What Are Lock Out Agreements?
Lock out agreements are agreements between a property seller and buyer granting the buyer exclusive rights to the sale of the property for a certain period of time. Essentially, a lock out agreement is a contract stating that you will have a contract at a later time which is the contract for the actual sale. It is generally used for buyer protection though in some cases, the seller may stand to benefit from such agreements as well.
What Is Conveyancing?
Conveyancing refers to the actual transfer of title from the property owner to the buyer. Until this is completed, either party could back out as there is no actual exchange of contracts yet. Conveyancing can be done by the buyers and sellers themselves or it can be done through conveyancing companies.
On the whole, this process normally takes 10 to 12 weeks to complete. The long process of conveyancing gave birth to the unsavoury practice of gazumping.
What Is Gazumping?
Gazumping refers to the process of getting a property while it is in the process of conveyancing. It is a deceitful process where a second buyer attempts to outbid and gain favour with the seller while the conveyancing is in process.
It’s a particularly unsavoury practice because this is usually done when the property is already in the process of conveyancing. Should the gazumping be successful, the end result would be the first buyer holding an empty bag, with a conveyancing bill for a property that was sold to someone else.
What is a Priority Search?
Refers to a request made by a qualified party, for the Land Registry to effect a search to establish the status of a property for sale. This is done to establish the owners on record in preparation for conveyancing. A priority search essentially freezes the property for a period of 30 to 36 business days while the process is ongoing. Thus, it offers a mechanism that has been abused by buyers and sellers in order to delay a sale for their own gains.
Where are Lock Out Agreements Usually used?
To buyers, the existence of a lock out agreement gives them a sense of security that no one will be able to buy the property they are in the process of buying. After all, it does prevent the seller from entertaining any more enquiries.
This is particularly desirable because the process of conveyancing takes quite a long time. Thus, the transfer and processing period of up to 3 months creates a market that is ripe for the unsavoury practice of gazumping.
So imagine if within this 3 month period, the seller receives a much higher offer from a second buyer while conveyancing is ongoing and decides to sell to the second instead. It can quite possibly even go on to a third buyer or more.
All the while, the poor buyer is left with the expenses of conveyancing and no property to show for his efforts and money.
Hence the lock out agreement attempts to provide some degree of surety to the buyer by preventing the seller from entertaining other offers during the period covered in the lock out agreement.
For more information on:
- Is it Practical to make use of Lock Out Agreements?
- Are any there Repercussions to using Lock Out Agreements?
- Why Should You Use The Lock Out Agreement?