Reservations Over Reservation Agreements

If there’s one thing that infuriates house sellers it’s a buyer pulling out at the last moment without a good reason. However, the Government has stepped in and announced that 2019 will see a trial for reservation agreements whereby buyers who pull out of a transaction just because they ‘didn’t like the colour of the bathroom’ will face consequences, which could prove costly.

As part of the trial, the government will be commissioning ‘behavioural insight’ research to identify the parameters of the agreement so they are fair to both sellers and buyers, and not weighted too heavily in favour of the seller. This is to ensure buyers don’t get trapped into buying a property they don’t want, if there are justifiable reasons to withdraw from a purchase. However, if a buyer does want to ‘get out of jail free’ by citing something trivial as a reason to pull out, then that option will be taken away, as the suggestion is they’ll have to ‘buy their way out’. But how much that will cost, and how practical it will be to enforce the agreement (particularly where the parties are involved in a chain), is still being ironed out.

What does concern some industry watchers is how ‘reasonable cause’ is to be defined. Obviously, if it’s for something as trivial as the colour of the bathroom suite then most buyers and sellers would agree that a penalty fee is fair. However, if a buyer pulls out because of the discovery of subsidence that wasn’t previously known about, for example, then should they still be made to pay an exit fee from the agreement? Furthermore, what is reasonable to one buyer may well be very different from what another deems to be reasonable; with any new system, it’s going to take some time to iron out all the bugs, and there will need to be very clear guidelines on the definition of reasonable cause.

Another problematic area is defining exactly at what point a sale has been agreed. Is it when a seller has accepted a buyer’s offer, or only at the point just before contracts are exchanged? This single issue could have a big bearing on how effective reservation fees are.

Buying and selling a house is the single largest financial transaction most of us will ever make. It is already tangled up with yards of red tape, and those who oppose the plan say that this adds yet another layer to an already-overcomplicated process. However, most legal experts agree that in principle, the idea of a reservation clause is a good one and will give sellers a greater degree of protection.

If you would like to discuss any points in this article further, please contact Spire Solicitors LLP on 01603 677077 for all your legal needs.