Will Coronavirus cost me additional money to move house?

Will Coronavirus cost me additional money to move house?
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1. What happens normally in a property transaction?

Typically a house move involves a large number of businesses all working together to assist the two parties selling and buying. These two parties use the services of the businesses to reach Exchange of Contracts and then set the moving date called Completion. Exchange of Contracts requires the buyer to put down a deposit of typically 10% of the buying price with the remaining 90% paid on the moving day or Completion. Upon Exchange of Contracts (when you are legally bound to buy or sell the property) the contract for sale specifies the Completion date. Between Exchange and Completion various searches have to be completed to ensure everything is up to date legally, ready for the moving day.

2. What effect is the Coronavirus lockdown having on buying and selling a home?

The problem in the current market is that a house move involves a lot of businesses that are affected by the lockdown (conveyancers, banks, brokers, agents, removal companies) and buyers and sellers both travelling for potentially long distances and necessarily being closer than the six foot minimum distance with a number of people (agents, removals companies).

Any one of these factors may mean that either Seller or Buyer is unable to honour the Completion Date, putting them at risk of being in breach of contract, with potentially very serious consequences.

3. What does the Law Society say should change due to coronavirus?

On 29 March 2020 The Law Society published guidance for conveyancers acting on sales during the coronavirus lockdown.

If Buyers and Sellers have not yet exchanged The Law Society guidance is that the above risks have to be explained by the Conveyancer, and only if both Parties are happy, do they go ahead and Exchange. In practice, our experience is that a lot of Conveyancers, concerned about the risk of being sued by clients who exchange and are unable to complete, are taking the risk-free option of refusing to Exchange Contracts.

4. What about if we want to go ahead anyway?

If Buyers and Sellers have Exchanged Contracts, or if they do wish to Exchange Contracts, the Law Society have provided a template agreement for conveyancers to follow, which has already acquired the nickname “Covid Clause”.

This provides that if either Buyer or Seller are unable to complete because of the unavailability of Mortgage Finance or failure of the banking system, collapse of a Chain of which this sale forms a part, or the unavailability of pre-Completion Searches from the Land Registry as a result of Coronavirus, then the Parties may agree to delay Completion for up to three months. If they remain unable to Complete on the new Completion Date, then the Contract is brought to an end and the Buyers Contractual Deposit will be returned to him.

5. A Case by Case Basis

The advice of the Law Society is that the “Covid Clause” has to be negotiated on a case by case basis.

There have been cases reported where these clauses have been put in place. The cost to Buyers and Sellers has been in the region of £650 per agreement. One client, who was buying and selling has therefore been charged £1,300 additional fees to exchange contracts, and has to pay a 10% contractual deposit to be held by the Seller. She therefore has to trust to the Seller to return this money if she is unable to Complete – but what if the Seller does not agree that her failure to Complete falls within the reasons specified in the “Covid Clause”? How will she get her money back? And she certainly won’t get any of the £1,300 back!

7. How can I protect myself ?

We have made sure that the Gazeal Reservation Agreement provides almost exactly the same (in fact, some would argue, superior) protection for each party, with additional flexibility around the Exchange and Completion Dates, at a fraction of the cost, with no need for either Buyer or Seller to pay a deposit.

The Parties simply agree a mutual financial commitment that they agree to pay to the other if they fail to Exchange for the reasons that are specified as unreasonable. In consideration of a small fee, Gazeal guarantee the performance of each party to the other. The Parties also agree the Term for which the Gazeal Reservation Agreement will apply to their sale.

Unlike the “Covid Clause”, which extends to three pages, the Gazeal Reservation Agreement is on one page, and is written in plain English, is very clear about the circumstances in which either party is entitled to terminate, and does not require to be amended by Conveyancers on a case by case basis.

8. What happens if there is a disagreement?

What is more, unlike the “Covid Clause”, if there is disagreement as to whether a Party is entitled to terminate in a particular set of circumstances, the Gazeal Reservation Agreement provides for quick and simple arbitration by Senior Circuit Court Judge, His Honour Simon Staley Brown QC. So you can be assured of complete fairness.

9. What do I need to tell my solicitor?

Buyers and Sellers should ask their Conveyancers about using the Gazeal Reservation Agreement as an alternative to Exchange of Contracts, either with or without the “Covid Clause”, particularly while this Lockdown remains in place, as it is superior protection to the “Covid Clause” at a fraction of the cost.

Your conveyancer should be aware that best advice to you may not be to Exchange with the “Covid Clause”, or not to Exchange at all, but rather to use the Gazeal Reservation Agreement to allow you to secure your sale, as the best way of avoiding loss.

10. Does my Estate Agent have to use Gazeal?

Also your estate agent should consider whether, in this environment, the best way to both secure their pipeline and best protect their clients best interests is to encourage Seller and Buyers to use Gazeal Reservation in circumstances where they may be best advised not to Exchange.

For more information you can speak to Gazeal on 0207 760 7582 or visit gazeal.co.uk and at info@gazeal.co.uk.

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