Why provisional sales, tenancy agreements for property in Hong Kong must be handled with care

2019-10-15

• Consumers must be aware that provisional property agreements are legally binding documents and disputes may easily arise, says Ruby Hon, chief executive of the Estate Agents Authority

• Failure to fill in the documents correctly can be costly, Hon warns

When handling the transaction of second-hand properties in Hong Kong, estate agents may arrange for clients to enter into a provisional agreement for sale and purchase (PASP) or provisional tenancy agreement (PTA).

Consumers should note that both are legally binding documents and disputes may easily arise if they are not completed properly. Here, I would like to highlight that estate agents are required to exercise due care and diligence when preparing PASP and PTA for their clients.

In order to provide guidelines on the preparation of a PASP and PTA, relevant practice circulars were issued by the Estate Agents Authority (EAA). One of the most important guidelines is that estate agents must not arrange for clients to sign a PASP or PTA with the spaces for the essential terms of the transaction left blank, as those terms may have significant impact on the rights and liabilities of both the vendor/landlord and purchaser/tenant. Moreover, estate agents must obtain consent of all parties before making any amendment to a signed PASP or PTA.

Here, I would like to share a case in which an estate agent mishandled a PASP.

A salesperson introduced a property to a prospective purchaser. After the inspection, the buyer was willing to purchase the property at a price of not more than HK$11,500,000. The salesperson then arranged for the purchaser to sign a PASP with the property price left blank and told the purchaser that he could persuade the vendor to sell the property for HK$11,500,000. The purchaser then gave a cheque of HK$200,000 as the deposit to the salesperson.

A few days later, the salesperson informed the purchaser that the vendor would only sell the property at the price of HK$12,000,000. The buyer did not accept the price and asked the salesperson to return the cheque to him, but in vain. Later, the purchaser found out that the salesperson had actually filled in the amount of HK$12,000,000 as the property price in the PASP without seeking his consent. The purchaser finally dishonoured the cheque and lodged a complaint with the EAA.

The EAA Disciplinary Committee was of the view that the salesperson was in breach of regulations by arranging for the purchaser to sign a PASP with essential terms of the transaction left blank. In addition, by filling in the property price in the PASP without the purchaser’s consent, the salesperson was in breach of the Code of Ethics, which stipulates: “Estate agents and salespersons, in engaging and accepting an appointment as an agent, should protect and promote the interests of their clients, carry out the instructions of their clients in accordance with the estate agency agreement and act in an impartial and just manner to all parties involved in the transaction”.

The committee, with regard to the two breaches, decided to reprimand the salesperson, impose a fine of HK$10,000 and suspend his licence for 28 days. A condition was also attached to his licence requiring him to obtain 24 points under the continuing professional development scheme in 24 months.

Estate agents must also ensure that all information given in a PASP is accurate, such as whether vacant possession will be delivered to the purchaser or whether the property is sold subject to tenancy upon completion of the transaction, before arranging for clients to sign the agreement. Moreover, the address of the property should be the same as that shown in the land search record for accuracy’s sake. Also, any car parking space, roof, garden or other parts of the property, if included, must be clearly stated as well.

Furthermore, estate agents should advise their clients to stakehold all the deposits with a firm of solicitors when handling a sale and purchase transaction in order to minimise the risk of fraudulent misrepresentation of the identity of the vendor. They must also refrain from arranging for the vendor to confirm receipt of any initial deposit in the PASP by signing the receipt clause thereof before the vendor has received the cheque or money for the deposit.

As the PASP or PTA is a binding agreement, I would like to remind consumers that it is important to understand thoroughly all the provisions therein before entering into the agreement.