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PROPERTY LAW – LEGAL IMPLICATIONS OF SALE AND PURCHASE AGREEMENT BREACHES AND THE RIGHT TO OFFSET IN MALAYSIAN PROPERTY TRANSACTIONS

  1. Scenario Summary

    X, a property developer, and Y entered into a sale and purchase agreement (SPA) on 2.1.2016 for a property valued at RM500,000, with the promise of delivering vacant possession by 1.1.2018. According to the SPA, Y was to pay the purchase price in instalments as outlined in the Third Schedule. However, Y failed to pay the final 20% of the purchase price, leading X to terminate the SPA due to breach of contract.

    The legal questions arising are:

    i. Whether X is responsible for the delay in delivering vacant possession as per the SPA and if the liquidated ascertained damages (LAD) significantly exceed the unpaid 20% of the purchase price, negating X’s right to demand the outstanding balance.

    ii. Whether Y has the right to offset the 20% unpaid portion of the purchase price against the LAD, thereby nullifying the obligation to pay the remaining balance.

  2. Applicable Legal Principles
    – The right to offset, as per section 526 of the Companies Act 2016, is permissible only where there are mutual credits between the parties, and these credits are due.

    – In scenarios where a company is not undergoing liquidation, the issue of favoring certain creditors over others does not apply. The buyer is entitled to offset the LAD against the remaining purchase price if the LAD exceeds this outstanding balance.

    – In the event of company liquidation, the liquidator should collect the outstanding purchase price to benefit the Housing Development Account, ensuring equitable treatment without giving undue preference to any party. Any remaining funds in this account should be proportionately distributed among purchasers entitled to LAD for delayed delivery upon the conclusion of the liquidation process.
  3. Relevant Case Law
    • Sazean Development Sdn Bhd v Maha Pesona Sdn Bhd [2023] MLJU 544
    • Techno Asia Holdings Bhd v Mount Austin Properties Sdn Bhd [2007] 4 MLJ 576
    • Sentul Raya Sdn Bhd v Hariram Jayaram & Ors [2008] 4 CLJ 618
    • Foo Ah Kow v Yeap Poh Lam [2016] 6 CLJ 686
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