Last month, the Government announced that they will be introducing standardised reservation agreements on a trial basis for property transactions, meaning that a buyer cannot pull out of a purchase without incurring financial penalties. The reason for this is to reduce the number of failed property transactions across the country.
At the Council for Licensed Conveyancers’ annual conference last month, the housing minister, Heather Wheeler, commented:
“Too many people are walking on a tightrope from the moment they put in that offer.
“Things can happen over 19 weeks that can genuinely scupper a move and I wouldn’t want to force anyone to move if they don’t want to…But I also don’t want people pulling out without consequences, just because they’ve now decided they don’t like the avocado bathroom suite. When this happens, it can take a whole chain down,’
“We want to increase people’s commitment by ensuring they get some skin in the game…there is no reason why this cannot become a standard practice. I believe the appetite is there. The government will ‘run a field trial later this year…”
During the conference, Heather Wheeler referred to some Department for Business research, which found that:
- 66% of sellers and 70% of buyers didn’t feel that their property sale or purchase would go through, despite an offer having been accepted.
- 70% of sellers and 50% of buyers would think about entering into a legal contract, such as a reservation agreement, if they were able to.
It is also understood that the Government is undertaking ‘behavioural insight’ research to ascertain the boundaries of the reservation agreements before they are trialled. The Government are consulting with a select group of conveyancers regarding the extent of the boundaries in the hope that this will limit the number of practical issues during the trial period.
What does this mean for Buyers and Sellers?
The proposal suggests that both the buyer and seller will have to place an amount of money, still yet to be decided, into ‘escrow’ whilst the property transaction progresses. Should a party withdraw from the transaction before completion then the monies in ‘escrow’ will be distributed to cover the abortive costs incurred.
Full details of the form of the reservation agreement; together with guidance on the amount of money required from buyers and sellers is still awaited from the Government but is expected to be published over the next few months.
It is hoped that these steps will give both buyers and sellers more confidence in the process by encouraging serious buyers to commit financially at an earlier stage and discourage gazumping.
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