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Lock Out Agreements

A lock out agreement is a preliminary agreement, entered into by a potential seller and buyer of a property before, and quite independent of, the main contract for any sale of the land.

The problem such agreements promise to solve, gazumping, arises after a buyer makes an offer for a house. The seller accepts his offer 'subject to contract', and instructs his solicitor to prepare contracts. The buyer then arranges his survey and mortgage, possibly spending many hundreds of pounds, in making the decision to go ahead. At the same time, the seller keeps his house on the market, and may find that another offer is made for the house, and that he prefers the new offer. If he then accepts that later offer, the first buyer is left with expensive, useless surveys and searches.

The buyer hopes to solve this problem by binding the seller to him for a sufficient length of time to allow him to sort out his affairs, and without the threat of another buyer intervening. He asks the seller to sign a form of agreement, a lock-out agreement, for this purpose.

There are, however, several difficulties with this, and on balance the protection they offer is entirely illusory.

First, why on earth should a seller have anything to do with such an agreement? The buyer, in suggesting the agreement, suggests as straightforwardly as he can, that the seller is deceitful, and not to be trusted. He further insults the seller by suggesting that the price of his respect is just one pound (the standard sum paid). The seller gets nothing from it but being metaphorically spat at.

What does the buyer get? A promise by the seller not to negotiate with anyone else - but his estate agent still has a statutory duty to receive and pass on to the seller any later offers. If a later offer is good enough, the seller need at worst wait until the period expires (if he is honest), then dump the first buyer who is precisely back where he was.

It is a logical absurdity to have a contract to have a contract. Either the terms of the second contract (the real one) are agreed, or they are not. If they are agreed, why bother with the first. If they are not, then the first cannot bind either party to enter into the second. An agreement to agree is an agreement in honour only - but a lock-out agreement sets out by impugning the honour of the seller.

From this you may gather that we do not think lock-out agreements are sensible or useful. We never use them, and have never had a client who needed or who would have benefited from one, though we have had several who think they would.

But ..., as they say, if you want one, we have one. Please ask for a copy.

An ironical twist in this saga is that many people will blame the estate agent for misbehaving in gazumping situations. They are an easy target, but the truth is that if an offer is put to an estate agent, he has a legal obligation to put that offer to his client. He cannot say 'No more offers acepted', until contracts have been exchanged, he must relay the offer to his client. It is the client who gazumps.

Important: Please note that our law-bytes are retained for archival purposes only. The law changes, and these notes are often, now, out of date. You must take direct advice on your own personal situation and the law as it currently stands.
All information on this site is in general and summary form only. The content of any page on this site may be out of date and or incomplete, and you should not not rely directly upon it. Take direct professional legal advice which reflects your own particular situation.
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18 October 2013 http://www.swarb.co.uk/lawb/cvrLockout.shtml 187 18 October 2013