Exclusivity or "Lock Out"

Agreements
In markets such as Cambridge and London, the the potential for dispute is substantial. Defining in these
imbalance between supply and demand for desirable agreements whether a defect in title or condition is
residential properties has resulted in Exclusivity sufficiently “major” to justify a Buyer withdrawing is
Agreements becoming commonplace. Usually they are a inherently challenging. There could also be arguments
tool to enable a Seller to obtain early commitment from a about whether the Seller has provided enough or
Buyer in circumstances where there are a number of sufficiently good information about the property to enable
interested or competing buyers (and the Seller is in a the Buyer’s lawyer to recommend that his client proceeds.
position to dictate terms when agreeing to sell). However,
buyers can also insist on an Exclusivity Agreement or the ■ However, what these agreements do achieve is early
parties can mutually agree to enter in to one. commitment by the parties to the transaction which, in
practice, means that they almost always proceed to
1. What is an Exclusivity Agreement? unconditional exchange of contracts. This, effectively,
removes the usual concern about whether one party or
■ They are, in essence, an “agreement to agree”. So, the other might get “cold feet” and withdraw at the last
they are NOT a formal, binding exchange of contracts moment . In these terms they work extremely well.
to buy and sell the property, they are pre-agreements
setting out the terms upon which the parties intend to 3. How to make an Exclusivity Agreement work
proceed to exchange of contracts and what will for you.
happen if they don’t.
■ The most important point is for the parties to agree both
■ Typically they will record that the Seller will do all that the principle and the terms of an agreement BEFORE
is necessary to achieve exchange of contracts with the the sale of the property is agreed i.e. it should be one of
Buyer during a fixed period and a commitment not to the terms of the sale and, ideally, a draft of the
deal with any other prospective buyers during that Agreement should have been seen and approved by the
time. The property should also be removed from the parties beforehand. This needs fully explaining to both
market during that period. parties, most usually by the estate agents.

■ In return the Buyer must do everything necessary to ■ It is important for the agents to identify those cases
exchange within that period. where it is NOT appropriate to use an Exclusivity
Agreement. This will be where one or other party can
■ Because the terms of these agreements are often not commit to exchanging within a fixed time period. The
dictated by the Seller, the Buyer is usually required to most common reason for this will be that they have a
pay a deposit typically in the region of 1% of the related transaction (where they are unable to control
price. This deposit is kept by the Seller if the Buyer how quickly the other party to it can proceed).
fails to exchange contracts within the time limits set out
by the agreement. There is no reason why the ■ Ideally both parties’ lawyers should be both familiar with
agreement cannot also specify that the Seller pay a and enthusiastic about the use of an Exclusivity
deposit (which they would forfeit should they not Agreement. Some lawyers feel they are not a good thing
exchange when the Buyer offers to do so) but this is and that time spent putting one in place should be better
rare and the most the Buyer might expect is to recover spent trying to achieve unconditional exchange of
their costs. contracts.

■ Given that the Buyer will typically have done none of ■ The agreement should be exchanged quickly
the usual due diligence, the agreement will normally and, ideally, a date by which exchange must take place
allow a Buyer to withdraw (and for the deposit to be should be specified as a term of the property’s sale.
repaid) if there proves to be a major defect in the
property’s title or in its structure or condition. ■ We would recommend that, in every case, the Seller’s
title to the property is produced to the Buyer’s lawyer
2. Are Exclusivity Agreements a good thing? before the Exclusivity Agreement is exchanged. Now
that title to 90% of properties is registered, this is quick
■ As legal agreements we cannot recommend them. and easy to achieve and allows any major defects in title
They are commonly drafted by estate agents and, if to be identified. It is also an opportunity to check that
there were to be a disagreement between the parties the owners of the property and the Seller in the
about whether or not a Buyer is entitled to withdraw, Agreement are one and the same person.
■ We would also recommend that, if possible, the Buyer
gets their survey done before the Agreement is ex-
changed. This is beneficial for both parties because it
means that the other main reason why a buyer might
wish to withdraw from an Exclusivity Agreement will
have been dealt with. However, it is more difficult to
achieve because surveys can take a while to arrange
and this delays the timescale for getting the Agreement
in place.

Conclusion

Provided the necessary preparatory work is done to estab-

lish that an Exclusivity Agreement is appropriate to your
transaction (and that the parties agree to its principle and
terms), they can work extremely well to achieve early
commitment. By doing so they largely remove the anxiety
caused by not knowing whether a transaction will proceed
until contracts have been exchanged.

Key Contacts

Tim Middleton Clare Martin

Partner Partner
Cambridge Office Cambridge Office
T: 01223 461155 T: 01223 461155
[email protected] [email protected]

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This document is written as an outline guide only and any action should not be based solely on the information given here. Appropriate professional
advice should always be taken in specific instances.

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