Househunter beware: nothing is “final” until the contract is signed
A handshake is never binding – expect reversals at every turn when you're buying a property
“Now I could rest assured that, provided I came through with the finance, the property would be mine. One week later, I received a surprising phone call.”
Some of the richest business people and property developers are reputed to make binding deals with a shake of the hand, or a verbal agreement they never go back on. “Their word”, so they say, “is their bond”. I must confess that I have yet to meet many (actually, any) of them.
My experience in the world of property deals is: expect reversals at each and every turn and you will not go far wrong.
The world of real estate has a pretty poor reputation for shady dealings – back in the 1990s you regularly heard of some estate agents being given “retainers” by unscrupulous investors to be tipped off about opportunities coming to market.
Virtually anyone who deals in property investments is likely to have experienced the mortifying effects of having deals, near completion, being withdrawn at the last minute as properties are mysteriously taken off market or sold to rival buyers whom the agent has neglected to tell you about.
You would imagine that the more property deals you do, the more insulated you become against such shenanigans, but I have also discovered that property law is a subject poorly understood even by some property lawyers.
Some years ago I was interested in buying a residential investment block in the UK being sold by a receiver and began making offers through an agent, trying to agree a deal. But before I knew it I discovered that someone else had gone directly to the receiver and agreed a price. I offered to pay more, but was rebuffed, being told that the receiver had accepted a small deposit in exchange for giving the other party “exclusivity of contracts” for a six-week period. No matter what I now offered, they were not now interested.
It seemed there was nothing I could do but accept the situation. I even thought about offering to buy the block from my rivals giving them an instant profit, and made a call asking them to let me know if they decided to sell.
About five weeks later, they suddenly said they would sell the block on to me but for an eye-watering 60 per cent mark-up on price. But had they actually bought it? Not yet, it seemed, but they had “exclusivity of contracts” and money had already changed hands.
The following day, I received another phone call. They would sell their “exclusivity of contract” to me, they suggested. Their solicitor was drawing up a contract so did I wish to discuss it all with him?
It all sounded a bit rum, but I went down to discuss it with them – in the back room of a dingy shop in one of the less salubrious parts of town, the perfect place to be assassinated. Their solicitor kept asking me if “the deal was on”.
Then I unexpectedly received a call from the receiver – who had previously refused to take any more calls – asking if I was still interested. I nervously responded that I had actually just been approached by the other party: the receiver was furious. It turned out that they had intended to finance the deal with a property sale that had not gone through and were now trying to bluff it out and make a profit at the same time. The “exclusivity of contract” was transferred by the receiver to me and I happily bought the block for the original asking price.
So now I knew what to do – or so I thought – if I really wanted to buy something: get in and agree an “exclusivity of contract”. Five years later I saw a building I set my heart on and I wasted no time in going down to the agent and agreeing a six-week “exclusivity of contract”. We agreed the whole deal in the office in a three-way conversation with the vendor. I paid a sizeable, non-refundable deposit and also drew up a memorandum of agreement which the agent signed.
Surprising phone call
Now I could rest assured that, provided I came through with the finance, the property would be mine. One week later, I received a surprising phone call from my solicitor to say the vendor had switched the contract to someone else.
That’s impossible, I thought. My property lawyer – supposedly an expert in the field – also thought this was illegal. But it turned out that all I could claim for breach of “exclusivity of contract” were some trivial expenses – survey cost and some legal fees.
The vendor, with a lifetime in deals in property behind him, knew far better than my lawyer that if he received a substantially higher offer it would be in his interest to pay these minor damages and switch buyers.
To my dismay I was now dragged into a “best and final offer” scenario, which I subsequently lost. However, lying in bed thinking about it, I began to take inspiration from Sir Alex Ferguson. How many times, I reminded myself, did you hear about some football player not being for sale by some club – and that was “final” – only for them to be sold the following week?
The following morning I put in a substantially increased offer and the vendor, despite having sworn that negotiations were at an end, restarted them. We went one more time to a “best and final” offer scenario and once more I lost. And once more I put in a slightly higher offer. No, no, the vendor said, really this time it was out of the question, he had given his word . . . A few days later the offer was accepted.
That still was not the end of it. We then drew up an “option” – to legally ensure you are not muscled out of a purchase – and a month later, just as the option was about to be signed, the vendor announced that a new party was interested. This time I refused to budge. Even the vendor’s solicitor became so exasperated with the trickery of his client that he refused to do anything unless he put something in writing. He apparently finally sent a text, “Go ahead and sign option”, from his helicopter.
When it comes to property deals I would offer two pieces of advice: never consider negotiations finished until the property has been well and truly sold; and never consider a property yours until the contract is signed and the property is in your name.