A New Reservation Deposit Trial
According to industry figures, gazumping and gazundering in conveyancing transactions are some of the reasons why 25-33% of transactions in England and Wales fall through between a sale being agreed, and exchange of contracts.
The government is set to trial a pilot scheme for reservation agreements this year. The new scheme will have the effect of binding both parties into the transaction following acceptance of an offer and impose a financial penalty if either side, walk away from the transaction without good reason. It is hoped that this will ensure security and peace of mind for both parties, reduce financial losses and bring back confidence and trust in the transactional process.
In Scotland, this type of agreement already exists. Transactions progress with a series of negotiations known as missives after which, offers are made legally binding.
In England and Wales, purchasers of new-build properties will also be familiar with a similar process of paying a reservation fee to a developer once their offer is accepted. This arrangement requires a buyer to exchange contracts within a fixed time period and the reservation fee is forfeitable if, the deadline is not met.
It is expected that the pilot scheme will require a buyer and seller to sign up to a reservation agreement at the outset with either the buyer or both parties paying a reservation deposit. The intention being, that if one party pulls out of the transaction without good reason, the other party would be entitled to the reservation deposit as compensation.
It is not yet clear whether the deposit to be held will be a fixed amount, who will hold the deposit or, the circumstances in which either party may still withdraw from a transaction. Whilst buyers and sellers would appreciate more certainty in the conveyancing process, there are many practical issues to consider to ensure this type of agreement is both workable and effective.
Meaby & Co are lawyers experienced in all aspects of commercial and residential conveyancing. Should you require advice on any aspect of conveyancing, including the above, please contact Varsha Varsani on 0207 703 5034.
