Pocket Guide: Transaction Planning For The New Year - Real Estate Transactions

This article is intended to provide a quick overview of real estate transactions and facilitate transaction planning for businesses intending to undertake acquisition of industrial property in Malaysia.

Is your team exploring industrial property opportunities in Malaysia for the purposes of establishing new operations, or expansion, or relocation ? Here are the next steps for getting things headed in the right direction.

[1] Preliminary Due Diligence

Conducting public searches for verification purposes - it is important to obtain basic details of the property and the registered owner of the property. This is to facilitate public searches being conducted to verify key details about the property and to verify that you are engaged in discussions with the correct party.

If there are any points of interest regarding the prospective property or which a purchaser intends to undertake with the prospective property that are imperative or essential to support the broader commercial or project objectives which the purchase is intended to represent, these points should be explored at this stage with support from a legal perspective or from other professional service providers (e.g., environmental consultants, engineering consultants, etc.). On-site viewing or inspection sessions should also be carried out.

[2] Letter of Offer / Letter of Intent

Once key details have been verified, the parties may engage in more detailed discussions regarding key transaction parameters and agree for such matters to be addressed in more detail during the drafting of the definitive agreement. The definitive agreement is known as a Sale and Purchase Agreement. Examples of key transaction parameters at this stage are as follows:

• the amount of the purchase consideration;
• the grace period extended to the purchaser to pay the purchase consideration (including any tranches);
• key approvals relevant to purchaser or the landowner; and
• any other 'must have' items that are imperative or essential to support the broader commercial or project objectives which the purchase is intended to address.

A purchaser's objective at this stage is to be able to pay the landowner an earnest deposit after key transaction parameters are agreed. This is the first step towards committing to a sale and purchase transaction.

[3] Definitive Agreement (the sale and purchase agreement)

After the purchaser pays the earnest deposit and a letter of offer or letter of intent is signed by the purchaser and the land owner, the next step in the transaction is for the parties to agree on the terms and conditions of the definitive agreement within the grace period agreed in the letter of offer or letter of intent.

During this stage, the key transaction parameters identified in the letter of offer or letter of intent are addressed in greater detail, together with other terms and conditions that are customary for sale and purchase transactions.

Here are some of the key customary terms:

• conditions that must be satisfied before the obligation to pay the balance purchase consideration becomes unconditional. Some of these conditions may be compliance-related or represent 'must have' items that are imperative or essential to the respective parties;
• grace periods for performance of obligations (e.g., delivery of supporting documents, delivery of signed documents, discharging an existing encumbrance);
• termination events;
• representations and warranties;
• procedures that apply in the event of termination of the agreement;
• procedures for delivery of the land title; and
• procedures for delivery of the property upon payment of the purchase consideration and completion of the purchase transaction.

The outcome of negotiations on the substantive terms will be guided by various factors such as bargaining power and time pressures. The eventual outcome could be an agreement that reflects a combination of "must-have" commercial terms and "nice-to-have" commercial terms.

Knowing in advance what the "must-have" or "nice-to-have" commercial terms are is important as these serve as indicators of whether the negotiations are heading in the right direction or whether it is necessary to consider walking away from the deal because parties are not able to mutually agree on commercial points. The objective during this phase of negotiations is to work towards negotiation outcomes that address the interests of each party in a fair manner.

[4] Getting it signed

In preparation for signing, the purchaser should identify in advance its signatories for the definitive agreement and have the relevant statutory forms in connection with the sale and purchase transaction prepared in advance.

The internal approval processes should be initiated in advance of signing so that authorisations for resolutions and funds are approved in advance.

Steps should also be taken to ensure that funds representing the balance deposit are ready to be paid upon signing of the definitive agreement.

As the purchaser is expected to sign the definitive agreement and pay the balance deposit to the solicitors of the landowner before the expiry of the grace period for signing, advance preparation and coordination among signatories will help facilitate an orderly and timely signing process.

[5] Walking it to the finish line

Once the definitive agreement is signed, the formal acquisition process commences. The respective parties are required to take the relevant pre-agreed course of action at the relevant intervals to bring the transaction to completion (e.g., delivery of supporting documents, ensuring relevant payments, etc.). Here is where signed agreements and instruments are submitted for stamping, application forms are submitted for processing and where the process regulating the transfer of property occurs within the prescribed grace periods (including the actual exchange of monies, delivery of the original land title and delivery of the physical property).

[6] It can get quite exciting

Not all transactions will unfold in a timely and uneventful manner. For example:

• the processing time for applications may be longer than expected; or

• for documents originate from foreign jurisdictions, more time is required to arrange for documents to be delivered or signed in the proper manner; or

• for signatories based overseas, more time is required to arrange for documents to be delivered overseas and signed in the proper manner; or

• there are unexpected glitches affecting funding preparations or approval processes, or the process for the release of land title.

Planning ahead helps the transaction team be prepared to expect certain challenges and to be able to respond swiftly to navigate through these challenges. It is also equally important to continue to be fully engaged in the transaction process to ensure that the transaction is progressing in the right direction.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.