MCO and property auctions
IN light of the Covid-19-triggered movement control order (MCO) imposed on March 18 and still continuing, numerous transactions were affected. I am writing in particular about the sale of auctioned properties that was due to be completed during the MCO period.
Land offices and law firms were not allowed to operate during the earlier phases of the MCO. This meant private caveats could not be lodged, and balance purchase prices could not be paid.
In an Ipoh High Court case, a successful bidder from a public auction sought an extension of time to complete the sale. The last date to pay the balance purchase price fell during the MCO period, on May 6. The bidder argued that he would be greatly prejudiced if held responsible for the non-performance of the obligation given that the MCO was beyond the control of the parties, making the performance of obligations impossible.
Further, the 10% reserve price he paid would be forfeited if the balance purchase price was not paid within the stipulated 120 days, as per 257(1)(g) of the National Land Code 1965. He argued that the MCO had the effect of robbing him of 50 days from the 120 days allowed to complete the purchase.
In dealing with this, the High Court examined the intent of Parliament behind 257(1)(g). The court held that the said section was enacted to protect the interest of the chargor and to prevent any non
serious bidder from participating in auctions. Simply put, both the interest of the chargor and the chargee must be safeguarded. Both parties must be afforded the right to be heard.
In the Ipoh case, the court recognised that it is indeed unfortunate that the successful bidder was placed in this predicament through no fault of his own, i.e. the imposition of the MCO. Additionally, there are no legislative provisions to deal with situations caused solely by the restrictions of the MCO.
However, the application for extension of time was not allowed. The court ultimately found that the bank and chargor’s interests were not safeguarded.
Why? Here are some of the key takeaway points that others in the same position should note.
As a successful bidder, you must show the following:
1. That you are willing and able to pay the balance purchase price, in that you obtained a bank loan before the expiry date. This has to be apparent in your affidavit in support. This was shown in the Ipoh case.
2. That the cause papers are served on the chargor. This is important because the chargor has the right to be heard in a request for extension of time, and for the chargor to be heard in court, he must be given notice of the proceedings. As such, the cause papers must be served on the chargor and an affidavit of service must be filed to show this is done. This was not done in the Ipoh case.
3. That you are prepared to pay the interest imposed on the chargor’s account during the period of extension sought. This was not done in the Ipoh case.
Basically, you must show that the interests of the bank and the chargor have been safeguarded.
From the bank’s point of view, in the event a successful bidder seeks an extension of time to complete the sale, it would be prudent to consider imposing these conditions before agreeing to the extension:
1. The successful bidder must have the chargor’s consent for the extension of time sought.
2. Interest must be imposed on the chargor’s account after the completion date, to be paid by the successful bidder.
3. The successful bidder must undertake to indemnify the bank if any legal action is taken against the bank if the sale is set aside due to the time extension sought.
However, do note that these are considerations applied before the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 Bill 2020 was passed by Parliament on Aug 25. The courts’ approach to a similar circumstance may change once the Bill comes into force. We anticipate that this Bill will reconcile the gap between dealing with circumstances caused solely by the MCO and compliance with mandatory legislative provisions, like s.257(1)(g) of the National Land Code 1956.