Beware - Reservation fee nightmare

davidmcn

AdrianC wrote: »

Umm, not unless the OP signed two different contracts.

I am presuming the "Reservation Agreement" is a contract (not sure what else it would be), in which case yes, there may be two contracts in play here.

martinsurrey

AdrianC wrote: »

Umm, not unless the OP signed two different contracts.

they did,

the res agreement pre exchange, and then purchase contract (exchange).

its the interaction between the res agreement (which is a contract) and the purchase contract (that has been exchanged) that is up for debate.

my guess is that the res agreement is along the lines of "if exchange happens before XX time on XX date the £5k res fee will be offset against the purchase price"

that didn't happen so the seller is insisting the OP owes the full amount of the exchanged contract and not that amount less £5k.

but again, I (we) are assuming a lot as we dont have either contract.

it_doesnt_work

Thanks for all the replies. Still waiting to hear where we stand, but completion was supposed to happen tomorrow and it's getting down to the wire.

Let me try to clarify the reservation agreement. I believe these can also called pre-contract deposits or exclusivity agreements and are more commonly used on new builds, which this is not.

After the names, address, and the period (including the "delayed by matters beyond my control" part), the contract states essentially the following:

1. The seller agrees not to market the property or deal with anyone else.
2. The seller will offer a contract for sale at the price agreed and won't delay.
3. If the seller pulls out they pay my costs and expenses.
4. If the buyer (me) doesn't offer an unconditional exchange within the period, the seller retains the fee (5k) for their own account and the agreement is at an end and we have no claim against each other.
5. On exchange of contracts the fee is treated as forming part of the price.
6. Various scenarios where the fee goes back to me, such as structural defects, problems raised by searches, encumbrances, etc. As far as I can tell these don't apply to this case.
7. The agreement does not constitute an option.
8. The agreed purchase price is final and non-negotiable.

That's it.

My solicitors agree with my view that the deposit has to form part of the purchase. Our exchange contract states the same price in the reservation agreement.

Even the agent says this has never happened before.

One other point from my point of view, is that, even if we wanted to pay this fee, which we obviously don't, we couldn't because it would need to be communicated to the lenders and HMRC who would naturally see it as forming part of the price.

Catch 22?

MobileSaver

it_doesnt_work wrote: »

4. If the buyer (me) doesn't offer an unconditional exchange within the period, the seller retains the fee (5k) for their own account and the agreement is at an end and we have no claim against each other.
5. On exchange of contracts the fee is treated as forming part of the price.

So your real problem is that the agreement was poorly worded and, in my opinion, not in your favour.

Point 4 occurred (you did not exchange within the agreed period) and so "the agreement is at an end and we have no claim against each other." Which to me means you cannot then claim point 5 is valid.

gingercordial

it_doesnt_work wrote: »

the contract states essentially the following:

1. The seller agrees not to market the property or deal with anyone else.
2. The seller will offer a contract for sale at the price agreed and won't delay.
3. If the seller pulls out they pay my costs and expenses.
4. If the buyer (me) doesn't offer an unconditional exchange within the period, the seller retains the fee (5k) for their own account and the agreement is at an end and we have no claim against each other.
5. On exchange of contracts the fee is treated as forming part of the price.
6. Various scenarios where the fee goes back to me, such as structural defects, problems raised by searches, encumbrances, etc. As far as I can tell these don't apply to this case.
7. The agreement does not constitute an option.
8. The agreed purchase price is final and non-negotiable.

That's it.

"Essentially" what it says?

Exact wording will be key here. Could you post that, verbatim?

As you've set it out, clause 4 expires and you did not exchange within the period so he gets to keep it.

However clause 5 refers to "exchange of contracts" without specifying "within the period" or "in accordance with the above clause" and so is contradictory if any undefined exchange means the £5k comes off the purchase price.

Hence we would need the exact wording, including any preamble/definitions to see how these two clauses really interact.

If it still isn't clear from the exact wording, it'll be for the lawyers to fight out.

MobileSaver

it_doesnt_work wrote: »

One other point from my point of view, is that, even if we wanted to pay this fee, which we obviously don't, we couldn't because it would need to be communicated to the lenders and HMRC who would naturally see it as forming part of the price.

I don't see it as being as clear cut as that, the reservation fee was not dependent on the sale going ahead (in fact monies were due specifically if the sale did not go ahead) so I would have thought it fairly easy to justify that in fact the £5k was/is not part of the sale price and so nothing to do with your lender or HMRC.)

martinsurrey

gingercordial wrote: »

"Essentially" what it says?

Exact wording will be key here. Could you post that, verbatim?

As you've set it out, clause 4 expires and you did not exchange within the period so he gets to keep it.

However clause 5 refers to "exchange of contracts" without specifying "within the period" or "in accordance with the above clause" and so is contradictory if any undefined exchange means the £5k comes off the purchase price.

Hence we would need the exact wording, including any preamble/definitions to see how these two clauses really interact.

If it still isn't clear from the exact wording, it'll be for the lawyers to fight out.

From what we know, clause 4 was invoked BEFORE clause 5.

Clause 4 being used makes clause 5 useless, as the agreement was at an end before the unconditional exchange was offered.

OP, exact wording matters, but everything you have told us makes me side with the seller legally (but not morally).

martinsurrey

gingercordial wrote: »

"Essentially" what it says?

Exact wording will be key here. Could you post that, verbatim?

As you've set it out, clause 4 expires and you did not exchange within the period so he gets to keep it.

However clause 5 refers to "exchange of contracts" without specifying "within the period" or "in accordance with the above clause" and so is contradictory if any undefined exchange means the £5k comes off the purchase price.

Hence we would need the exact wording, including any preamble/definitions to see how these two clauses really interact.

If it still isn't clear from the exact wording, it'll be for the lawyers to fight out.

MobileSaver wrote: »

I don't see it as being as clear cut as that, the reservation fee was not dependent on the sale going ahead (in fact monies were due specifically if the sale did not go ahead) so I would have thought it fairly easy to justify that in fact the £5k was/is not part of the sale price and so nothing to do with your lender or HMRC.)

This I also agree with, its not a part of the purchase of the land, the exclusivity agreement is a £5k capital gain for the seller (assuming they get their way).

AdrianC

it_doesnt_work wrote: »

4. If the buyer (me) doesn't offer an unconditional exchange within the period, the seller retains the fee (5k) for their own account and the agreement is at an end and we have no claim against each other.
5. On exchange of contracts the fee is treated as forming part of the price.
8. The agreed purchase price is final and non-negotiable.

There's your answer, then.

You paid £5k reservation fee for a property with an agreed £850k purchase price.
If you'd exchanged on time, the £5k would have been available to put towards the price, and you'd have owed them the other £845k of the agreed purchase price.
As you didn't exchange on time, the £5k was forfeit - you had the choice to walk away or exchange.
You exchanged, so you owe them the full £850k purchase price.

It doesn't matter whether the delays were "outside your control" or not.