The provisional agreement for sale and purchase

When you make an offer on a flat in Hong Kong and it is accepted, the next step is signing a provisional agreement for sale and purchase (often called a “PASP”). This document is not a polite expression of interest — it is a legally binding contract. Once you sign it, you are committed to buying the property on the terms stated, and the seller is committed to selling. The initial deposit you pay at signing is at risk: if you walk away without a valid legal reason, that deposit is typically forfeited to the seller as liquidated damages. This page explains how the PASP works, what it must contain, the timetable it sets, the agent’s commission clause, and the specific terms you should negotiate before you put pen to paper.

What is a provisional agreement for sale and purchase?

The PASP is the document you sign at the estate agent’s office, usually on the same day your offer is accepted. It is a short-form contract that sets out the key terms of the deal: the property, the price, the deposit amounts and payment dates, the completion date, and any conditions (such as mortgage approval). In Hong Kong’s property market, the PASP is the point at which a verbal offer becomes a binding commitment. Unlike in some other jurisdictions, there is no “cooling-off” period — once you sign, you are locked in.

The PASP is typically replaced later by a formal agreement for sale and purchase, which your solicitor will prepare. But the PASP governs the transaction until that formal agreement is signed, and its terms often carry over.

Why it is binding — and what that means for your deposit

Many first-time buyers mistakenly treat the PASP as a placeholder that can be cancelled without cost. It is not. The Estate Agents Authority (EAA) makes clear in its practice circulars that the PASP is a legally enforceable contract. The key financial consequence is the initial deposit (sometimes called the “earnest deposit” or “small deposit”).

The size and timing of the initial deposit are matters of contract and market convention, not statute. No percentage or dollar figure is fixed by law — you and the seller agree it. In practice, the initial deposit is usually paid on signing the PASP. The balance of the total deposit (often called the “further deposit”) is paid later, typically when the formal agreement is signed. If the buyer fails to proceed without a legal excuse (for example, failing to secure a mortgage when no subject-to-finance clause exists), the seller can cancel the contract and keep the deposit paid so far as liquidated damages. In a rising market, the seller may also sue for the difference between the contract price and the resale price if that difference exceeds the forfeited deposit.

What the PASP must contain

Under the Estate Agents Authority’s Code of Ethics and the Practice Circulars, a properly drafted PASP should include at least:

• The property’s address and lot number. Must match the land registry record.
• The saleable area. Usually stated in square feet, based on the vendor’s title deeds or the latest government approved plan.
• The purchase price, in both words and figures.
• Deposit schedule. Amount of initial deposit, date payable, and balance of deposit (further deposit) with its due date.
• Completion date. The standard in Hong Kong is 45 to 60 days from the date of the PASP, but this is negotiable.
• Conditions precedent. For example, if the buyer needs a mortgage, the PASP should state that the contract is conditional on loan approval and what happens if it is not obtained.
• Title deeds inspection. The seller must produce title documents for the buyer’s solicitor to vet within a specified period.
• Agent’s commission. The amount or percentage, who pays it, and when it is due (usually upon completion of the sale).
• Rights and remedies on default. What happens if the buyer or seller fails to complete.

If any of these items are missing from your PASP, do not sign. Ask your solicitor or agent to explain why. A missing term may create uncertainty that benefits the seller or the agent.

The completion timetable set by the PASP

The PASP establishes a timeline that runs from signing to legal completion (the day you hand over the final payment and become the registered owner). The typical steps are:

1. Day 1: Sign PASP, pay initial deposit.
2. Within 7–14 days: Buyer’s solicitor receives the title deeds from the seller’s solicitor for inspection.
3. Within 14–30 days: Sign the formal agreement for sale and purchase and pay the further deposit. At this point, you are usually required to have engaged your own solicitor.
4. Around 14 days before completion: Mortgage approval should be confirmed (if applicable), and you should have arranged for the outstanding loan amount to be drawn down.
5. Completion date: Pay the remaining balance (the “completion monies”) to the seller’s solicitor, and the seller transfers title to you. Keys are handed over.

The standard timeline is 45 to 60 days, but shorter (30 days) or longer (90 days) periods are possible by agreement. The shorter the timeline, the less time you have to secure mortgage financing and complete legal checks — so be realistic.

The agent’s commission clause

The PASP almost always includes a clause stating the agent’s commission. This is typically a percentage of the purchase price, payable by the buyer, the seller, or both. The standard in Hong Kong is 1% of the purchase price from the buyer and 1% from the seller, but the exact figure is negotiable and should be stated in the PASP.

