New Clause 1 - Agreement between vendor and purchaser
Homes Bill
9:45 am
Mr Don Foster (Bath, Liberal Democrat)
I thank the Committee for ensuring that the previous sitting's deliberations finished before the debate on these new clauses. As hon. Members will be aware, both I and the hon. Member for Eastbourne (Mr. Waterson) were unable to be present at the end of our deliberations on Tuesday because of the business on the floor of the House. Consequently, it is only right to seek to move these new clauses as quickly as I can so that the Committee can move on to part II.
The three new clauses are based almost entirely on the work of the hon. Member for Hertford and Stortford (Mr. Wells) in his Property Transactions Bill 1999. That Bill had all-party support including, among many others, my hon. Friend the Member for Cheltenham (Mr. Jones) and the hon. Member for Workington (Mr. Campbell-Savours).
The purpose of the amendments is to address one of the two ghosts at the feast. When we come to part II, we shall discuss the other ghost, namely registered social landlords, but now we are discussing the ghost that is the issue of gazumping and gazundering, which was repeatedly mentioned on Second Reading and has already been raised in this Committee. The point has been made that, notwithstanding some of the good measures contained within the Bill, there is little that will address one of the key concerns of those involved in the stressful business of buying and selling houses. I acknowledge that the introduction of the seller's pack might ease the problem to a small extent, but I suspect that we need tougher measures than only the seller's pack if we are to tackle it successfully. That is what the three new clauses are designed to provide.
New clause 1 stipulates that a deposit must be paid by both vendor and purchaser and that an agreement for the sale of the property constitutes a binding contract; it also requires the vendor and purchaser to agree a completion date. New clause 2 requires that a purchaser entering into such a binding contract must be able to offer proof of his or her ability to pay the agreed sale price. New clause 3 stipulates, subject to various exclusions, the forfeiture of the deposit plus the other party's costs in the event failure to complete the contract by the agreed date.
New clause 1 recognises that when an offer has been made and accepted, both parties have already entered into a very costly process and both stand to lose money if the contract is not completed. Under the new clauses, if one of the parties to the contract withdrew, or frustrated or failed to complete the contract by the agreed date, he or she would forfeit the deposit made when the contract between vendor and purchaser was entered into. The 1999 Bill introduced by the hon. Member for Hertford and Stortford included the figure of £2,000. We think that that is probably appropriate but, for the avoidance of doubt, we have provided in subsection (5) for the Secretary of State to vary that figure by regulation. We think that it is important that both sides enter into such an agreement, but that the defaulting party should bear the costs of the frustrated party, as happens in many commercial transactions.
We believe that new clause 2 will help to speed up sales and remove a cause of contract failure. It will become an offence for buyers to enter into a binding contract—the sort set out in new clause 1—unless the proposed purchaser can demonstrate that he has the funds to meet the agreed sales price. For most buyers, that would mean having a mortgage offer in place. Subject to its being accepted by the lender, which takes us back to issues we have debated previously, the seller's pack could provide great assistance and ease that process to a considerable extent.
New clause 3 enforces a binding contract by stipulating that if the contract fails, the defaulting party becomes liable to forfeit his or her deposit and is liable for the costs of the frustrated party. As members of the Committee will understand, there will clearly be a number of exceptions to the rule—after all, during the process of the buying and selling houses, things can go wrong that are not the fault of either of the two parties, for example, the discovery of structural or other defects in the property that were not known to the purchaser at the time of the agreement.