By David Williams, Solicitor, Director & Head of Property
A frequent question asked by clients in conveyancing transactions is “what can I do if the seller or buyer pulls out – will I be able to get my costs and expenses back from the other party?”
At present, the answer is a simple “No”. Until contracts have formally exchanged either side can withdraw from the transaction without penalty. This was very common in the property boom before the credit crunch when gazumping was rife, and many were left disappointed and out of pocket.
In an attempt to combat this, the government are set to carry out trials this year of Reservation Agreements. This would entail a deposit being paid and a binding agreement being made on acceptance of the offer.
There will be allowable reasons for cancelling (e.g. adverse survey report) but it will prevent one side pulling out for no reason or because someone has made a better offer.
It is expected the reservation agreements will be trialled over some 500 transactions over the next few months with the possibility of them being introduced in 2021.
It is likely they will be welcomed by buyers and seller alike, giving some degree of certainty as is enjoyed in property transactions in Scotland.
However, they shouldn’t be viewed as a panacea to all ills. In reality, gazumping (and gazundering) only represents a small percentage of reasons that transactions fall through. Poor survey results, inability to secure a mortgage and problems elsewhere in the chain, account for a larger percentage. It is likely these will all constitute valid reasons for a reservation agreement to be set aside.
The present system is unfair. Both sides need to make significant financial commitments before a transaction can be written in stone with exchange of contracts. Frequently this can be just a few days before, or sometimes on the same day, as legal completion. Reservation Agreements should contribute to greater peace of mind and possibly, increased confidence in the conveyancing process and property market.