Gazumping is the process by which a seller agrees to sell a property to somebody and then before exchange of contracts takes place, a higher offer is made and the seller withdraws from the sale to the first buyer and sells to the second buyer. This is often quoted as a significant problem. In fact, we very rarely see this happen, but the fact that it can is a result of the system we have in England and Wales where nobody is bound to buy or sell a property until they have actually exchanged contracts. Until that point, either party is free to withdraw for whatever reason, or indeed for no reason.
The Government has, however, indicated that it favours the use of what it calls a “reservation agreement” with the aim of reducing the number of failed conveyancing transactions.
The idea of a reservation agreement is to tie in the seller and the buyer once a transaction has been agreed and to avoid one or the other withdrawing without penalty prior to exchange of contracts. The Government is apparently developing a standard reservation agreement. The idea is that one of the parties will pay a reservation deposit at the point the sale is agreed. There will need to be a significant amount of detail to add to this including who will hold the deposit, on what basis and in what circumstance the person who has paid will lose it – presumably if they withdraw from the transaction?
Whether buyers or sellers will be interested in this scheme remains to be seen. Watch this space!