Lock-in agreements – use with caution

In the current housing market, it is very tempting to use lock-in agreements to lock-in a potential buyer.  If someone is keen to buy a particular property, but cannot do so immediately (usually because they must first find a buyer for their own home), they may offer to pay a “holding deposit”. Such a deposit is of no value to the seller unless there is agreement as to the circumstances in which, if the buyer does not proceed, the deposit is forfeited to the seller. Otherwise, the buyer can simply call for the return of the deposit, making its original payment pointless.

Often, therefore, the seller will want the buyer to sign a “lock-in agreement”, which sets out the terms on which the deposit is forfeited – or a lock-in/lock-out agreement, whereby each side pays a deposit, which is forfeit to the other side if the party in question does not proceed.

However, the problem with this – and it pains me to say this – is that such an agreement inevitably involves the parties’ lawyers. More often than not, one lawyer or the other – or both – will try to dissuade their client from entering into the agreement, or will clutter it up with so may “ifs, buts and maybes” that it becomes pointless. In those cases, the real damage is to the goodwill that had previously existed between buyer and seller, so that they end up being suspicious of each other, and the underlying deal collapses.

This happens too often to be coincidence, so my recommendation would be to think very carefully, if you are a seller, before suggesting a lock-in agreement: simple trust is often more effective. If you do decide a lock-in agreement is appropriate, make sure the buyer is fully on board before they go to their lawyer and risk getting put off the idea

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