Looking to buy a house is a time consuming process. It can be frustrating when a buyer invests time and money trying to find the perfect house, only to make it through the process to find that the seller has opted to go with another buyer.
Additionally, sellers and estate agents will aim for the quickest sale to the highest bidder. This can mean that sellers become frustrated by buyers who are slow and indecisive, only to withdraw their offer at a later stage.
A lock-out agreement aims to appease both of these frustrating scenarios. Here, we’ll explain what a lock-out agreement is and what to remember when considering this type of pre-contract agreement.
What is a lock-out agreement?
A lock-out agreement is a pre-contract agreement between a seller and buyer whereby the seller agrees to work exclusively with the buyer in question to proceed with the purchase of their property. This usually lasts for a set period of time, to ensure that both parties can move forwards with confidence in the purchase of the property.
This means that a seller can’t negotiate with other potential buyers during the lock-out period, preventing the buyer from being gazumped. Additionally, it gives the seller the confidence that the buyer is serious about the sale and won’t withdraw their offer. It also gives the buyer a deadline to work towards to proceed with the sale, ensuring that they don’t waste time on an indecisive buyer.
It’s important to remember that a lock-out agreement does not guarantee a sale, only the exclusive rights to move forwards with the purchase for a set period of time.
What is gazumping?
Gazumping is one of the most frustrating situations to find yourself in during a house purchase. This occurs when a seller accepts an offer from a buyer but then rescind this to accept a higher offer from a different buyer.
This is particularly frustrating because it’s often done when the conveyancing process is already taking place. This usually means that the initial buyer will not have the opportunity to buy the property but will have been charged for any conveyancing that has already taken place.
A lock-out agreement can prevent a seller from being gazumped, giving an additional level of confidence and security when moving into the conveyancing process.
When is a good time to use a lock-out agreement?
Conveyancing is a long and sometimes drawn out process. As a buyer, securing a lock-out agreement at this stage will give you the confidence to take the reasonable steps needed during conveyancing without the added anxiety of being gazumped at the last stage.
It’s important to remember that a lock-out agreement isn’t always possible. It very much depends on the relationship between buyer and seller / estate agent. This is why it’s important to try to build a level of trust and respect when looking for your new home.
What’s included in a lock-out agreement?
A lock-out agreement will clearly identify the obligations of both buyer and seller. This usually involves a clearly defined time period where the seller must not entertain offers or conversations regarding the sale of the property with other potential buyers. Additionally, a reasonable level of cooperation with the buyer is also included, such as allowing the buyer to carry out the conveyancing process.
The agreement also usually covers the seller’s interests too. This means that the buyer will be required to remain in regular communication with the seller regarding the process of purchasing the property. It also usually requires the buyer to be prompt in undertaking the conveyancing process.
Usually, there will be a clause in the pre-contract agreement which states that both buyer and seller must notify the other if they choose not to proceed with the sale of the property.
A lock-out agreement doesn’t always prevent gazumping
It’s worthwhile remembering that a lock-out agreement doesn’t guarantee either party to fulfill their intention to purchase / sell the property. This means that once the lock-out period has ended, a seller could still accept a higher offer on the property or even choose to increase the sale price of the property.
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Last Updated: November 9th, 2021