Key points about the commission clause:

• It is usually due on completion of the sale, not on signing the PASP. Some agents may try to demand it earlier — you can refuse. The EAA’s Code of Ethics expects that commission is earned only when the transaction is completed (i.e., when the property is transferred).
• If the sale falls through due to the buyer’s default, the agent may still claim commission from the buyer if the clause states it is payable on the buyer’s failure to complete. Read the wording carefully.
• If you are buying through one agent and the seller is represented by a different agent, clarify in writing who is entitled to commission from whom and how much.

Negotiate the commission amount before signing. Do not assume the printed figure on the agency’s form is non-negotiable. You can ask for a reduction, especially if the transaction price is high or the agent’s effort was minimal. If the agent refuses, you can walk away — but do so before signing, not after.

Specific terms worth negotiating or striking before signing

Do not accept the agent’s first draft without reading every clause. These are the terms you should focus on:

• Subject-to-finance clause. This protects you if your mortgage application is rejected. It should state: (a) what constitutes a valid rejection (e.g., written refusal from a recognised bank), (b) a deadline for obtaining approval, and (c) the consequence — usually the contract is cancelled and the initial deposit is returned in full. Without this clause, you risk losing your deposit if you cannot get a loan.
• Inspection rights. Confirm that you have the right to inspect the flat one more time within 14 days before completion to verify its condition. If the seller has agreed to complete any repairs, those should be listed in a schedule to the PASP.
• Title conditions. If the property has any caveats, mortgages, or government restrictions on use (e.g., a “home ownership scheme” property), these must be stated. Your solicitor should check that the seller can give you good title free of encumbrances by completion.
• Completion date flexibility. If you foresee delays — for example, if you are selling your own flat concurrently — try to include a “completion to be postponed by mutual agreement” clause, or a longer completion period.
• Fittings and fixtures list. Attach a list of what stays (e.g., built-in wardrobes, air conditioners, kitchen cabinets) and what the seller is taking. The PASP should refer to this list. Without it, you may find the flat stripped on completion.
• Amount of the initial deposit. While no percentage is fixed by law, a deposit that is too high (e.g., more than 10% of the price) increases your risk if you default. Try to keep the initial deposit at the lower end of market practice — but you must negotiate this with the seller directly, as the agent earns commission based on the price, not the deposit.

What happens if either side fails to proceed

The PASP will specify the remedies for breach:

• If the buyer defaults: The seller can cancel the contract, keep the deposits paid so far as liquidated damages, and resell the property. The seller may also sue the buyer for any shortfall between the resale price and the original contract price, plus costs. The EAA notes that the seller cannot claim both the forfeited deposit and the difference — it is one or the other, but the PASP usually states that the deposit is treated as liquidated damages in full.
• If the seller defaults: The buyer can cancel the contract, get the deposit back, and also claim damages (e.g., the additional cost of buying a comparable flat at a higher price). Alternatively, the buyer can seek a court order for specific performance — forcing the seller to complete the sale — but this is expensive and slow.

Important: Do not rely on verbal promises. If the agent says “don’t worry, we can cancel it later”, that is not legally accurate. The contract is binding the moment you sign.

Get legal advice before signing, not after

Many buyers try to save money by signing the PASP without a solicitor, intending to hire one later for the formal agreement. This is a mistake. By the time your solicitor sees the contract, you are already bound. The terms you agreed to in the PASP — the deposit schedule, the completion date, the conditions — will be carried into the formal agreement with minimal change. If you signed a PASP that is missing a subject-to-finance clause, your solicitor cannot add one after the fact.

At minimum: Have a solicitor review the PASP before you sign. If that is not possible because the sale is fast-moving, at least ask your agent to email you a draft 24 hours in advance so you can send it to a lawyer. The cost of a one-hour legal consultation (typically HK$2,000–HK$5,000) is trivial compared to the risk of losing a six-figure deposit.

What to check or do next

• Ask your estate agent to provide a copy of the Estate Agents Authority’s Practice Circular No. 8 (on provisional agreements) — they should have it on hand.
• Before signing, confirm the PASP includes a clear subject-to-finance clause if you need a mortgage. If it does not, insist on one being added.
• Check the agent’s commission clause: is the amount stated? Is it payable only on completion? Get it in writing.
• Ask for a full list of fittings and fixtures to be attached to the PASP.
• Engage a solicitor now — even if you have not signed yet. Tell them you are about to sign a PASP and send them the draft. Pay for their time.
• If you have already signed a PASP without legal advice, contact a solicitor immediately. You may still have time to negotiate amendments before signing the formal agreement.