Non-Compliant Reservation Agreement and 14 day cooling off period

The buyer’s claim

The buyer claimed they were entitled to withdraw from the purchase and receive their reservation fee back in full, together with reimbursement of fees they had spent on solicitors.

The buyer requested payment of the remaining £1,500 of their reservation fee and £521.40 for their solicitor fees.

The builder’s defence

The builder stated it had tried to assist the buyer until the buyer withdrew from the transaction and had repaid £1,000 of the £2,500 reservation fee. It claimed it had incurred reasonable legal and administrative costs that it was entitled to deduct from the reservation fee and that it was not liable for the buyer’s legal fees.

The adjudicator’s findings

The adjudicator found that the Reservation Agreement did not comply with the Code as it stated that the reservation fee was non-refundable after a buyer’s offer had been accepted.  There was also no reference to the cooling-off period or the costs and expenses that would be deducted after the cooling-off period, and it did not explain which parts of the fee were refundable, and which were not.

The adjudicator was satisfied that the buyer’s letter, containing two proposals for protecting their deposit, was raised during the cooling-off period, and that once the buyer had decided not to proceed with the transaction during the cooling-off period, this should have triggered a full refund.

The adjudicator found that the builder’s response to the letter and willingness to support the buyer was misleading as there were specifics that the builder could not reasonably be expected to agree to.

The adjudicator was also satisfied that without more detail of the calculation used by the builder, they could not conclude whether the retention of £1,500 was reasonable or in accordance with the Code.

However, the adjudicator found that the contract term as originally drafted was not unfair, and that the builder could not reasonably be expected to assume liability for the purchaser’s financial inability to make payment for the home where they did not have a mortgage offer in place.

The adjudicator was further satisfied that the builder had, and kept to, a system for receiving, handling and responding to buyers’ complaints and in this instance, responded to the buyer within a reasonable time.

Learning points

For buyers:

• Understand your rights. The Code gives buyers important protection at reservation stage, including a 14-day cooling-off period during which you can withdraw and receive a full refund.
• Read your reservation agreement carefully. The Code specifies what should be included in the agreement, including how long it lasts, cancellation terms and what proportion of your reservation fee can reasonably be retained if you cancel after 14 days. If any of the information is missing, speak to your builder and direct them to the Code requirements to help ensure you have all the information you need.
• Ensure that you have both legal representation and a current mortgage offer in place to enable the smooth conveyancing of the home and for completion to take place when required. These are usually requirements set out in your Reservation Agreement. More tips on enabling a smooth completion are available on our blog.
• If you believe your builder has breached the Code, contact our team to find out what to do next.

For builders:

• Make sure your reservation agreements comply with the Fifth edition of the Code. Since January 2024, the Code requires that you include a 14 day cooling off period from the point of reservation. You must give buyers a full refund of their reservation fee within this period.
• All reservation agreements should state specifically what proportion of a reservation fee will be retained if the buyer cancels after 14 days. This must be reasonable and proportionate to the costs you incur in proceeding with the reservation and should be evidenced as it could be challenged through the Independent Dispute Resolution Scheme by the buyer. We provide a Code compliant sample reservation agreement and checklist to help you – including an editable version for you to tailor.
• Although it can be helpful to respond positively to proposals put forward by your buyer, you must be clear on the implications of agreeing to any changes or making commitments that you may not be able to honour later in the process. Take the time to explore potential issues, check whether your buyer may be more vulnerable to detriment and only proceed if you are confident that the buyer fully understands the financial implications of the purchase.