Reservation Agreements may be a way forward for providing home buyers and sellers with more certainty, says a residential property law specialist at CA member firm, Gordon Brown Law Firm LLP (GBLF).
Geoff Hall, Head of Residential Conveyancing at Gordon Brown Law Firm has initially endorsed the idea of a legally binding reservation agreement which he says could give home buyers and sellers peace of mind.
He admitted however that the ‘devil will be in the detail’ when it comes to the roll-out of a new trial of reservation agreements proposed by The Ministry of Housing, Communities and Local Government, which are likely to take place in the first quarter of 2020.
The test will be carried out in two regions of the country, but the scope and details of the trial are still being assessed by a company instructed by the ministry.
“Currently, an offer on a home can be withdrawn until contracts are exchanged which puts a transaction at risk of falling through. The introduction of a legally-binding contract after acceptance of an offer could reduce the risk of a transaction collapsing and put a stop to gazumping,” said Geoff.
“The way homes are bought and sold in England and Wales has always been contentious and the law as it stands lets buyers and sellers pull out of a sale without penalty at any point before an exchange of contracts is achieved. If we want to build on the future of the housing sector, sellers should be obliged to supply a level of upfront information at the point of marketing so that a buyer can seek advice before an offer is made and buyers and sellers can then enter into a reservation agreement that protects both sides before they make their offer.”
But when exactly is the right time for both parties to commit to a sale or purchase and what is a sufficient amount of cash to bind the parties?
Geoff said: “We help homeowners navigate the home-buying process every day and we know how stressful it can be. Reservation agreements could help make the system less precarious and reduce the number of home sales that fall through.
“However there has to be clear guidance on exemptions with regards to withdrawal from a transaction due to genuine reasons such as bereavement or loss of employment. A buyer should before they make an offer have an approval in principal from a mortgage lender confirming that they can obtain a mortgage for the amount required to purchase the property.
“Every agreement needs room for flexibility for both the buyer and seller. For example, any amount payable needs to be affordable enough for the average first-time buyer to pay, but also enough to stop either party reneging on a deal in a rising or falling market.”
He added: “Ultimately buying a home is one of the biggest purchases people make and by refining and evolving the legal processes it is hoped that we can make the experience far better for all concerned.”