Like the Four Horsemen of the Apocalypse, the symptoms of a booming property market are riding roughshod over the normal conveyancing process leaving chaos and havoc in their wake.
Farmland prices are at an all-time high and prices in parts of London are 70% up on their 2007 peak. Asking prices now form the base level for ‘best and final offers’, multiple buyers are being asked to enter into a contract race, the dreaded word ‘gazumping’ is being used as a lash and the Exclusivity Agreement or Lock-Out Agreement is back in fashion, especially with London agents.
The idea of an Exclusivity Agreement is encouraged by the seller’s agent as something of benefit to the buyer and it will use wording such as “the buyer requires the exclusive right to exchange contracts for a limited period”. So the buyer is reassured that the property will not continue to be promoted and he or she will not be gazumped during the ‘lock-out period’. To obtain the benefit of this, however, the buyer must pay a sum of money upfront at the very start of the transaction which is typically 1% of the purchase price. Here’s the rub. The lock-out period is often optimistically short – say 20 working days. So the buyer has four weeks to arrange a survey, carry out searches and complete the pre-exchange conveyancing process, obtain a mortgage offer and exchange contracts or lose the pre-exchange deposit.
Most buyers simply cannot commit to this. With the introduction of the Mortgage Market Review, mortgage offers are taking much longer to be issued and that is without any problems highlighted by searches or title problems – but the clock keeps ticking.
Sometimes the Exclusivity Agreements will have clauses releasing the parties from their obligations in certain circumstances but these are drafted in very general terms and so simply give the lawyers the ammunition for a dispute.
These Exclusivity Agreements are not a bed of roses for sellers either. If they get a bad buyer they cannot change horse during the lock-out period and if the matter does become litigious they may have to take their property off the market for some considerable time.
Understandably lawyers are reluctant to allow their clients to commit to an Exclusivity Agreement so rather than speed up the conveyancing process it is slowed down whilst the lawyers renegotiate whatever has been agreed by the agents.
The problems of an overheated property market are not going to go away. Politicians and the Bank of England talk about measures aimed at reducing demand but surely the answer is to increase supply. Not by building on our greenbelt but on brown field sites, perhaps with tax incentives for developers such as stamp duty-free zones to compensate for the extra costs involved.
With a growing population it will take a long time to resolve the problems of a disenfranchised generation but whatever the temptation Exclusivity Agreements are not the answer.
William Kinread is a partner at Raworths LLP and a solicitor specialising in agriculture. To contact Raworths telephone 01423 566666 or visit our offices at Eton House, 89 Station Parade, Harrogate, HG1 1HF. Alternatively, you can email firstname.lastname@example.org