Reservation Agreement

What Is a Reservation Agreement?

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A Reservation Agreement is a legally binding contract between a buyer and a seller that locks in the agreed sale price and terms for a set period of time. The buyer reserves the right to purchase the property, and the seller agrees not to sell to another party. If either breaks the agreement, they agree to pay the other party a compensation amount.

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Why Do You Need One?

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The Problem with Traditional Property Sales

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Under the traditional system in England and Wales, a sale only becomes legally binding at the point of exchange, which leaves a long period where either party can walk away without consequence. During that time, sellers are expected to show full commitment by taking their property off the market and progressing the sale, yet there's no real assurance that the buyer is doing the same.

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Gazumping

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Gazumping happens when a seller accepts an offer from one buyer, then later agrees to a higher offer from someone else, often leaving the original buyer out of pocket for surveys, legal fees, and lost time. Because there's no legal protection until contracts are exchanged, buyers can be dropped without warning.

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Gazundering

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Gazundering is the reverse. It occurs when a buyer lowers their offer, sometimes at the very last moment, even on the day of exchange, hoping the seller is too far along to walk away. This often forces sellers to accept a reduced price, particularly if they're part of a chain or have onward commitments.

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How a Reservation Agreement Protects Both Parties

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With a Reservation Agreement, both the sale price and terms are legally locked in from the moment the agreement is signed. The seller cannot accept a higher offer from another party, and the buyer cannot reduce their offer without facing legal consequences.

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For the seller: The seller can be confident they have a real contractual commitment to the sale from the buyer before removing the property from the market, and the buyer is disincentivised from making a gazundering offer near exchange.

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For the buyer: The buyer can proceed to incur valuation fees, search fees, survey fees, broking fees, and solicitor's costs, confident in the knowledge that the seller has removed the property from the market and is disincentivised to consider or accept a gazumping offer.

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What Happens If Someone Pulls Out?

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Both the buyer and/or seller put down a deposit at the start of a transaction. If one party decides to walk away during the agreed period for a reason not deemed acceptable in the agreement, they would lose their deposit and the side that stuck to the deal would receive some money back.

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If either party withdraws, they agree to pay the other party a minimum £2,000 compensation depending on the original agreement.

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What Counts as an Acceptable Reason to Withdraw?

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The agreements specify what reasons are acceptable for withdrawing from the deal, for example, structural problems discovered during the survey, or a job loss or other financial problem. Unacceptable reasons would include gazumping or gazundering.

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How Long Does a Reservation Agreement Last?

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The term of the agreement is set by both parties prior to the start and can be up to six months.

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Key Benefits at a Glance

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1.  Both parties know the agreed price cannot be changed without consequences.

2.  Filters out time-wasters and ensures only serious buyers proceed.

3.  By locking in both parties early on, everyone is motivated to get the necessary paperwork and legal checks done quickly.

4. Peace of mind - In a competitive market, being able to offer buyers the security of a Reservation Agreement can make your property more attractive to serious buyers who appreciate the certainty it provides.