| The Freshman |
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| Stamp duty may have to be paid on a provisional agreement, but may be exempted if the deal is annulled |
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Mr Luk was a civil servant and had all along been living in quarters provided by the government. As civil servants were being encouraged by the government to purchase properties of their own, he also planned to do so. Through an agent, he met a property owner putting up a flat for sale. Everything about the flat met Mr Luk's requirements, so he began to discuss the terms with the owner. In order to give himself more time to apply to the government for a loan and to go through the formalities, Mr Luk wished to postpone signing the formal agreement until one month after the provisional agreement for sale and purchase was signed so that, in case the government did not approve the loan and he had to cancel the agreement, he would not have to pay stamp duty. However, the owner was under the impression that the formal agreement must be signed within 14 days of the signing of the provisional agreement, and that the responsibility for paying stamp duty must lie with the purchaser. He thus firmly objected to any postponement. Later, Mr Luk consulted a friend experienced in property transactions, and learned more about the law on stamp duty. He negotiated with the owner again and finally was able to close the deal.
According to the Stamp Duty Ordinance (Cap. 117 of the Laws of Hong Kong), stamp duty has to be paid on any agreement for sale and purchase in respect of a residential property. Strictly speaking, a provisional agreement for sale and purchase concluded in respect of any residential property is also chargeable with stamp duty. However, if, within 14 days of its signing, the parties to the agreement enter into another agreement for sale and purchase on the same terms in respect of the same property (usually the formal agreement for sale and purchase), then stamp duty has to be paid only on the formal agreement for sale and purchase and not on the provisional agreement.
If the formal agreement for sale and purchase is signed more than 14 days after the signing of the provisional agreement, the full amount of stamp duty has to be paid on the provisional agreement while a stamp duty of only $100 is to be paid on the formal agreement. If the parties fail to sign a formal agreement for sale and purchase but proceed with the transaction, then the provisional agreement is the only agreement, and stamp duty has to be paid in accordance with the Stamp Duty Ordinance. If the agreement is annulled or if the deal falls through, the agreement may be exempted from stamp duty, and any stamp duty paid may be refunded by the Stamp Office.
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