Politicians and officials are studying a ‘model’ two page reservation agreement drawn up by a law firm as a possible way of slashing fall throughs and speeding up transactions.
The news has been revealed by Matt Prior, the lead officer at the Ministry of Housing, Communities and Local Government, working on ways of improving the sales process.
In a contribution to a debate at the Council for Licensed Conveyancers’ annual conference in London yesterday, Prior confirmed that Philip Freedman QC, chairman of law firm Mischon de Reya, has already drafted the model agreement.
Prior told conveyancers at the event that the government is “looking at the parameters” of reservation agreements including “how much money should be put down” and what circumstances - “such as bereavement or loss of a job” – would allow a consumer to pull out of a reservation agreement without penalties.
He says the government wants to work with estate agents and conveyancers to iron out any practical issues connected with operating such agreements, and assessing how the concept could be accepted into a modified and simplified house buying process.
At the same event junior housing minister Heather Wheeler gave political endorsement to the reservation agreement idea.
She told delegates that there are many sellers who don't think their sale will go through and who worry that a buyer pulling out will cause a chain to collapse.
As a result, some 50 per cent of buyers and 70 per cent of sellers say they are happy to enter a reservation agreement to reduce the risk of a fall-through according to a survey conducted by the Department for Business, Innovation and Skills.
A formal announcement on the introduction of reservation agreements is expected later this year.
Wheeler also announced at the same event that, in another part of the government’s agenda to make the house sales process more transparent and accountable, agents’ referral fees would be the subject of new Trading Standards guidelines to be issued next month, alongside a new code on the issue from The Property Ombudsman.
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The system is already in place to do this. It just need tweaking. Two clients of mine have recently entered into lock-in/lock-out reservation agreements to reserve the properties they wanted and paid £8,000 to secure the sales which formed part of the purchase price and was treated as collateral to the main contract so that it did not fall foul of the Law of Property Act. On one of them the buyer dropped out at the last minute and the £8,000 compensated my vendor client for time wasted etc. It just needs to be made mandatory that the vendor enters into a recipricol agreement with the buyer and that there is certainty where the money is going to come from when either buyer or seller does not have the readies to put down. Many countries that practice English Law (about 20% of the world's population) have some sort of similar system in operation.
Quite right Richard! I have negotiated dozens of deals using binding contracts and the work a treat. It's not complicated and if buyer and seller are prepared to commit on exchange, why should they not want to be bound on offer acceptance, subject to the usual caveats being satisfactory by exchange. This is commonplace in many other countries as you say. Have a great day.
Absolutely, the sooner they implement this across the board the better for all. This will give confidence to serious buyers and sellers and should eliminate the practice of gazumping and gazundering once and for all. However the devil is in the detail, so lets hope they release some details as part of a public/industry consultation.
It probably works better and easier with only two parties, buyer and seller. More thought will be needed if whole chains are involved.
It should be standard practise that it it not permissible for members of the public to make an offer to buy property. Offers should only be made by solicitors on behalf of buyers, after verifying their identity and funds. This solves a number of issues in one simple move:
1. ID for AML
2. Funding confirmation
3. Seriousness (they will have to pay for this service)
4. Elimination of time wasters / dreamers
This is an extension of the Scottish system under which I work, a version of which should be UK wide.
The idea is a real distraction from what is really wrong with why deals fall down - no mandatory MIP fr all buyers, and the speed (and therefore their unregulated quality) of the conveyancer but if the Government are going to push this through, then the Government should prescribe a standard Agreement that MUST be used.
With a letter of explanation (like Demands and Needs for Insurance products).
Bypass estate agents charging, and bypass solicitors charging, and avoiding the conveyancers becoming distracted while that agreement would otherwise be negotiated.
That does challenge those lawyers who prefer profit over keeping costs low for the home mover.
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