A recent decision by the New Homes Ombudsman has clarified the rights of developers when a customer fails to exchange contracts before their reservation agreement expires.
The complaint
A customer reserved a new build home. The reservation agreement was time-limited and it was intended that the parties would exchange contracts before the reservation expired. When that did not happen, the developer agreed to extend the reservation to allow more time for a contract to be concluded. After further extensions, and with no confirmation of when the customer would be able to exchange, the developer cancelled the reservation, refunded the reservation fee and re-marketed the property. Ultimately, the customer was able to exchange contracts and purchase the home before another party reserved it.
The customer accepted that the developer was entitled to cancel the reservation but complained to the New Homes Ombudsman about the way the developer had treated them. They sought an apology and compensation.
The Ombudsman's decision
The Ombudsman found in favour of the developer and did not uphold the customer's complaint. The key reasons for the Ombudsman's decision were:
- Granting of extensions: The developer did not cancel the reservation at the first opportunity, but instead showed flexibility by granting several extensions to allow exchange to be achieved.
- Professional communication: The developer had communicated clearly and professionally throughout. They had not become rude or aggressive, despite the lack of progress towards exchange.
- No high-pressure selling techniques: The developer had not engaged in any high-pressure selling techniques, either when the reservation was made or when moving towards exchange of contracts.
Key takeaways
This case provides welcome clarification for housebuilders that the New Homes Quality Code does not prohibit them from cancelling reservations where a customer fails to exchange contracts on time. To make sure that they retain the right to cancel reservations when necessary, and to avoid falling foul of the Code's provisions and clear and transparent communication, developers should:
- Check their reservation agreements to ensure that these set out the clearly the circumstances in which the developer is entitled to cancel the reservation.
- Ensure that any communications with customers and their solicitors about delays in exchanging contracts or completing a sale are polite and professional, and that any decision to cancel a reservation is communicated clearly.
For more advice on cancellation of reservations or any other aspect of the New Homes Quality Code, developers can get in touch with our Real Estate Litigation team or their usual contact in the Brodies Living team.
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