In this guest editorial, experienced property solicitor Lorraine Richardson argues that reservation agreements - designed to reduce the number of fall-throughs in the market - are already here.
‘…Propertymark is supportive of the trialling of reservation agreements to foster commitment and reduce the number of failed transactions.’
(Law Commission Consultation on 14th Programme of Law Reform Response from Propertymark July 2021)
In its above response, Propertymark outlines various ways it considers that the conveyancing process can be improved including more upfront information, digitisation of local land searches and digitised property logbooks.
As a property solicitor who has been doing conveyancing for more years than I would care to mention, I would say that these practical suggestions are largely unarguable. However, from the outside looking in, one of my concerns about the property market is the fragmentation in terms of the providers of these innovations.
The conveyancing space has created a competitive market with a large number of providers jostling for position. This makes choosing a provider or creating a uniform process difficult. But there is one area where there is already a straightforward solution available: reservation agreements.
Propertymark highlights that part of the solution to reducing the number of failed transactions is the use of reservation agreements. They report that the government intends to trial the idea again later this year. These were very much on the agenda but the pandemic derailed all of us, of course.
However, a continuing problem with reservation agreements as currently framed is how to ensure that both seller and buyer are tied into the deal. In my view, it is also completely unrealistic to expect a buyer to be in a position to put up perhaps thousands of pounds at the point at which a sale is agreed. The fact is, most buyers do not have this money readily available at this point in the transaction.
Many also seem to have forgotten the money-laundering requirements imposed on both estate agents and conveyancers. It is necessary to check source of funds and source of wealth; which can be time-consuming. It would be necessary to make investigation as to the source of a buyer’s reservation deposit which would rather defeat the object of a swift tie-in to a reservation agreement.
What many in the industry have failed to notice is that reservation agreements are already here in a cost-effective, workable format. In addition to offering upfront packs, PropTech company Gazeal also offers a straightforward reservation agreement. It has the benefit of specifying admirably clear conditions for withdrawal without penalty. But the really clever bit is the use of a financial guarantee, rather than the payment of a large sum on signing by the buyer.
The Gazeal reservation agreement thus offers the unique benefit of tying in both seller and buyer at the outset for only modest outlay by both them. As I said, reservation agreements have been here all along.
You can see the full Propertymark report here.
*Lorraine Richardson (M.A.) Cantab is MD of Adapt Law Ltd. She is an experienced property solicitor who has practice and teaching experience. In addition to running a branch office and being a partner, Lorraine was the COLP for her firm. She now holds a number of consultancy roles, including Head of Professional Practice for Gazeal.
Lorraine has also published a book ‘Document Signing and Electronic Signatures for Conveyancers’. You can quote this code to get a 10% discount MV8T4B (free P&P) - http://www.lawbriefpublishing.com/product/documentsigningandelectronicsignatures/.