How useful are Exclusivity Agreements?

In commercial and residential property transactions, particularly where prime properties are in short supply, exclusivity agreements also known as lock-out agreements may seem an attractive option when they are used in anticipation of a sale and purchase agreement.
 

What is an exclusivity agreement?

It is a preliminary agreement entered into between the buyer and seller at the beginning of a transaction for the sale and purchase of a property. This will usually cover a timetable for the supply of title documentation by the seller, a timetable for the buyer to raise enquiries and an obligation on both parties to instruct their lawyers.

The intention of the agreement is to allow a buyer to proceed with searches, investigations and due diligence without interruption from other interested buyers. It prevents a seller from negotiating with any other party during a fixed period, known as the exclusivity period.

At the end of the fixed period, if the buyer cannot exchange contracts then the agreement comes to an end and the seller is free to negotiate with other buyers. Usually, the buyer is required to pay a non-refundable deposit to cover the seller’s expenses if the buyer does not go ahead.
 

 

Is an exclusivity agreement binding?

No. In legal terms these agreements are of limited use as they do not bind either the seller to sell or the buyer to buy. Until a sale contract is exchanged, a seller will be free to sell the property to anyone else at the end of the exclusivity period as there is no legal obligation to continue to deal with the buyer at all. In many ways, this creates little more than a “gentlemen’s agreement”.

If the seller breaches the agreement by selling the property to someone else during the exclusivity period the buyer will only be able to recover limited damages to cover his wasted costs, for example legal fees or surveyor’s fees.

Is it worth having such an agreement in place?

Exclusivity agreements provide a potential buyer with some breathing space to carry out their conveyancing as it allows a short period of protection within which a buyer can proceed with its due diligence. If, however, a potential buyer is looking for longer-term protection while it decides if it wants to proceed then this type of agreement is not the answer.
 

Conclusion of exclusivity agreements?

The negotiation of exclusivity agreements can take time and a well-drafted agreement needs to be clear and address both the buyer’s and the seller’s concerns to avoid any disputes.

Whilst they can be useful in some circumstances, they can also hinder progress of the property transaction. It may be in the interests of both the buyer and seller to focus on achieving an exchange of contracts rather than spending time trying to agree the terms of an exclusivity agreement which merely provides a loose commitment between the parties.

Contact One Of Our Property Solicitors Today

If you need any advice on buying or selling a property, please contact Zahra Shah at Meaby&Co for advice: zshah@meaby.co.uk or call 020 7703 5034.

 

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