THE National House Buyers Association (HBA) refers to the Solicitors’ Remuneration Order 2023 (SRO 2023), which was gazetted and implemented on July 15.
The SRO 2023 governs the legal fees that lawyers can charge in respect of Sale and Purchase Agreements (SPA) and financing agreements involving immovable properties (land and buildings). It replaces the Solicitors Remuneration Order 2005, which was revised in 2016 and again in 2017.
The last few years have seen challenging times for many people. In line with the rising cost of living and doing business since the last revision of the SRO 2005 in 2017, the SRO 2023 reviewed upwards the schedule of fees that lawyers can legally charge and offer discounts and rebates.
The fee structure of SRO 2023 sees an increase of only 0.25% for the first RM500,000.
The discounts, on the other hand, range from RM500 if the loan is RM50,000 or below;
75% of the applicable fee if the loan is more than RM50,000 but less than RM250,000;
70% of the applicable fee if the loan is more than RM250,000 but less than RM500,000;
65% of the applicable fee if the loan is more than RM500,000 but less than RM1,000,000; and 50% of the applicable fee if the loan is more than RM1,000,000.
The discounts for SRO 2017 ranged from RM250 to 65%, but with a higher loan value.
We have analysed the possible impact on prospective house buyers of the increase in legal fees payable for properties/loan values under different scenarios, ranging from:
– affordable properties costing RM300,000 (RM3,000 to RM3,750)
– mid-range properties costing RM500,000 and RM750,000 (RM5,000 to RM6,250)
– high-end properties costing RM1,000,000 and RM1,500,000 (RM7,000 to RM8,750)
Although the new SRO 2023 does increase legal fees payable for both the SPA and the loan agreements, the increase can be considered reasonable as the last revision was almost six years ago.
In our examples above, the increase in legal fees (being property valued at RM300,000 up to RM1 million) between SRO 2017 and SRO 2023 was at 25%, or a compounded annual rate increase of 3.79% per year, which is within the expected range of an inflation rate of 3% to 4%.
For properties valued at RM1.5 million, the increase in legal fees is about 30%, and the compounded annual rate of increase between SRO 2017 and SRO 2023 is 4.47%, which is marginally higher than the expected inflation rate of between 3% and 4%.
The increase in legal fees between SRO 2017 and SRO 2023 is also very minimal in comparison to the consideration/loan value of the property.
Based on our examples above:
It is also to be noted that the SRO 2023 also charges a lower legal fee of between 25% and up to 50% for properties governed under the Housing Development Act (HDA), i.e. properties bought directly from housing developers.
There is realistically a higher percentage of discounts compared to SRO 2017, which reflected between 25% and 35% for properties bought under the HDA.
For properties under HDA where the consideration/loan value is above RM1.0 million, the discount under SRO 2023 of 50% is actually higher than the discount available under SRO 2017 of 35%. Hence, in our example below, for the fees payable for properties under HDA valued at RM1 million, there is no increase in legal fees to be paid.
The following tables depict the actual increase in legal fees payable for HDA properties.
Table 1: Comparison of legal fees payable for affordable properties valued at RM300,000
Table 2: Comparison of legal fees payable for mid-range properties (RM500,000 and RM750,000)
Table 3: Comparison of legal fees payable for High-End Properties (RM1,000,000 and RM1,500,000)
As the increase in legal fees is reasonable and not significant when compared to the property value or loan amount, it is not expected to cause a domino effect on the rising cost of living or house prices.
Frequently asked questions
We have posed a number of questions that will probably be on most homebuyers’ and tenants’ minds.
1. How would a potential increase in legal fees affect first-time homebuyers?
Most people can only afford to buy one property in their lifetime, and a small minority might be lucky enough to afford a second property for long-term investment. Hence, such a ‘one-off’ increase is not expected to impact their daily living expenses compared to, say increase in petrol, tolls, or utility charges, which need to be incurred on a daily basis.
2. Could the increase in legal fees also affect rent fees for future tenants?
No, it will not, because many estate agents now have their own standard tenancy agreements that they cut and paste to suit the arrangement between landlord and tenant.
On top of that, the government has highlighted that new legislation has been proposed to govern the rights of the tenants and the entitlements of the landlords under the proposed Residential Tenancy Act.
With the coming of the new legislation, a standard template will be made mandatory with ‘fair and reasonable’ terms and conditions in the tenancy agreement. Hence, the need for the involvement of lawyers (to draw up a tenancy agreement) will be minimised.
3. What do you think is the appropriate increase in the legal fee structure to ensure lawyers’ financial well-being while also ensuring consumers are not too heavily affected? (e.g. fees increased within the expected range of the inflation rate)
We are of the opinion that the increase in legal fees is in tandem with current times.
4. Do you think an increase in maximum legal fee discounts would be enough to compensate for the increase in overall legal fees?
Yes, the increase in legal fees is offset by legal discounts. Discounts and rebates are now legal, and consumers are at liberty to negotiate their fees (legal) on purchases and loans. – August 24, 2023
Datuk Chang Kim Loong is the honorary secretary-general of the National House Buyers Association