Autor
Rachel George

Rachel George

Senior Associate

Read More
Autor
Rachel George

Rachel George

Senior Associate

Read More

9. Dezember 2021

Residential & rural - December 2021 – 2 von 3 Insights

Exclusivity agreements

It's become increasingly common in the current buoyant market for notifications of sale to specify that an exclusive period has been agreed between the parties, ie a period during which the seller will not actively market the property.

Such periods give the purchasing party some comfort that the seller will not waste their time and money by showing the property to other potential buyers, affording the buyer some breathing space within which to undertake their due diligence and arrange funding.  For the seller there is a short hiatus in any marketing of a property albeit with the prospect of a quick exchange from a committed buyer.

However, it's often the case that more complex scenarios can be agreed, particularly at the high end of the market, and these can sometimes be more of a curse than a blessing for both buyer and seller.

The detailed arrangements will need to be documented in writing, thereby incurring additional legal fees on both sides for drafting and negotiating the terms. Such terms can seem simple and sensible, but can have wide reaching consequences:

  • The consideration for the grant of an exclusive period will generally be a "non-refundable" deposit, which can be up to £100,000 in some cases, paid by the buyer to be held by the seller's solicitors until either the agreement terminates or contracts are exchanged, in which case it will be offset against the purchase price. This opens up the question as to the circumstances (if any) in which the deposit can be recovered by a buyer? What if the due diligence process throws up a defect in title, a neighbour dispute or other issue which the buyer believes impacts the value or mortgageability of the property? Who decides if the parties cannot agree?
  • It's also common for an exclusivity agreement to provide a very short period of time for the buyer to exchange contracts. This can make it difficult to undertake a sensible level due diligence and can often reduce a buyer's negotiating power on any commercial issues that crop up along the way, with a deadline looming after which the buyer faces losing their deposit.
  • How is "actively marketed" to be defined? Sellers may want this to be restricted to physical viewings of the property whereas a buyer may expect the property to be removed from the selling agent's website and for the seller to agree to have no discussions whatsoever with any other interested parties.
  • It also needs to be remembered that an exclusivity agreement does not oblige a seller to exchange contracts with the buyer at the end of the exclusivity period; it merely locks out others for an agreed period of time. In theory a seller could refuse to exchange contracts when the buyer is ready and allow the agreed exclusivity period to lapse before dealing with a third party. In these circumstances, the buyer would be entitled to the return of the deposit and may have a cause of action in relation to their wasted costs, particularly if the exclusivity agreement obliges the seller to progress the transaction in good faith, but a buyer will not be able to compel the seller to sell the property to them.

Documenting an exclusivity agreement can often shift attention from the main aim of progressing a transaction towards exchange of contracts; it's not unknown for the experience of negotiating the  agreement to kill the deal before it gets started with parties becoming fixated on all the possible permutations that could arise. It is therefore worth a discussion with any client as to whether an exclusivity agreement is really what is needed in the circumstances. There is certainly a time and a place for them where there is huge competition for a property but more often than not, a speedy and collaborative effort to try and get an exchange of contracts over the line is the best bet.

Call To Action Arrow Image

Newsletter-Anmeldung

Wählen Sie aus unserem Angebot Ihre Interessen aus!

Jetzt abonnieren
Jetzt abonnieren