Re-negotiating price in wake of ADS increase

Due to the recent change in the law to increase Additional Dwelling Supplement (ADS) from 6% to 8%, members have enquired as to how our Guidance on Gazumping, Gazundering and Closing Dates would apply if a client sought to re-negotiate a price downwards in light of this change.  

Having consulted with the both the Professional Practice and Property Law Committees, Austin Lafferty, Convener of the Professional Practice Team provides his view:

The most significant time when the Professional Practice Committee was asked to provide a view on seeking to renegotiate a price downwards was during the pandemic. At that time, the combined view of the Professional Practice and Property Law Committees was:

"The solicitor should follow the Guidance that is in place and withdraw from acting. However, both Committees were keenly aware that due to the conditions imposed by the pandemic there would be purchasers who – through no fault of their own – were no longer able to meet the previously agreed price for reasons of affordability (as opposed to being able to meet the price but displaying an unwillingness to do so) and in those circumstances the consensus was that the solicitor would be able to accept the instruction to seek to negotiate a lower price on that basis. One example given was of cases where income had dropped such that the borrower is bound to inform a prospective lender, who then reduced the amount of borrowing available to the prospective purchaser.

"Prior to the solicitor seeking to renegotiate the lower price they would have to satisfy themselves that the purchaser could not actually afford the previously agreed price using, where possible, an evidential and objective assessment of the impact that the coronavirus conditions have had on the purchaser(s) finances. In practical terms, the purchaser would have to be prepared to walk away from the deal entirely if the lower price was unable to be agreed and could not revert back to the originally agreed price. If it was simply a desire to capitalise on market conditions (or even a genuine concern about future markets) the Guidance remains that the agent must withdraw."

Taking this into account, in the present circumstances, the Committees’ view is that a solicitor accepting instructions to renegotiate a lower price, this would require to be in an instance of genuine affordability only. If a purchaser could not afford to proceed at the price previously agreed due to the change in the law, then, and only then, should the purchasing solicitor accept an instruction from the client to seek to renegotiate. As before, if it was simply a desire to capitalise then the usual Guidance remains, and the solicitor should withdraw from acting.

I fully appreciate that parties may be willing to renegotiate in such circumstances if they are keen to have the matter settled, but the situation remains that the solicitor could be at risk of a complaint, which would be a conduct complaint.