Buying and selling a house is one of the most stressful things anyone can do which is made more stressful by the current legislation in England. At present both seller and buyer have no rights until the contract is exchanged. A seller can at the 11th hour be told that the buyer cannot pay the agreed sum and be asked to reduce the cost, in some cases significantly. A purchaser can have their offer accepted, go to the expense of arranging a mortgage, instructing solicitors and undertaking searches for the seller to subsequently accept a higher offer. The buyer up to the moment of contracts are exchanged could reduce their offer or pull out completely at the present time in England, this would not happen in Scotland under Scottish law. Several of our members including myself have experienced such issues and lost thousands of pounds in the process.
In Scotland neither of these things can happen, once a price has been agreed a contract is drawn up and it is legally binding. In some cases the moving date can be several months away, particularly if it is a new build, but the sale will still go through. For the majority of people buying a house is the most expensive thing they will ever buy. It is stressful enough searching for the ideal home within your price range, without the added stress of knowing that nothing is certain until the day contracts are exchanged.
Reply from:- Lord Faulks QC, Minister of State for Justice
I am responding as the Minister responsible for civil law in England and Wales. The Government has no plans to review the law in the way you suggest at present. It is however aware of the problems of the current system and keen to find innovations on how to improve the experience of buying and selling a house, how this can be improved. The government therefore wants to consider and address the way the real estate and conveyancing markets have developed around the existing regulatory frameworks, to encourage greater innovation in the conveyancing sector and make the legal process more transparent and efficient. To take this work forward the Department for Business, Innovation and Skills is to publish a call for evidence later this year on home buying, exploring options to deliver better value and the experience of buying a home. This was announced in A better deal: boosting competition to bring down bills for families and forms published by HM Treasury last November. Taking the law as it is at present, I agree that an offer to buy a house in England Wales is generally made and accepted ‘subject to contract’ and does not legally bind either party to the transaction. A legally binding contract is only created at a later stage when formal written contracts are exchanged. This is an important safeguard in the system for what will be the most expensive purchase a person may make. One consequence is, however, that during the ‘subject to contract’ period, either party may withdraw. In some cases, there may be legitimate reasons for breaking off a potential transaction, such as unemployment, illness or death in the family. Changes of financial circumstances in the course of a transaction may also affect a party’s ability to proceed. In others, sellers such as trustees and executors are under a legal obligation to obtain the best price they can for a property. In these cases it would seem unfair to restrict or penalise the withdrawal from an agreement. I accept, however, that in a few cases, sellers and buyers may unfairly exploit their freedom from contractual obligations in the way you describe.
Buyers or sellers can try to protect themselves against the failure of a transaction by entering a ‘cost guarantee agreement’ so that the party who causes the transaction to fail will pay the whole or part of the other party’s costs and expenses. The difficulty in practice is that few people are prepared to commit themselves in this way and compelling them to do so could well make the process more difficult. Compelling people to enter into cost guarantee agreements could well make the process of buying and selling even more fraught than present. An alternative means of protection is to enter into a conditional contract early in the transaction so that the grounds on which a person can withdraw are limited to those specified in the contract (it is a matter for negotiation between the parties to agree to appropriate conditions).This is similar to the traditional Scottish system, which is based on the conditional contracts with a lengthy period between exchange and completion following an initial invitation to tender. Upon acceptance of an offer there is an exchange of missive between buyer and seller. Missives are effectively a conditional contract between the two parties and only upon the completion of the conditions within the missives does the contract become unconditional. Until this final stage both the buyer and the seller are free to withdraw from the transaction if the conditions of the missives are not met to their satisfaction. Both systems are largely based on custom and practice. People who wish to use the ‘Scottish system’ in England and Wales are free to do so. Compelling them to do so may solve some problems but create others. People might, for example, have to be more willing than appears to be the case at present to move into temporary accommodation, which may be expensive and inconvenient, or take out bridging loans, which in addition to being costly, carry a significant financial risk because chains of transactions are difficult to operate in the context of conditional contracts. Additionally, where all the potential buyers make an offer at the same time, they may all have to spend money on legal work, valuation and survey fees before making the offer. If there are a number of prospective buyers then all but one of them will have wasted their money. We have, therefore, no plans to require the use of the ‘Scottish’ system at present.