Law of Property (Amendment) (Hansard, 10 February 1987)

I beg to move, That leave be given to bring in a Bill to eliminate gazumping.

This is a simple five-clause Bill designed to outlaw the practice known as gazumping. Gazumping is a horrible word and a horrible practice. It is the term used to describe the situation in which the seller of a house, having agreed to see at an agreed price, goes against his word and withdraws from the deal or threatens to do so in the expectation of receiving a higher offer. The buyer is then put in the position of having to pay that higher price or withdrawing altogether and being faced with substantial legal costs and survey fees.

Gazumping has caused great distress over many years to all home buyers, but most particularly to the most vulnerable, the first-time buyers, and to young married couples wishing to get onto the home ownership ladder. In the dear dead days of relative stability in the housing market, the "subject-to-contract" clause served its purpose admirably. It gave time for mature consideration and the careful investigation of a transaction, with both parties having the opportunity to withdraw from a tentative agreement. However, in an era of seemingly ever-increasing house prices, with offer followed by counteroffer, and counter-counter-offer on top of that counteroffer, the original logic of that procedure has become clouded and the formula of the previously accepted selling behaviour has crumbled.

Sellers may well be very happy with the results of gazumping, but the expense, frustration and heartache borne by potential purchasers has been very great. Last summer, the Law Commission's conveyancing standing committee set up an inquiry into the possibility of curbing gazumping. A decade earlier, in 1973, a similar exercise was carried out by the Law Commission which concluded that, although private treaty sales were open to some abuses, the arrangements were basically sound and no change in the law should be recommended.

With a new burst of activity in the housing market, generated particularly by a wider choice of lending institutions—not simply the traditional building societies and British banks, but now foreign banks and other institutions — prepared to lend ever more flexible mortgages, it was right for the Law Commission to reexamine the range of possible options.

There were three options—first, to move towards the Scottish system, where potential buyers submit sealed bids before a closing date, after which the deal becomes binding.

The second option envisaged a vendor who backed out of a deal reimbursing any legal, survey or other out-of-pocket expenses that had been incurred before the would-be purchaser had found that his aims, ambitions and dreams had been frustrated.

The third proposal suggested a voluntary agreement by both parties to pay a similar percentage of the purchase price as a deposit, which would be forfeited if either withdrew from the transaction without any good reason within four weeks or whatever time limit was mutually agreed upon by the parties.

Sadly, the Law Commission has opted for the third course, which is probably the weakest of the three 173 possibilities that I have described. It is the option which is, in any event, unlikely to be put into practice, because of the very nature of the voluntary agreement. It is riddled with anachronisms and uncertainties.

The commission's pre-contract deposit scheme envisages both buyer and seller voluntarily paying a deposit of 0.5 per cent. of the purchase price once the bargain has been agreed and a preliminary agreement signed. There would then be a requirement for a firm contract for the sale and purchase within four weeks, in the absence of withdrawal for good reasons. Otherwise, the lack of contract would mean the defaulting party would forfeit the deposit. Although full credit has to be given to the work done by the Law Commission's standing conveyancing committee, under the excellent chairmanship of Professor Farrand, it did not produce an acceptable answer, despite its admirable motives.

My Bill proposes five solutions, four of them to be legally binding and one by way of recommendation, which would provide the answers to this present-day problem of gazumping. To eliminate the length of time and thus the length of uncertainty between the acceptance of an offer by a seller and the exchange of contracts by, sadly, a continuingly dilatory legal profession, I suggest these five simple solutions.

First, the seller and the buyer should be legally bound to pay a 0.5 per cent. deposit, which would be forfeited if exchange of contracts did not take place within four weeks without good reason. Secondly, the seller should be obliged to provide searches and answers to prospective purchasers' standard pre-contract inquiries, so that they can be passed on to his or her solicitors on acceptance of the offer, and so reduce that length of time during which the legal ball is batted between vendor's solicitor and purchaser's solicitor and back again.

Thirdly, local authorities should be required, in any event, to computerise their legal services. Without doubt, that proposal, of all, would command both the respect and the acceptance of both sides of the Chamber. Fourthly, 174 local authorities should be required to deal with applications of local searches within 14 days. Computerisation would enable that to take place. In the event of local authorities not doing so, they would forfeit the search fees that they charge.

Finally — I would not make this mandatory — the vendor should be encouraged to provide and make available to the purchaser, on acceptance of the offer, an independent survey and valuation report prepared by a qualified surveyor; that the purchaser could then take that to his or her building society, bank or other lending institution, which, if it accepted that valuation, could then reduce the amount of time between acceptance of the mortgage and thus exchange of contracts.

If, because of human nature, gazumping cannot be stopped completely, at least under these proposals the would-be purchaser whose offer was aborted would be better protected than he or she is at the moment and at least receive some compensation and recompense for the heartbreak and financial loss incurred. Naturally, if the vendor stands to gain more than the 0.5 per cent. deposit that he would forfeit by going against his word, the law cannot intervene. [HON. MEMBERS: "Market forces."] Yes, that would be market forces.

Anything that deters the consequential financial loss of such reprehensible conduct is, in my opinion, a step in the right direction. I invite the House to give a fair wind to this simple Bill, which should strike a chord in the hearts and minds of all constituents, particularly those wishing to buy their house for the first time.