Beware - Reservation fee nightmare

it_doesnt_work

Hi all, looking for some advice.

Top line - vendor wants the 5k "reservation fee" on top of the purchase price AFTER we exchanged contracts.

We wanted more space so marketed our property and looked for a larger home in London. We quickly had a cash offer for our property approx 700k, slightly under our asking, but outbidding another party by 5k. On this basis, we offered on a property we liked for approx 850k, slightly under their asking price.

After a month, our buyer started acting shakily - wouldn't commit to an exchange, questioned some issues from the survey which we fixed immediately, but they kept equivocating, etc. I started to fret that they might pull out so talked to a mortgage broker if we could remortgage our current house, rent it out, and get a mortgage on the purchase. Based on the amount of our equity in our current property and my salary the broker said yes absolutely, slam dunk he could arrange good terms for a BTL and residential mortgage.

So we told the vendor of the property we wanted to buy that we're still committed but needed some more time to arrange the new finance deal. He was concerned that we were genuine, so on the advice of the estate agent, we offered a "reservation agreement". This basically states that for a deposit of 5k we will exchange within a month. It made sense to me to show commitment to the deal. It was a risk i was willing to take.

After weeks of pushing hard, we managed to get all the mortgages in place and exchanged on the purchase approximately 1 month after we had intended to. But, we were about 16 hours after the expiry of the period stipulated in the reservation agreement. We missed the deadline because one of our lenders took 9-10 days to process the offer after the survey and valuation were completed. I heard informally from the broker that this lender was experiencing a high volume of mortgages to process.

Of note, the reservation agreement stipulated the period expired on X date and time "unless delayed by matters beyond the purchasers control". It also specified the fee was a deposit to be included in the sale price and that the sale price was non-negotiable.

Now, the kicker, the day after the exchange, the vendor demanded the 5k reservation fee for being late on top of the purchase price we had exchanged on! Of course i argued that a) we were delayed due to "matter beyond my control" b) he did not notify me that he intended to exercise the reservation agreement after the reservation period expired but before we exchanged contracts c) by accepting the exchange he implicitly agreed we still held to the reservation agreement and d) most importantly we can't change the purchase price with a reservation "penalty", "fee", or any other type of charge or claim after exchange of contracts.

Through his lawyers, he's saying i still owe him 5k, despite me pointing out all of the above.

Now we are two days away from the completion date. I don't want to pay him a cent because to me it's unconscionable. Even if i was inclined to pay him, which i'm not, we already have a contract that stipulates a purchase price that does not include this amount, and any change would need to be informed to my lenders.

Is this madness, or am i missing something?

anselld

Surprised that your Solicitor allowed you to enter into such an agreement "on the advice of Estate Agent". Bonkers!

However, having agreed it, what happens now is entirely down to what the agreement states. What does your solicitor say?

Mrs36

I am slightly confused, was the reservation fee deposit to be part of the purchase price, or 5k on top? If it was part of the agreed purchase price then it sounds like he is trying it on, but on the sums involved, 5k is a drop in the ocean.

What does the contract actually state, and what has your solicitor advised? You are paying them a significant sum of money, I'd suggest you trust their advice rather than the strangers on an internet forum!

I do think that "unless delayed by matters beyond the purchasers control" is pretty vague and personally, I would assume that the mortgage is one of the things IN your control. I know you say that you were pushing and there were delays but I don't think the wording has helped there at all.

eddddy

Did your solicitor arrange the reservation agreement?

If your solicitor was unaware of the reservation contract, there will be no reference to it in the purchase contract - so I would guess you need to pay the full price, as stated in the purchase contract.

Then, if you believe you have a case, you would need to claim back the £5k for the reservation contract - through the courts if necessary.

Either way, your solicitor would be the best person to advise you on your position.

martinsurrey

it_doesnt_work wrote: »

Of note, the reservation agreement stipulated the period expired on X date and time "unless delayed by matters beyond the purchasers control". It also specified the fee was a deposit to be included in the sale price and that the sale price was non-negotiable.

a) we were delayed due to "matter beyond my control"

I wouldn't push that point.

matters beyond your control is supposed to cover acts of God, Banking system failures, strikes and the likes.

NOT your choice of lender not being able to meet deadlines.

What does the res agreement say in the case of you not exchanging in time?

what did your solicitor say when you agreed to exchange AFTER the deadline?

harrys_dad

it_doesnt_work wrote: »

Hi all, looking for some advice.

so on the advice of the estate agent, ............. It was a risk i was willing take
........
Is this madness?

You acted on the advice of the estate agent, who represents the interests of the vendor. Did you ask your solicitor? Yes, it is madness.

davidmcn

Not sure we can give useful advice without seeing both contracts.
Since your solicitor (presumably) has seen them, what's their advice?

AdrianC

You have exchanged contracts. The ONLY figure that matters is the one that's in the contract. What does that say?

And if the contract doesn't say what you thought it did, why on earth did you sign it and exchange it?

davidmcn

AdrianC wrote: »

You have exchanged contracts. The ONLY figure that matters is the one that's in the contract.

Except here we appear to have two contracts.

MobileSaver

it_doesnt_work wrote: »

We missed the deadline because one of our lenders took 9-10 days to process the offer

Not what you want to hear but unfortunately I agree with other posters that, if you were taken to court, the delay (by the lender you chose...) would almost certainly not be considered "matters beyond the purchaser's control".

No-one here but you has seen the actual wording of the reservation agreement (perhaps post a transcript with personal details redacted?) so further suggestions are difficult.

Unless your solicitor thinks the wording gives you a cast-iron defence then what you absolutely must avoid is to fail to complete; penalties for doing that could ultimately make £5k look like pocket change.

As you say there may be some mileage in their implicit acceptance of Exchange, similarly you may be able to argue "de minimis" (i.e. a 16 hour delay in the grand scheme of things is too trivial or minor to merit consideration.) Obviously these are things to discuss with your solicitor and possibly (however much it rankles) as a final resort it may be worth offering a compromise of £1k or £2.5k as a gesture of goodwill...

AdrianC

davidmcn wrote: »

Except here we appear to have two contracts.

Umm, not unless the OP signed two different contracts.