With the stamp duty holiday deadline looming in just over 6 weeks time, the pressure is mounting on the residential property market, causing logjams and delays in conveyancing transactions, so, should reservation agreements be introduced?
Back in the 2019 the proposed implementation of reservation agreements was high on the Governments agenda in a bid to reduce the risk of fall through across England and Wales. Since then it had seemingly gone quite, until recently, it has emerged in the news again.
The purpose of a reservation agreement is to reduce the risk of either party pulling out from the transaction once a commitment has been made and money spent. Conveyancers do have concerns over reservation agreements as the difficulty is getting clear drafted sanction to be imposed on either party to commit to the transaction.
It is believed with recent pressure on the conveyancing system and process and property sellers needing security and reassurance there is need for reservation agreements.
Government estimates suggest a third of property transactions fall through before completion meaning that a typical month’s 100,000 sales will see well over 30,000 collapse.
Today’s Conveyancer asked Beth Rudolf, Director of Delivery at the Conveyancing Association what she thought of reservation agreements and whether it will help the conveyancing system. She said:
“The HBSG sub group on reservation agreement has proposed standard wording which has been researched by the government’s preferred behavioural researchers, Kantar, and their review with customer focus groups made it clear that reservation agreements on their own would not be as popular with the home movers as reservation agreements coupled with upfront information. The HSBG sub group for Upfront Information has just published version 2 of the Buying and Selling Property Information which combines the data required under the Consumer Protection from Unfair Trading Regulations to be produced by anyone marketing property with the data required for the conveyancing due diligence process.
“The next step for the reservation agreement was a full pilot which Kantar had been instructed to deliver but covid has delayed that.
“Agents who have either trialled or set up their services to gather the information upfront have commented on the reduced number of fall throughs because buyers know what they are offering on and select the right lender plus the transactions proceeded more quickly. Of course on top of this with all of the issues for sellers at the moment, such as cladding, onerous lease terms and estate rent charges, conveyancers can review the upfront information and advise their selling client whether they have an issue which might delay the sale or cause a fall through.
“So, overall, reservation agreements will work best where conveyancers are instructed at listing and review the upfront information so that when the buyer makes the offer they know that the property can be used and enjoyed by them as they want to and will meet their lender’s lending policy and we imagine in these circumstances the certainty of a reservation agreement will be very reassuring to all parties to ensure that they are able to buy the property and will be compensated financially if the other party pulls out of the transaction before exchange of contracts.”
