Gazumping And Gazundering
By Richard Godden
There are times when living in Scotland, rather than England, has its disadvantages. The weather, for a start. And for those of us who live in the central belt, STV’s continual failure to get any of the good programmes being shown everywhere else. But when house buyers come to see a solicitor in Scotland, a question they often ask is “What if I’m gazumped?” Then we can proudly say: don’t worry. It’s unlikely to happen in Scotland.
Scottish clients have often seen article after article in the press complaining about this English practice of gazumping, whereby the owner of a house accepts an offer to buy his property “subject to contract”. Nothing is binding until contracts are signed (or “exchanged”) between the buyer and seller. It can take as long as 10 – 12 weeks for these formalities to be completed, and if the seller is tempted by a higher offer during this period he simply cancels the deal, leaving the buyer not just disappointed but also out-of-pocket, as he will probably have paid out fees to his solicitor and surveyor.
When property prices are in decline, as they are now, the practice of gazumping becomes rare. The buyer’s revenge of “Gazundering” then becomes a problem, as buyers can wait until everybody is poised to exchange contracts before lowering the offer on the property, threatening the collapse of a whole chain of house sales waiting for the deal to go through. But, as sellers will be glad to hear, gazundering is unlikely to happen in Scotland either.
In Scotland, once you have found the house you like, you instruct your solicitor to note your interest. If a number of buyers are interested, there is usually a process of sealed bids in which each prospective buyer puts in a blind offer of a certain price by a closing date, and when the bids are opened, the highest one wins. A series of letters known as missives are then exchanged ironing out the deal, and the matter is then binding on both sides, at a much earlier stage than in England. Most of Scotland, and in particular Edinburgh and Glasgow, have “Standard Missives” which means that the contract or missive requires a minimum of negotiation and allows contracts to be exchanged without delay. There is no second stage of “exchange of contracts.”
Of course, it is always possible that one party may back out before missives are finished. However, conclusion of missives tends to take place quite quickly, and before either side has incurred much expense, so if this happens it is not usually serious.
Scottish clients interested in buying properties in England may like to know that changes are being considered for England, and draughtsmen are working on a new style of contract that will deter buyers and sellers from backing out of the deal, providing a lock-out agreement that would, among other things, stop gazumping and gazundering. But it would be voluntary, not a requirement for the buyer and seller to sign up.
This contract would require both parties to continue with the house sale at the agreed price subject to certain conditions: if, for example, the property were found to be suffering subsidence, the contract would be nullified. But if the market suddenly dropped and the buyer wanted to reduce the price, the contract would hold firm and the buyer would either have to continue with the deal at the agreed price, or lose a deposit for withdrawing from the deal. The size of the deposit would vary from contract to contract, but would always be big enough to stop people from dropping out without good reason.
All this is in the future. For now, gazumping and gazundering will continue to be a problem in England. But, let’s not be unfair to the English. Though the press loves to talk about it, the practices are not as common as you might think. We know of cases where a seller received higher offers but stuck to the original one because he felt it was the honourable thing to do. Also, gazumping has sometimes saved the day. In cases where the original buyer has started to prove difficult or is wasting everybody’s time, endangering the whole chain of sales and purchases, he can be quickly ditched, a new buyer can step in and the whole chain can be completed.
However, it’s still good to know that in Scotland, once your offer is accepted, the deal is binding and enforceable on both sides, and neither side is going to back out of it later just because they could do better on the price.
McKay Norwell are
serving individual and business clients across Scotland. Richard Godden is a specialist
Personal Injury Solicitor Scotland