Having to go through all the legal processes and the various documents when buying a property can be quite overwhelming! Aside from preparing mentally to be a homeowner, there are a few legal documents that you need to be familiar with and one of them is the Memorandum of Transfer (MOT).
The Memorandum of Transfer is an extremely important contract to indicate the transfer of ownership of the house from the developer to the buyer or in the case of secondary purchases, from the seller to the buyer.
Of course, the property can also be transferred between family members, spouses, friends, and even strangers. However, the cost of MOT is typically borne by the buyers/receivers.
What is a Memorandum of Transfer (MOT)?
In Malaysia, the “Torrens System” in the National Land Code 1965 is used to govern the land law of Peninsula Malaysia. It is essentially a title deed system maintained by the land registry to prove a person’s ownership over a piece of property.
In short, your ownership over the property is only acknowledged when your name is registered on a “document of title” maintained by your respective land registry or land office.
If your name isn’t on the title deed, you don’t own the property yet – simple and straightforward.
That is where the memorandum of transfer takes place to transfer, officially, the ownership from the seller to the buyer.
The Memorandum of Transfer (MOT), also known as Instrument of Transfer is important because it is a legal document prescribed by the National Land Code 1965 to effect the transfer of property. It is only applicable for properties with the relevant master title, individual title, or strata title.
Contrarily, for situations where a property has yet to receive its individual or strata title, then a Deed of Assignment (DOA) will be used to transfer the ownership of a property from one to another.
What is the difference between Memorandum of Transfer, Deed of Assignment and Deed of Mutual Consent?
A Memorandum of transfer (MOT) is a legal document that follows the Sales and Purchase Agreement (SPA) to serve as evidence for the actual transfer of ownership of the property. For it to be effective, MOT can only be used when there is the relevant master title, individual title, or strata title.
Let’s take a residential development as an example. During the construction, the developer will be issued a Master Title for the whole development, be it landed or high-rise. Once the different units of the development are sold to individual buyers, the Master Title will then be divided into multiple, smaller titles. Thus, landed properties will carry Individual Titles while high-rise properties will carry Strata Titles.
Upon purchase of the property, an MOT will then be filled at the land office to transfer the name of ownership of the desired unit from the developer to you. As such, your name will appear in the title deed, making you the rightful owner of that property.
In situations where the master title is not yet divided into individual titles or strata titles, the Deed of Assignment will be invoked.
Deed of Assignment (DOA) will be invoked when the master title is not yet divided into individual titles or strata titles at the time of purchase. Under the Master title, the developer’s consent is required to assign all their rights of the property for the individual units/parcels to the buyer.
With that, a DOA can be filed at the High Court to temporarily transfer the name of ownership. Once the individual titles or strata titles are released, an official transfer of ownership will be processed using the MOT.
In reality, you want to be following up with the developer for the individual titles or strata titles fervently. The issuance of DOA is only a temporary transfer of ownership and any subsequent sales of the property will require consent from the master title, in this case the developer.
If you have came across Deed of Mutual Covenant (DMC) previously, then you do not want to confuse it with Deed of Assignment (DOA).
A Deed of Mutual Covenant (DMC) is essentially an agreement for strata properties whereby there exist a set of rules the owners are bound to. Legal actions can be taken against the owner should any of the rules are broken intentionally.
However, the DMC only lasts until before the Joint Management Body (JMB) is formed since the rules of the JMB will supersede the DMC. The intention of the DMC is to safeguard the interest of the community against individuals who wish to take advantage of the common facilities for their personal gain.
What is Perfection of Transfer (POT) and Perfection of Charge (POC) in MOT?
Perfection of Transfer (POT)
Essentially, Perfection of Transfer (POT) is the transfer of ownership from the developer’s name to the current owner’s name.
As explained, when you buy a property that is still part of an ongoing project, it is most likely to be under a Master Title. The developer is then responsible to subdivide the Master Title into Individual or Strata Titles. Once it is approved by the respective land office, the previous Master Title will be revoked and each unit will be issued its own Individual or Strata Title.
Having said that, a POT is then required to complete the whole ownership transfer from the developer to the buyer.
Perfection of Charge (POC)
When the purchaser wants to obtain a loan to purchase a property, he/she will charge the property to the bank via Perfection of Charge (POC). A charge is a common form of a security registered in favour of the bank in exchange for granting a loan to the purchaser.
For instance, when you buy a property that has yet to receive its Individual Title or Strata Title, a DOA is used as a replacement to charge as security to the bank loan. Therefore, once your Individual Title or Strata Title is issued, the bank would prefer the security to its loan via a charge to the land title instead of the DOA.
The transaction of POC is usually handled by the bank whereby they will execute a discharge document known as Form 16N when the land title is issued to discharge their charge over the DOA. At this juncture, a lawyer from the bank will be appointed for the registration of transfer in which the land title and the MOT is to be forwarded to the lawyer for him/her to be able to register the charge in favour of the bank.
To put things simply, if you buy the property through a housing loan, you technically do not own the property until the housing loan is completely paid. Until the housing loan is paid, the property title will be in the bank’s possession as a charge.
What are the cost involved for Memorandum of Transfer?
Generally, the cost involved for a Memorandum of Transfer is the stamp duty fee.
Without the stamp duty, the Memorandum of Transfer cannot be made official and there will be no transfer of ownership from seller to buyer.
Remember, the stamp duty will be payable by the buyer and not the seller. The seller is instead required to pay for Real Property Gain Tax (RPGT) if a profit is earned from the selling of property.
The standard stamp duty charge is as follows:
| Price of Your Property | Stamp Duty Fee |
|---|---|
| First RM100,000 | 1% |
| Next RM400,000 (From RM100,001 to RM500,000) | 2% |
| Next RM500,000 (From RM500,001 to RM1 Million) | 3% |
| Subsequent Amount (more than RM1 Million) | 4% |
Using the table as a reference, the total for duty stamp charged is calculated as shown below.
Given that your property was purchased at RM850,000. Therefore,
For the first RM100,000 – RM100,000 x 1% = RM1,000
For the next RM400,000 – RM400,000 x 2% = RM8,000
For the following amount – RM350,000 x 3% = RM10,500
Total Stamp Duty = RM1,000 + RM8,000 + RM10,500 = RM19,500
Thankfully, stamp duty exemptions are given for first-time house buyers that purchase their property between 1/1/2021 to 21/12/2025 for property prices below RM500,000 in the Malaysian Budget 2022.
Besides, stamp duty exemptions are also given for property transfers that are categorised under “love and affection”.
Love and affection property transfers are basically transfers between family members such as
- Spouses. The transfer of property from husband to wife and vice versa will be given a waived of 100%. Yes! Free stamp duty!
- Parent and child. The transfer of property from parent to child and vice versa will be given an exemption rate of 50%. That means if the original stamp duty payable is RM10,000, then you will only need to pay half that price – RM5,000.
Unfortunately, no exemptions will be waived for property transfer between siblings.
Final Words
The memorandum of transfer is an official process of handing over the title to the buyer. Some investors would choose to delay the process to drag out the stamp duty payment.
There is no right or wrong and I have heard of many similar stories. Other than that, the Memorandum of Transfer is quite a simple and straightforward document to deal with.
Until then, take care.
