Government calls for an end to gazumping in conveyancing: are lock out agreements the way forward?
Once again the thorny issue of “gazumping” is being brought to the forefront by Communities Secretary Sajid Javid. Housing has always been a hot political issue, even more so with the ever increasing housing shortage.
To understand gazumping, you must be aware of the most important milestone in the conveyancing process: ‘exchange of contracts’.
‘Exchange of contracts’ is the moment when the solicitors for the buyer and for the seller agree that there is a binding contact to transfer a property, and that the seller will be legally obliged to sell the property, and the buyer will be legally obliged to buy it, on the agreed completion date. This is the effect of Section 2 of the Law of Property (Miscellaneous Provision) Act 1989, stating that a contract for the sale of land must be in writing. A verbal agreement will not suffice. This has been a mainstay of English law, all the way back to the Statute of Frauds in 1677.
The issue unfortunate buyers’ find themselves with is that before exchange of contracts, there is no legal agreement between a buyer and a seller. Either party is free to walk away, no questions asked. In the case of gazumping, this is where the seller decides to sell the property to another buyer who offered a higher price despite already having a buyer in hand.
This process became pandemic during the booming property prices experienced in the late 1980’s and early 1990’s. One of the proposed solutions to this is to have an exclusivity agreement, otherwise known as a Lock Out agreement in place. This would be an agreement between the parties that, for a fixed period of time, the seller would agree not to sell or market the property to another buyer.
As an agreement is only as good as the remedies it allows, what are the consequences of a party that breaches a lock out agreement?
The agreement will normally allow the buyer to recover “wasted costs” if the seller breaches their obligation, normally this means whatever abortive costs the buyer’s conveyancer charges. However, a wronged party would not be able to petition the Courts to compel the sale of the property nor to seek substantial damages. Courts are often loathed to enforce the sale of a property unless there are usual and pressing circumstances surrounding the abortive purchase. The bottom line is that while a lock out agreement may prevent a seller seeking other buyers it cannot require a seller to exchange contracts with you.
Because of the nature of exclusivity agreements, and the need for precise drafting, it is not unheard of for the time taken to negotiate and draft the agreement to take a couple of weeks. The reality is that time spent on arguing and drafting the wording of an exclusivity agreement would be much better spent on completing the conveyancing work and trying to get the transaction across the line.
Bishop and Sewell has the well-earned reputation for being approachable and “going the extra mile” for its clients whilst providing both legal and practical advice. We provide a bespoke holistic approach for our clients, not merely limiting ourselves to just the matter at hand.
Charlie Davidson is a Solicitor in our Residential Property team.
If you are looking for assistance with regards to your property matter, or if you have any questions about lock-out agreements, please call 020 7631 4141 and ask for a member of the Property team or email firstname.lastname@example.org.
This article is intended as a general summary on the law – no reliance should be placed on it.