Non-refundable pre-contract deposits
In a competitive market, sellers and their agents will want to ensure that a prospective buyer has serious intent to purchase. This can result in the requirement to make paymen t of a non refundable deposit (also known as a reservation fee) before your offer is accepted to buy the property.
Although this is considered to be normal practice with property developers and new build properties, under the Property Ombudsman’s Code of Practice, estate agents should not facilitate pre-contract deposits. That being said non-refundable deposits do still rear their head in both residential and commercial property transactions.
However should this be insisted upon it would be prudent to enter into an exclusivity agreement (also known as a lockout agreement) for which the seller agrees not to negotiate or do anything to prevent you from purchasing the property. It would be then for both parties solicitors to provide and report on the property for the buyer to make an informed decision on whether they wish to proceed to exchange/completion.
At the forefront of this is the seller’s intention to sell the property, it would therefore be unreasonable to have an agreement which can go on until a decision is made by the buyer to proceed to exchange/completion. With this in mind a period of time would be negotiated to which the buyer will have time to make an informed decision on whether to buy the property.
An exclusivity agreement is not 100% water tight and cannot be relied upon should one of the parties wish to not proceed following the expiry of the agreement period. However, it offers more protection than handing over a sum for a non refundable deposit / reservation fee.
But if an agreement is non-negotiable and you do intend to proceed and pay the pre-contact deposit, you should request that the seller’s solicitors hold this as a stakeholder and set out some pre-determined conditions of when it may be refundable if there is no fault on your part. This would give you peace of mind that should the matter not proceed to exchange of contracts in pre-determined circumstances (i.e. the seller pulls out of the transaction), you should receive your deposit back where you are not at fault.