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Government trial for Reservation Agreements
7 May, 2019 3 minutes reading time
The government recently announced a trial of home-buying reservation agreements. So, what does this mean?
Home sellers face a significant risk of buyers dropping out at the last minute, potentially derailing their own move. This is a common problem.
Naturally, this risk and the fear of being gazumped (outbid after accepting an offer) make many home sellers nervous. A Department for Business survey found that 66% of sellers and 70% of buyers were unsure their sale would be completed, even after an offer was accepted.
That same survey revealed that 50% of buyers and 70% of sellers would agree to a legal contract to prevent this uncertainty if such an option existed.
So, the government has proposed a solution: trialling Reservation Agreements.
What are Reservation Agreements?
Reservation Agreements are similar to other deposit schemes. Both buyer and seller would place a sum of money (the percentage/amount still to be determined) into an escrow account during the property transaction. If either party withdraws before completion, these funds will help cover the other party’s incurred costs.
The trial aims to discourage withdrawals without consequences. At the Council for Licensed Conveyancers annual conference, Housing Minister Heather Wheeler explained, “We want to increase people’s commitment by ensuring they get some skin in the game…there is no reason why this cannot become standard practice. I believe the appetite is there. The government will run a field trial later this year”.
How would Reservation Agreements work?
The exact terms and conditions of how these Reservation Agreements will work are still being decided, but it is thought that they will be announced soon.
There are many issues to iron out before announcing the final details. A recent case saw the Solicitors Regulation Authority state that firms ‘should not hold reservation deposits for sellers before a sale has been agreed. This is because the firms will not yet be providing connected legal services to the seller.’
This raises the question of when the SRA deems the sale to have been ‘agreed’, either when the seller has accepted the buyer’s offer or when the contracts have been exchanged.
What does this mean for house buyers and sellers?
Overall, Reservation Agreements will, it is thought, provide extra protection during housing transactions. Both parties will have to be more considered when entering into the process as there will be consequences for withdrawing.
How this will affect those with legitimate reasons for withdrawing remains to be seen. However, most property specialists agree the idea will give sellers greater protection.
Further information or advice
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Please note that all views, comments or opinions expressed are for information only and do not constitute and should not be interpreted as being comprehensive or as giving legal advice. No one should seek to rely or act upon, or refrain from acting upon, the views, comments or opinions expressed herein without first obtaining specialist, professional or independent advice. While every effort has been made to ensure accuracy, Curtis Parkinson cannot be held liable for any errors, omissions or inaccuracies.