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Real Estate
Wednesday 6th March 2019 Alex Le Messurier 

Proposals to Improve the Conveyancing Process: Non-refundable deposits in Conveyancing Transactions

Last year saw The Ministry of Housing, Communities and Local Government (MHCLG) published its response to their call for evidence on improving the home buying and selling process. Their proposals sought to improve the current conveyancing system for consumers.

The areas that government thought needed improvement include:

  • providing a better experience for the consumer
  • reducing the time from offer to completion
  • reducing the number of failed transactions

Government’s Key Proposals

Key government proposals included:

  • increasing regulation for estate agents. Estate agents will be required to hold a professional qualification. Government say they will strengthen the enforcement of the existing regulatory framework through the National Trading Standards Agency Team;
  • working with estate agents, their trade bodies, the ombudsmen and the regulator to develop a standardised approach to reporting referral fees;
  • developing and publishing ‘How to Buy’ and ‘How to Sell‘ guides;
  • improving the process of buyer complaints in the new build market;
  • making the release of funds better to improve ‘moving day’.

Another area the Government were particularly interested in was the use of “Reservation Agreements” to address any lack of commitment prior to contracts being exchanged for the sale of a property.

The Government believe the use of Reservation Agreements could help to reduce the rate of failed transactions and fear of gazumping. In response to the call for evidence, a high proportion of buyers and sellers had expressed an interest in up front legal commitment.

What is the issue?

Currently, for conveyancing in England & Wales, there is no legally binding agreement between buyer and seller until contracts are actually exchanged. This means that once an offer is accepted on a property, in the following weeks/months prior to contracts actually being exchanged, both the buyer and seller will have incurred some costs, for example surveyor’s fees, legal fees and mortgage application fees, without having anything more than ‘good faith’ that the other party is still willing to proceed. If one of the parties then withdraws before exchange, there is very little the other can do about it and, to add insult to injury, they cannot recover any of their resulting costs.

What is a reservation agreement?

Developers of newly built properties will usually ask for something called a “Reservation Agreement” to be signed by a buyer when a plot is reserved, and a deposit paid at that point. That agreement will give the buyer a timescale of say 4-6 weeks to get themselves in a position to exchange on the plot and therefore legally commit to the purchase.

In return, the developer will not deal with any other potential buyer for that property. Should the buyer withdraw during that reservation period, the developer at least has some money to cover any costs associated with the sale falling through. The buyer also has the certainty that the developer will not deal with any other buyer in that time, so the fear of gazumping is removed.

Outside of new build transactions, reservation agreements are rarely used. For some properties an Exclusivity Agreement (also known as a Lock-Out Agreement) is entered into, which give buyer and seller some of the same assurances as mentioned above with the Reservation Agreement.


Recently, a conveyancing solicitor asked the Solicitors Regulation Authority (SRA) if a seller’s solicitor could hold a ‘reservation deposit’ in a similar manner to holding a deposit when contracts are exchanged.

The SRA’s view

The SRA’s response was that seller’s solicitors should not hold reservation deposits for sellers, before a sale has been agreed. This is because the conveyancing firms will not yet be providing connected legal services to the seller.

The SRA stated that a firm acting for a new build developer may accept payments, as the solicitors will continue to advise their client about the performance of its obligations under the Agreement. There needs to be a proper connection between holding the money and the provision of legal services.

Therefore if seller’s solicitors intend to hold any form of ‘reservation deposits’ before Contracts are exchanged, they need to ensure they are providing connected legal services to their client, rather than only to safekeeping the money.

Does that apply to exclusivity agreements?

If solicitors are advising on the content of an Exclusivity Agreement itself, it could be construed that they are providing a connected legal service to the seller in respect of that property sale. Any reservation deposit should be held as per the terms of the Reservation/Exclusivity Agreement, and both buying and selling solicitors need to ensure they are compliant with the SRA requirements, whilst also ensuring their respective clients’ interests are protected.

Some estate agents also prepare Exclusivity/Lock Out Agreements before solicitors have been formally instructed. In such cases, the estate agent would usually hold a deposit from both the buyer and seller, and lean on a RICS mediator should the parties find themselves in dispute over the Exclusivity Agreement and release of the deposit payments under them. We would usually recommend buyers and sellers discuss any potential Exclusivity Agreement with their solicitor (whether their solicitor drafted it or not) before entering into such a binding agreement.

Is there a silver bullet?

It is clear there is no ‘silver bullet’ solution to the existing problem that exist within the conveyancing process. It is also clear that there is no one change that can fix the process at a stroke. Instead, the industry need to look encourage the introduction of some practical changes that can be implemented to improve the experience.

For more information on any of the above or to discuss Reservation Agreements or your conveyancing needs generally, please contact Alex Le Messurier, Solicitor, by email: alemessurier@jpclaw.co.uk, or by telephone (0207 644 6092 ) or contact him on LinkedIn

This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. 


All articles on this website do not necessarily cover every aspect of a topic and are designed for information purposes. Reliance should not be placed on their contents without specific legal and financial advice first being taken.

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