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HCR Law Events

27 October 2021

What is an exclusivity agreement?

An exclusivity agreement is a document in which a prospective buyer and seller of a property agree to deal with each other in good faith in the anticipation of an exchange of contracts for an agreed price by the end of a fixed period of time.

The agreement typically requires each party’s lawyer to work together to deal with any necessary due diligence and contains a commitment from the seller to remove the property from the market and not to deal with any other prospective buyers during that time.

However, they are not binding contracts for sale and so do not lock in either party to committing to the sale at a certain price. A seller could, for example, simply let the exclusivity period run out and then re-market to try and realise a higher price.

 

Is every exclusivity agreement the same?

No! Many variables can be negotiated, including:

  • the length of time for which the exclusivity period runs
  • the level of any initial financial contribution the buyer might make to the seller to ‘buy’ the period of exclusivity
  • the scenarios in which a buyer might be able to reclaim their costs e.g. a survey uncovering major defects that significantly affect the property’s value.

It may therefore not be as easy to reach an ‘agreement’ as you first think; it can also be difficult to define in these agreements whether a defect in the property’s legal title or condition is sufficiently ‘major’ to justify a buyer withdrawing.

 

When would I come across an exclusivity agreement?

They are usually suggested by agents in a captive market when dealing with particularly high value and/or desirable properties where there is an imbalance between supply and demand. A buyer offering to enter into such an agreement and pay an up-front (and potentially non-refundable) deposit may prove more attractive to a seller.

 

Are there any alternatives?

There is an argument that any time spent dealing with an exclusivity agreement is time taken away from trying to progress the actual transaction at hand, though this is not always the case if clear terms are negotiated by the seller and buyer at the outset and both lawyers are experienced in documenting type of agreement.

It can sometimes be better to simply proceed along the usual conveyancing process with all available speed/efficiency. In most cases, the legal title can be inspected at an early stage, given that over 90% of properties are now on this online system, searches can be ordered, and/or a surveyor’s inspection could take place to flag any possible major defects in advance.

The government has previously mentioned the possibility of introducing industry-wide ‘reservation agreements’, which would involve at least a modest financial commitment and an agreement to sign up to some basic terms, although it remains to be seen whether this will happen.

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Simon Cooper, Legal Director

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