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
The UK's Modern Industrial Strategy: A 10 year plan
Previous consultation criticism, current key elements and general support with some persisting reservations.
Building Safety Regulator reforms
New roles, new staff and a new fast track service pave the way for a single construction regulator.
Architectural Technologist CPDs and Communications
CIAT CPD… and how you can do it!
Cooling centres and cool spaces
Managing extreme heat in cities by directing the public to places for heat stress relief and water sources.
Winter gardens: A brief history and warm variations
Extending the season with glass in different forms and terms.
Restoring Great Yarmouth's Winter Gardens
Transforming one of the least sustainable constructions imaginable.
Construction Skills Mission Board launch sector drive
Newly formed government and industry collaboration set strategy for recruiting an additional 100,000 construction workers a year.
New Architects Code comes into effect in September 2025
ARB Architects Code of Conduct and Practice available with ongoing consultation regarding guidance.
Welsh Skills Body (Medr) launches ambitious plan
The new skills body brings together funding and regulation of tertiary education and research for the devolved nation.
Paul Gandy FCIOB announced as next CIOB President
Former Tilbury Douglas CEO takes helm.
UK Infrastructure: A 10 Year Strategy. In brief with reactions
With the National Infrastructure and Service Transformation Authority (NISTA).
Ebenezer Howard: inventor of the garden city. Book review.
The Grenfell Tower fire, eight years on
A time to pause and reflect as Dubai tower block fire reported just before anniversary.
Airtightness Topic Guide BSRIA TG 27/2025
Explaining the basics of airtightness, what it is, why it's important, when it's required and how it's carried out.
Construction contract awards hit lowest point of 2025
Plummeting for second consecutive month, intensifying concerns for housing and infrastructure goals.
Understanding Mental Health in the Built Environment 2025
Examining the state of mental health in construction, shedding light on levels of stress, anxiety and depression.