Saving Money at Source: Contracts and Penalties

Jason_MTM

Hello to all money savers,

This is my first post, so please bear with me!

It's great to hit upon a money saving idea, and even better to recoup money that you have already had to shell out, perhaps grudgingly (and even unlawfully), and I know that Martin and the wider community of this site have been pivotal in the plight for 'consumer revenge'. People like me can only thank you for providing us with the awareness and power to compete in the financial arena on a level footing, but what about the prospect of 'safeguarding' ourselves in advance of any unforeseen expenditure? I'm sure that applies here too.

Let me explain...

My partner and I are in the process of buying our first home together. Before entering into the venture we carefully assessed our financial position and budgeted wisely for the journey ahead. We found a nice house within our affordability range, had our offer accepted and found a suitable mortgage to meet our scrupulously pre-determined requirements. Recently, our solicitor presented us with copies of the draft contract raised by the sellers’ legal representative. There were, however, one or two conditions that we felt were unreasonable, if not unlawful, and so we queried them as follows:

The first condition outlined the forfeiture of deposit in the event that we, the buyers, withdrew from, or failed to complete the transaction. We have opted for a mortgage product at 95% LTV. This is based on the fact that our start up budget only allowed for a maximum deposit of 5% of our target purchase price. The condition in the draft contract states that we are entitled to pay any amount of deposit, but in the event of our causing the completion to fail we would be liable to pay the sellers 10% of the agreed purchase price.

We queried this, stating that under the statutory terms of forfeiture of deposit we should only be liable to lose the amount that we are prepared to tender (in our case, 5%). Our solicitor has dismissed our observation, and has stated that the 10% penalty is based on the Standard Conditions of Sale used within the conveyance process.

The second condition differs slightly from the above in so far as it serves to impose penalties in the event of a delay, not an overall failure, to complete on the given time of the stipulated day. The condition is referred to as the ‘Contract Rate’, and is set at 4% above the Barclays Bank base rate (BBBR). It states that in the event of a delay on our part, on a daily basis we will be liable to pay a sum representative of the capital, and interest payable at 4% above BBBR to the sellers for any bridging loans, re-arrangement of removal services, furniture storage and associated solicitor's costs.

We queried this too, on the grounds that certain caveats should apply with regard to a delay being caused by injury, illness, accident, third party intervention or other such unforeseen circumstance that might render us blameworthy. Again, our solicitor rejected our appeal on the basis of the Standard Conditions of Sale.

Don't get me wrong, we understand that the sellers need to safeguard their own financial interests, but so do we. We are not seeking to absolve ourselves of any responsibility in the event that a problem does arise, but contracts, to my mind, should not be a 'fait accompli'; they should be mutually agreed by both parties and negotiation plays a massive part in such an agreement.

Hopefully you will agree that we are not trying to extricate ourselves from our contractual obligations, but merely seeking to find a reasonable compromise that entitles us to work within the confines of a set budget. We are simply looking for a route to negotiation, via our solicitor, which will protect the interests of both parties. Risk assessment is a huge factor when dealing with money. It is all well and good to sign a contract in the hope that nothing untoward will happen between the dates of exchange and completion; but whilst that is usually the case, the possibility of risk is very real and should not be ignored.

My question, therefore, is:

Are the Standard Conditions of Sale (4th edition) formed by an act of legislation, and therefore legally binding, or are they simply a set of guidelines that form a basis for negotiation dependant upon the indivdual circumstances of the contractual parties?

In other words, are the conditions laid out in the contracts, particularly in terms of deposit amounts payable and implied penalties to be levied in the event of failure, entirely negotiable on the part of both parties?

We are really keen to spur our solicitor into action, but we don't know enough about the constraints of the Standard Conditions of Sale.

Any help or advice on this matter would, of course, be greatly received.

Many thanks,

Jason

HelpWhereIcan

Jason_MTM wrote:

Are the Standard Conditions of Sale (4th edition) formed by an act of legislation, and therefore legally binding, or are they simply a set of guidelines that form a basis for negotiation dependant upon the indivdual circumstances of the contractual parties?

In other words, are the conditions laid out in the contracts, particularly in terms of deposit amounts payable and implied penalties to be levied in the event of failure, entirely negotiable on the part of both parties?

We are really keen to spur our solicitor into action, but we don't know enough about the constraints of the Standard Conditions of Sale.

Any help or advice on this matter would, of course, be greatly received.

Many thanks,

Jason

I suspect they are not statute, but do not know enough to say and would suspect that you may have to retain the services of a solicitor to find out :rolleyes: Hopefully an MSEer with some conveyancing experience may come along.

However, the point I would make is that it is important to remember that the contract needs to be signed by both parties.

Whether you dispute it or not, whether the Standard Conditions of Sale are laid in legislation or 'best practice' or not, the contract will not be legally binding on ANYONE until both parties have signed.

If the vendors' solicitor advises them that your demands are unreasonable and (possibly) indicate that your position as a purchaser is not as strong as it may appear, you run the risk that they will refuse to sign the contract unless you accept the conditions as they are. That would mean the sale would be off and there would be nothing you could do to force them to put it back on.

In the same way that you cannot be forced to sign the contract as it is, they cannot be forced to sign one written the way you want it.

The advice you are receiving from your solicitor may be sound for the reasons above rather than because there cannot be any changes made. You could always instruct your solicitor to pass on your demands to the vendors. Whether their solicitor would advise against them accepting them is another matter. In all honesty would you?

Every contract is negotiable by both parties, but do not assume that there is everything to be gained - there is also a lot to be lost.

homer_j_3

Jason,

Firstly welcome to the forums, this is my first post in some time so hopefully you will go easy on me too!

The conditions that you are talking about are to my knowledge normal and acceptable. I would suggest you seek independent legal advice to challenge the legality of these. However, here is my comments on what you have said:

I am not sure whether you are aware, so if you are please do not take this as me trying to teaching you to suck eggs.

Upto the exchanging of contracts both the seller and you have an equal right to pull out of the sale/purchase should circumstance dictate that this needs to happen (change of heart/mind etc). If this happens then at present you are only liable for costs that you have incurred through arranging mortgage, searches and surveys etc. You are not liable for any expense that the seller has incurred.

Once contracts have exchanged, you are legally committed to the deal, hence why your solicitor will want to ensure that you can proceed before doing this - proof of deposit, mortgage etc. If your solicitor has any doubt they will not exchange contracts because of the severity of penalties and implications that can have for you. They are being paid to look after your interests after all.

As first time buyers there should not really be the same issues with completion delays as you have nothing to sell so you should be able to move as quickly as needed. When you come to sell then you are likely to be in a chain and that is when it becomes a little more stressful but that said, your solicitor works for you and should be looking after your interests so shouldnt let this happen.

At the point of exchange, you should ensure that you have all the relevant insurances in place to ensure that any "unforseen circumstance" is covered because you become responsible for the property at this stage as you are legally committed to purchasing.

I do understand why you are concerned and you seem to be being very vigilant, which there is nothing wrong with but I think that you are wasting your time trying to go down the route that you are.

Im sorry if this hasn't really helped you?