Protecting your property purchase
Francesca Angelucci, private client partner, questions the use of Lock Out Agreements in the North East
Anyone that has been through the property purchase process knows that it can be costly and time consuming. The level of risk associated with the process means it can also be an incredibly stressful time for all involved, however there are ways that buyers can protect their position as far as possible.
Buyers are arguably the most exposed as they must commit to spending money on conveyancing at the risk of the seller changing their mind or agreeing to proceed with another party, usually due to a higher offer.
To help alleviate some of this pressure, more and more people, particularly in London, are entering into “lock out” or exclusivity agreements which agree a fixed period of exclusivity where the seller is unable to continue negotiations with interested parties. To be enforceable these contracts should contain consideration (£1 is enough) or be executed as a deed.
Whilst the contracts between buyer and seller can’t guarantee the sale or force either side to go ahead with the purchase, lock out agreements can offer protection and security for both sides.
Why use lock out agreements?
The ring fenced time period gives the buyer the breathing space to obtain valuation advice, carry out surveys and complete land searches without the threat of someone “gazumping” them with a higher offer after they have committed funds to the due diligence process. If the seller does withdraw within the time frame, abortive costs and those incurred by the buyer can be covered.
If the property in question is an investment or a commercial property, the agreement can help maintain confidentiality around the deal. It can also ensure that the property is properly maintained during the agreed fixed term.
These types of agreements are very dependent on the property market at the time of purchase. I recently returned to the North East from a niche private client firm in London and have already noticed a big difference in the appetite for the use of lock out agreements. I would suggest this is because the North East remains a buyers market and there is less competition over property for sale. In London however, as the seller is very much in control and prices are constantly rising, buyers are looking for greater security in a more volatile marketplace.
However, as buyers are now more active in the North East marketplace, now may be the time to consider their use regionally.
How would lock out agreements be used?
The basic terms of these types of agreement ought to be negotiated between the parties when the overall transaction is agreed. The terms are normally agreed via the estate agent and passed to the solicitors involved who will then draft the agreement to reflect the needs of both parties.
Once the agreement is in place, both parties can then proceed in the comfort of knowing that there is certainty regarding the commitment of both sides.
Added value or a distraction?
There is, however, an argument that these agreements can be a distraction to the conveyancing process itself, as more focus may be put on agreeing the terms of the lock out agreement than on the due diligence required. There is a risk that the use of these agreements can make the process longer and more complicated than necessary.
As with any contract the pros and cons should be weighed up by those involved, in this instance the potential benefits of exclusivity need to be compared to the additional time and cost of negotiating and preparing an additional document and the added value this will have on the sale on the property.
Lock out agreements may not be used regularly in the North East but as the market picks up, buyers should consider their use to protect their position. Such agreements are regularly used in London, especially in relation to very expensive properties, and their use locally may prove to be extremely beneficial to buyers and sellers as parties become more familiar with their use.
For further information email Francesca or call 0843 224 7949