- Project plans
- Project activities
- Legislation and standards
- Industry context
Last edited 15 May 2018
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.
 Find out more
 Related articles on Designing Buildings Wiki
Featured articles and news
Civil engineers can lead the way.
Cutting-edge tech pairs with building management systems.
BSRIA updates its assessment of the industry.
What happens when it all goes wrong?
Input being gathered by CIOB.
Changes proposed for MHCLG consultation on house building statistics.
Full of passion and acerbic wit. 1 min book review.
Reminding us what is possible.
Five signs you are at risk.
Biotechnology as it applies to the built environment.
Stopping sound coming through windows.
Government response to the Building a Safer Future consultation.
Energy savings quickly payback any small additional capital investment.