Still free to market?

The Professional Practice team has recently received correspondence from a member firm raising concerns about a situation where they were acting for the seller of a residential property. They told the purchaser’s agents, in response to their offer being conditional on the purchaser being offered a suitable loan to fund the purchase, that the price offered was acceptable in principle but the property would remain on the market until that loan issue had been resolved. What are the issues for solicitors in practice?

Applying the guidance

Guidance on this question is set out in Division C: Gazumping, Gazundering and Closing Dates of the Society website and provides:

Where a solicitor for a seller has intimated verbally or in writing to the solicitors for a prospective purchaser that their client’s offer is acceptable – whether after a closing date or otherwise – the seller’s solicitor should not accept subsequent instructions from the seller to accept an offer from another party unless and until negotiations with the original offeror have fallen through for bona fide reasons unconnected with the possible offer from another party. The solicitor should advise the seller to instruct another solicitor if they wish to accept the later offer. “Fallen through” could mean, but is not limited to, an inability for a solicitor to obtain instructions to progress the transaction, failure to purify suspensive conditions within a reasonable timescale and failure to meet a time limit specified in the missives.

Applying that to the situation raised by our member, the key issue is that the seller’s solicitor has not intimated that the offer is acceptable. Discussions with the purchaser’s solicitor only indicated that the price offered would be acceptable if (and only if) the loan issue was resolved. Agents should make sure that they are very clear in discussions or correspondence about their client’s position in situations like this to avoid misleading other parties. Purchasing members should make it clear if any offer is conditional, and particularly if conditional on survey, their client selling their own property and/or arranging finance. The agreement on price is only one aspect of any potential offer and it is only when all principal terms are agreed that the rule of gazumping may apply.

It remains the case that the seller’s agents in this scenario have behaved properly and in accordance with practice guidance.

As a general observation, solicitors are reminded that the guidance specifically narrates that (1) commercial property transactions, and (2) transactions where the sellers have statutory/fiduciary duties (e.g. executors and maximising the sale proceeds), may well be subject to other considerations and that the guidance as it applies to residential conveyancing transactions may need to be modified.

The Professional Practice team is currently looking to update the guidance in this area.