Staying one jump ahead of a gazump: After the Tim Pitt case, Vivien Goldsmith finds out how lock-out deals can alleviate angst in buying or selling a house

Click to follow
The Independent Online
MORE THAN a quarter of agreed house sales fall through before contracts are exchanged.

A study by the Lord Chancellor's department in the summer found that delays between agreeing a price and exchanging a contract, which normally takes six weeks, were often caused by either the buyer or seller trying to change the price.

For a seller it does not cost anything to say 'yes', but buyers can start paying out sizeable sums on surveyors quite quickly.

Derek Sendrove and John Samson, senior partners in the property department of Nabarro Nathanson, one of the leading law firms dealing with commercial property, have been using lock-out agreements in commercial transactions for some time.

'Gazumpers need to stab you in the back quickly,' said Mr Sendrove.

He realised that once Tim Pitt's case had been tested in the courts, signing agreements would improve house buying for all. Nabarro Nathanson does not deal with domestic conveyancing, but it has drawn up a form of words in plain English suitable for home buyers that we can offer Independent readers.

'Before the Pitt case these agreements were not thought to be enforceable. But now the Court of Appeal has settled it, and these agreements could lower the temperature in the residential property market. Buying or selling a house can be such an unpleasant experience,' said Mr Sendrove.

He said that he expected all good professionals involved in the home-buying process to welcome the use of these lock- out agreements. 'It puts sanctions on those who do not behave honourably, to use an old-fashioned word.'

He would not like to move to the Scottish system where home buyers become absolutely committed at a much earlier stage in the process than in England and Wales.

The lock-out agreement is almost a half-way house that imposes sanctions on buyers and sellers who do not proceed in a fair and speedy manner.

The form leaves it up to buyers and sellers to agree a suitable exclusive period. Mr Pitt had 14 days after receipt of the contract to exchange contracts.

Buyers and sellers could agree a more comfortable period of, say, six or eight weeks. This should give the buyer enough time to arrange a survey and mortgage finance, conduct local searches and complete the preliminary legal niceties. The standard form binds the buyer to instruct a surveyor either directly or via a mortgage application within five working days.

This shows serious intent to buy and gives the seller some benefit for his agreement to refrain from trying to sell the property to anyone else during the lock-out period.

This means that no potential buyers will be shown around the property or be allowed to instruct a surveyor to see it, and no contracts will be sent out to anyone else.

While the market was in the deepest doldrums, sellers were being gazundered by buyers who dropped the price at the last minute. A shortage of decent property on the market has given sellers the upper hand in many areas. So gazumping is creeping back.

Buyers who have spent money pursuing a house, never mind the emotional investment, can suddenly find that they are asked to pay more.

These lock-out agreements can never stamp out gazumping completely. Sellers can always wait for the agreed period to lapse and start again with a higher bid from another buyer, or even the same one.

But the delay while everything is on ice may persuade those who are tempted by a higher offer to stick with their original agreement.

At least signing the agreement is a forceful demonstration of faith on both parts .

Graham Seabrook, an architect has just sold his 1920s house in Hatch End, Middlesex for pounds 300,000 after it had been on the market for a year. He agreed to sign a lock-out agreement to give his buyer a clear-run for two weeks.

'The buyer, who is familiar with commercial property practices through his business had been let down on a previous sale after he had had surveys and got drawings done.

'It suited me to give him two weeks as I was going on holiday for a fortnight and I would not have been able to offer it to anyone else anyway. The buyer warranted that his finances were in order and he was not selling his own house,' said Mr Seabrook.

The buyer's solicitor, Peter Westley, a conveyancing partner with Gouldens, said: 'This is the first lock-out agreement I have done, but they could become the fashionable thing to do. They do give an enormous comfort factor. If the property is unique quite large sums of damages could be involved.'

David Charles, the firm run by David Goldsworthy, president of the National Association of Estate Agents, arranged the sale, and believes that lock-out agreements can smooth the house buying process.

Andrew Smith, a litigation partner with London solicitors Child & Child, is also a fan of clear-run agreements. But he believes estate agents might be reluctant to recommend them because it gives a greater advantage to the buyer, and estate agents always represent the seller.

'I would expect purchasers to want lock-out agreements in the future. It will be interesting to see if sellers are willing to give them - especially if agents tell them not to.'

Anthony Brooks, southern director of GA Town & Country estate agents, has seen two exclusivity agreements involving cash last year - before the Tim Pitt case established that lock-outs without payment stood up in court.

These were agreements where the prospective buyers paid a non-refundable deposit in return for a clear-run period. In both cases a previous buyer whose offer was below the asking price was ousted by a determined second buyer willing to gazump - pay more and also offer cash up front in return for the exclusivity deal.

In one case a seller had agreed to take pounds 275,000 for his house in Maidstone, and another buyer offered pounds 300,000 and was prepared to pay more than pounds 30,000 as a non-refundable deposit. In another a period town house in Tunbridge Wells was sold for pounds 400,000, and a second buyer was so keen to buy it that he paid pounds 20,000 as a deposit.

Mr Brooks said: 'In these cases the money provided some protection to the seller who was changing horses - he would at least get a deposit out of it. The agreement was in favour of the seller. We only act for the seller. We have to keep the property on the market. Things can always go wrong.'

(Photograph omitted)

Looking for credit card or current account deals? Search here

Comments