Option to Purchase: A Guide for Property Buyers in Singapore

An Option to Purchase (OTP) is an agreement between the buyer and seller for the sale of a property. In Singapore, OTPs are the most common way for parties to enter into a contract for the sale and purchase of property.

If the seller of a property grants an OTP to a buyer, that buyer has the exclusive right to purchase the property from the seller for a predetermined period stipulated in the OTP. OTPs are used for purchases of both HDB flats as well as private properties.

This article covers the following topics:

• What are the usual terms in an OTP and what is their significance?
• What is the process for obtaining an OTP?
• How do you exercise an OTP?
• What happens if either party wants to back out after signing the OTP?

What are the Usual Terms in an OTP and What is Their Significance?

For HDB flats, it is mandatory for the seller and buyer to use the HDB-prescribed OTP form that can be downloaded from the HDB website for the transaction. Any other agreements are not valid under the Housing and Development Act. These can include sale and purchase agreements, or other customised OTPs provided by third parties (e.g. conveyancing lawyers and/or property agents). Only the HDB-prescribed OTP is considered legally binding.

On the other hand, for private properties, parties do not have to follow a standard OTP form and have the flexibility of customising their OTPs. That said, in most cases, if the parties are assisted by conveyancing lawyers and/or property agents, the lawyers and/or property agents will have standard OTPs that they use for the transactions that they handle.

The usual terms in an OTP are as follows:

• Parties’ Details: The OTP needs to indicate the details of the parties involved in the transaction, namely the seller and the buyer. Among other reasons, this is to ensure that the parties can be properly identified, as this may affect the validity of the transaction. For example, only the legal owner of a property can issue an OTP, so if the details of the seller do not correspond with the details of the registered legal owner of the property, then the OTP would be invalid. The details that would be important to add include the buyer and seller’s:
  • Names;
  • Identification numbers;
  • Contact information; and
  • Current registered addresses.
• Property Details: The OTP should also indicate the details of the property that is the subject of the transaction, to identify the exact property and its characteristics. Some key details include:
  • The address of the property;
  • The property’s site or floor area;
  • Whether the property is sold with vacant possession (i.e. ready to be occupied upon completion of the sale) or subject to tenancy; and
  • Any warranty on additions and alterations to the property.
• Purchase Price: The purchase price indicates how much the seller has agreed to sell the property to the buyer for.
• Option Period: The option period refers to the validity of the OTP. In other words, the option period is how long the buyer will have to decide whether to proceed with purchasing the property. For HDB flats, the option period is fixed at 21 calendar days, and expires at 4pm on the last day of the option period. For example, if the OTP is granted on 1 June, the OTP will expire on 22 June, 4pm. For private properties, the option period is not fixed, but is usually set at 14 days. However, the option period can be negotiated to be a longer duration provided that both parties agree. The option period is also significant, because if the buyer decides not to purchase the property, and the OTP lapses, the seller will get to keep the option fee (see below).
• Option Fee: The option fee refers to the amount of money to be paid by the buyer to the seller in exchange for the granting of the OTP by the seller. For HDB flats, the option fee must be $1 or more, and must not exceed $1,000. For private properties, the option fee is usually 1% of the agreed purchase price, although this is usually negotiable. For example, if a buyer wants to have a longer option period to decide whether to purchase the property, the buyer may ask for a higher option fee in return, to match the higher risk of the buyer backing out of the purchase.
• Option Exercise Fee: The option exercise fee refers to the amount that the buyer must pay the seller to exercise the OTP when they decide to purchase the property. For HDB flats, the sum of the option fee and the option exercise fee (which form the deposit for the purchase of the property) must not exceed $5,000. For example, if the option fee is $900, the option exercise fee cannot be more than $4,100. For private properties, the option exercise fee is usually 4% of the agreed purchase price, although this too can be negotiated.
• Parties’ Rights and Responsibilities: The buyer and seller’s rights and responsibilities are typically incorporated into an OTP with reference to the Law Society of Singapore’s Conditions of Sale. The Conditions of Sale are a set of terms and conditions designed to facilitate property sale and purchase transactions by regulating the common rights and obligations of the vendor and purchaser at various stages of the transaction. Some of the key conditions setting out the parties’ rights and responsibilities include:
  • Condition 6 – Outgoings, Rents and Profits until Completion: The buyer is entitled to rents and profits but is liable for all expenses and outgoings after the completion date. The seller is entitled to rent and profits but is liable for all expenses, outgoings and levies up to the completion date.
  • Condition 7 – Tax: The buyer must pay property tax and goods and services tax, and the buyer and seller must pay their respective stamp duties and withholding tax, as necessary.
  • Condition 9 – Late Completion Interest: The buyer or seller must pay interest if there is a delay in completion due to their own faults.
  • Condition 15 – Notice to Complete: Either party may give to the other party a written Notice to Complete if the sale is not completed on the completion date, after which parties must complete the sale within 21 days.

