Reservation agreement for property purchase
A reservation agreement can be used in the purchase of new homes when a buyer reserves the right to purchase a property for a period of time. During this time (known as the ‘reservation period’), the seller agrees not to sell to another party. As part of the agreement, the buyer pays a deposit (known as the ‘reservation fee’). The reservation period typically lasts for a period of 28 days.
On the exchange of contracts, the fee is deducted from the deposit that is then placed. However, at any time during the reservation period the buyer can decide not to proceed with the purchase and can cancel the agreement. The fee is then reimbursed minus expenses such as the legal and administrative costs incurred by the seller.
Introduced in 2010, the Consumer Code for Homebuilders (‘the Code’) stated that the reservation agreement should set out the costs likely to be incurred for which the buyer will be liable. The seller may only deduct an amount that has been genuinely incurred in processing and holding the reservation and it is unacceptable to deduct a fixed percentage or amount.
Reservation agreements differ from exclusivity agreements, which are used to provide the buyer with some security from being outbid by establishing a period of time during which the seller agrees not to enter into negotiations with another party. Under a reservation agreement, the seller cannot enter into another such agreement with a different party but can enter into negotiations.
Since reservation fees can be significant (up to £20,000 at the higher end of the market), the agreement should be reviewed for the buyer by a legal professional before signing. However, in practice, it is typical for buyers to sign reservation agreements before instructing their lawyer.
A reservation agreement usually includes:
- The fee amount.
- The property being offered.
- The purchase price of the property.
- How long the price will remain valid.
- The length of the reservation period after which the agreement will expire.
- The estimated deductible expenses if contracts are not exchanged.
Before signing a reservation agreement, sellers should check that the terms reflect the requirements of the Code and ensure they do not enter another agreement for the same property with another party.
The New Homes Quality Board Glossary of the terms used in the Code and Guidance, published by The New Homes Quality Board in 2021, defines a reservation agreement as: ‘an agreement when a Customer and a Developer jointly make a written statement of intent (subject to Contract of Sale and whether or not a fee is paid) giving the Customer an exclusive period of time to enter into a Contract of Sale to buy a New Home. Reservation, Reserved and Reserve carry the corresponding meanings.’
It defines a Reservation Fee as: ‘the fee payable by the Customer upon entering into a Reservation Agreement with a Developer.’
[edit] Related articles on Designing Buildings
Featured articles and news
Boiler Upgrade Scheme and certifications consultation
Summary of government consultation which closes 11 June 2025.
Deputy editor of AT, Tim Fraser, discusses the newly formed society with its current chair, Chris Halligan MCIAT.
Barratt Lo-E passivhaus standard homes planned enmasse
With an initial 728 Lo-E homes across two sites and many more planned for the future.
Government urged to uphold Warm Homes commitment
ECA and industry bodies write to Government concerning its 13.2 billion Warm Homes manifesto commitment.
Places of Worship in Britain and Ireland, 1929-1990. Book review.
The emancipation of women in art.
CIOB Construction Manager of the Year 2025
Just one of the winners at the CIOB Awards 2025.
Call for independent National Grenfell oversight mechanism
MHCLG share findings of Building Safety Inquiry in letter to Secretary of State and Minister for Building Safety.
The Architectural Technology Awards
AT Awards now open for this the sixth decade of CIAT.
50th Golden anniversary ECA Edmundson awards
Deadline for submissions Friday 30 May 2025.
The benefits of precast, off-site foundation systems
Top ten benefits of this notable innovation.
Encouraging individuals to take action saving water at home, work, and in their communities.
Takes a community to support mental health and wellbeing
The why of becoming a Mental Health Instructor explained.
Mental health awareness week 13-18 May
The theme is communities, they can provide a sense of belonging, safety, support in hard times, and a sense purpose.
Mental health support on the rise but workers still struggling
CIOB Understanding Mental Health in the Built Environment 2025 shows.
Design and construction material libraries
Material, sample, product or detail libraries a key component of any architectural design practice.
Construction Products Reform Green Paper and Consultation
Still time to respond as consultation closes on 21 May 2025.
Resilient façade systems for smog reduction in Shanghai
A technical approach using computer simulation and analysis of solar radiation, wind patterns, and ventilation.