
8 March 2024