What is the Process For Obtaining an OTP?

The process for obtaining an OTP differs slightly for HDB flats and private properties.

HDB flats

For HDB flats, the buyer and seller must go through the following steps:

• The seller must first register an Intent to Sell on My Flat Dashboard at least 7 days before granting an OTP to the buyer. The Intent to Sell has a 12-month validity.
• On the other hand, if the buyer is taking an HDB housing loan, they must first obtain a valid HDB Flat Eligibility letter before the seller can grant them an OTP. The HDB Flat Eligibility letter has a 6-month validity.
• The buyer and seller can also concurrently negotiate and agree on the purchase price of the flat.
• When both the buyer and seller have the necessary documents, the seller must download and print a copy of the HDB-prescribed OTP and grant the OTP to the buyer at the agreed purchase price, in exchange for the payment of the agreed option fee.

There is no need to engage a lawyer when exercising and/or granting an HDB OTP, since parties must use the standard HDB-prescribed OTP. The only variable to be negotiated between the buyer and the seller is the purchase price, option fee and option exercise fee.

For HDB flats, if you are taking up a housing loan or using your CPF savings for the flat purchase, you need to submit a Request for Value on the next working day after obtaining the OTP. The HDB will then inform you of the value of the flat, which will in turn affect the amount of loan that you may take from a bank / your CPF savings to utilise for the purchase.

Private properties

For private properties, there are fewer steps involved. After the buyer and seller negotiate and agree on the purchase price of the property, the seller will typically engage a lawyer to draft the OTP and send it to the buyer (or the buyer’s lawyers) for review. Once both parties are agreeable to the terms, the seller will grant the OTP to the buyer, in exchange for the payment of the agreed option fee.

Unlike HDB OTPs, it may be helpful to engage a lawyer to assist in the property transaction. As there is no standard template to follow, a lawyer would be able to assist you with the negotiations, as well as drafting the OTP to meet your particular needs. For example, if, after selling the property, you wish to extend your stay in your current property while waiting for your next property to be ready, this extension can be something to word into your OTP.

How Do You Exercise an OTP?

HDB flats

To exercise the OTP, the buyer must return the signed OTP and pay the option exercise fee to the seller. Buyers taking a housing loan from a bank must have a Letter of Offer from the bank before they can exercise the OTP. The buyer and seller will then submit their respective resale applications on the HDB Flat Portal. This must be done within the agreed number of days indicated in the OTP, and the buyer and seller must submit their respective portions of the resale application within 7 calendar days of each other’s submission.

The completion date, i.e. the date where the purchase of the property is completed and ownership is transferred from the seller to the buyer, will usually  be within 8 weeks from the date of HDB’s acceptance of the resale application, unless extended by HDB. For example, the seller may wish to apply for the completion date to be extended slightly, if there are unexpected complications leading to delays in the purchase of their next property. There are no prescribed guidelines on when HDB will grant such extensions, and requests are reviewed on a case-by-case basis.

Upon HDB’s acceptance of the resale application, the buyer will also have to pay the applicable Buyer’s Stamp Duty (BSD) within 14 days. The amount of BSD to be paid is based on the purchase price of the property or the market value of the property, whichever is the higher of the two. You can refer to our other article for an essential guide to Buyer’s Stamp Duties in Singapore (2023).

Private properties

For private properties, the process is largely similar. To exercise the OTP, the buyer must return the signed OTP and pay the option exercise fee to the seller.

The buyer will also have to pay the applicable Buyer’s Stamp Duty (BSD) within 14 days of exercising the OTP. If this is the buyer’s second residential property (or more), the buyer would also be liable to pay Additional Buyer’s Stamp Duty (ABSD). Just like BSD, the amount of ABSD to be paid is based on the property’s purchase price or market value, whichever is higher. The ABSD rates are dependent on the buyer’s residency status, i.e. whether you are a Singapore citizen, Singapore Permanent Resident or a foreigner.

If the seller is selling the property within 3 years of buying the property, the seller would also be liable to pay Seller’s Stamp Duty (SSD). You can also refer to our other article on Seller’s Stamp Duty when selling property in Singapore for more information. The reason that a seller of an HDB flat would not need to pay SSD is because they can only sell the HDB Flat after the Minimum Occupation Period of at least 5 years, and there is generally no SSD due for properties sold after the 3-year holding period.

What Happens If Either Party Wants to Back Out After Signing the OTP?

As the OTP is a legally binding contract between the buyer and the seller, backing out by either party after signing the OTP may amount to a breach of the contract, and the party that backs out may be liable for damages.

The nature of the OTP is one in which the seller undertakes to sell the property on the stated terms upon the exercise of the OTP by the buyer. The seller limits their right to deal with the property with other eligible buyers in exchange for the option fee. The buyer is granted the exclusive right to purchase the property but is not obliged to do so. Thus, depending on whether it is the buyer or the seller that wants to back out, the legal implications are very different.

