Some Of The Misconceptions About Reservation Agreements
‘Hmm, my clients are buyers. Unless the seller has signed up to [a reservation agreement] then you can’t help me, can you?’
This is a quote from Henry Pryor (‘the BBC’s favourite property expert’) in a Twitter exchange about reservation agreements with Duncan Samuel, CEO of Gazeal Limited (02.07.2020).
Henry is a well-known and brilliant commentator on all things property – but it is interesting that even he thinks that a seller has to engage with a reservation agreement first for it to work. This is one of the one of the many misconceptions about reservation agreements.
It is fair to say that knowledge about reservation agreements amongst the public is patchy. But many estate agents and conveyancers can see the benefit of such agreements. They can tie in the seller and the buyer on terms and timeframes agreed between the parties to suit their particular circumstances. It is also fair to say that reservation agreements appear to be seller driven because a likely route to signature is via the estate agent once an offer has been accepted.
But an increasing number of buyers want the certainty of knowing that, once a sale is agreed, the seller will not gazump them and accept an offer elsewhere after the buyer has spent valuable cash on survey, mortgage arrangement fee, legal fees and searches. Thus, a buyer can put in an offer subject to the seller agreeing to sign a reservation agreement. Experience shows that sellers rarely refuse to do this because it de-risks the transaction for them as well.
Another misconception is that reservation agreements do not work in a chain of transactions. They do work in chains. A couple of parties in a chain can decide to sign a reservation agreement as between themselves. The key is to ensure that their agreement is properly drafted so that either party can withdraw without default if the chain does not come together within their agreed timeframe.
However, the transactions could be more focussed and quicker if all parties in a chain sign up to a reservation agreement on similar terms. The only obvious barrier is ensuring that everyone in the chain knows about the agreement and is signed up. This is where clients and the agents can help because they can let other agents in the chain know that a reservation agreement is proposed. This is just a matter of communication.
The underlying purpose of a reservation agreement is to try to minimise the risk of either party withdrawing from the transaction once a commitment has been made and money spent. It is reported that some 30% of conveyancing transactions fall thought causing homeowners untold cost, misery and stress. The government has indicated its commitment to look at solutions – reservation agreements being one of them – but it is fair to say that they have a lot on their plate at the moment. So, the market can expect entrepreneurial companies to find a solution to the problem.
Gazeal Limited has done this. They have a clear, one-page reservation agreement that is already being used by sellers and buyers around the country. Take a look. You might just change your mind.
By Lorraine Richardson (M.A.) Cantab MD of Adapt Law Ltd