If the buyer wishes to back out, the buyer can just allow the option period to lapse without exercising the OTP, as is the buyer’s right to do so under the OTP. Hence, this would not amount to a breach of the OTP. However, the option fee paid by the buyer will be forfeited, and the seller will get to keep the option fee, as is the seller’s right to do so under the OTP in such circumstances.

The more complicated scenario is if the seller intends to back out after signing the OTP – it is not as easy as refunding the option fee to the buyer and calling it quits. If this were the case, then it would defeat the purpose of having an OTP in the first place. Instead, if the buyer decides to exercise the option within the option period, but the seller refuses to sell the property, the seller would be in breach of the OTP. This was exactly the situation in Goh Kar Tuck (alias Wu Jiada) and another v Koh Samuel [2022] SGHC 165.

In that case, the claimants sold their HDB flat and asked their property agent to look for a condominium. After doing their calculations, the claimants made an offer for a property being sold by the defendant, through their respective property agents. The defendant confirmed that he was agreeable to the offer and granted an OTP to the claimants. In exchange for the duly signed OTP, the claimants transferred the 1% option money to the defendant. Before the end of the option period, the claimants’ lawyers proceeded to exercise the OTP by delivering it to the defendant’s lawyers together with a cheque for the option exercise fee. However, the defendant changed his mind, and tried to “back out” of the sale by terminating his lawyers’ engagement to act for him in the sale of the property. Accordingly, with no instructions to accept the OTP or the cheque from the claimants’ lawyers, the defendant’s ex-lawyers could not accept the OTP or the cheque, and the sale could not go through.

Failing to resolve the dispute, the claimants filed an application to the courts, seeking specific performance of the sale and purchase of the property, i.e. for the seller to be compelled to complete the sale of the property, as the claimants were still obliged to deliver vacant possession of their HDB flat which they had sold.

The High Court made the following findings:

• The signed OTP contained the essential particulars, namely the buyers’ names, the description of the property, the option fee to be paid, the option exercise fee to be paid and to whom and by when, as well as the date of completion. Hence it cannot be said that the OTP was void for uncertainty.
• Despite the reasons given by the defendant to the court (e.g. that he signed the OTP because his agent kept pestering him), the court found that the defendant had signed the OTP and linked his NRIC details to his POSB bank account because he was agreeable and willing to sell the property. The only reason the defendant decided not to complete the transaction was because he subsequently discovered that another property in the same development had been transacted at a higher price.
• The claimants were within the timeline for exercising the OTP when they attempted to exercise the OTP by delivering the same to the defendant’s lawyers. The fact that the defendant’s lawyers refused to accept the exercise of the OTP was due to the defendant’s refusal to instruct his lawyers, which put him in breach of his obligation under the OTP.

Accordingly, the High Court granted the claimants specific performance, and made the following orders:

• The defendant was to appoint lawyers to deal with the sale and purchase of the property by a stipulated date, failing which the claimants would be allowed to appoint lawyers in this regard.
• The claimants were allowed to exercise the OTP by a later stipulated date, by executing and delivering the OTP and a cheque for the option exercised fees to the appointed lawyers.
• Completion was to take place by an even later stipulated date. In this regard, the defendant was allowed to continue to stay at the property until the completion date.
• The defendant was to execute all necessary documents and take all necessary steps to complete the transaction and effect the transfer of the property to the claimants within the stated timelines, failing which the Registrar of the Supreme Court was empowered to do so to give effect to the sale and completion of the property.

As seen above, it would not be easy for a seller to back out of an OTP once it is granted. The buyer will be able to bring an application to seek either specific performance (as the claimants above did), or damages suffered by the buyer because of the seller’s breach of contract. An example of such damages the seller may be liable to bear includes the cost of securing alternative accommodation where the buyer has already sold their previous house and needs alternative accommodation while looking for another property.

– –

OTPs are a key part of property transactions in Singapore and are used for purchases of both HDB flats as well as private properties. However, there are differences between the process for HDB flats and private properties, from the terms in the OTP (e.g. the HDB-prescribed OTP has prescribed option periods, option fees and option exercise fees), to the process of obtaining an OTP, and the process of exercising the OTP.

If you are a prospective buyer of a property, you may wish to seek further guidance or advice from a private conveyancing lawyer, who will be able to advise you on the terms to be included in the OTP (for private properties), the stamp duties or other taxes payable (for both HDB flats and private properties), and act for you in the conveyancing transaction (for both HDB flats and private properties).

For transactions involving HDB flats, you have the alternative option of appointing HDB’s lawyers to act for you in the conveyancing transaction. To get an estimate of the legal fees you will need to pay if you appoint HDB’s lawyers, you can use the e-service “Legal Fees Enquiry Facility” on HDB’s website.