A case that The Property Ombudsman (TPO) was asked to review came from buyers concerned with a pre-contract deposit (a commitment fee).

A pre-contact deposit of £1,000 was paid by the buyers to the agent upon acceptance of their offer.

Investigation

The buyers requested sight of related terms and conditions to outline the specific circumstances covered by the deposit. While the agent responded saying that there was no formal set of terms and conditions, they did set out some written terms regarding the nature of the deposit along with the

circumstances upon which the deposit would be refunded or forfeited. With this agreed, the buyers paid the deposit and proceeded to progress the transaction.

However, they were contacted by their solicitor who told them that whilst the chain below was complete, a Memorandum of Sale had not been issued for their purchase and the details of the sellers’ legal representative had not been provided. It came to light that the sellers had not secured an onward purchase.

After a period of over two months with no progress, the buyers requested the return of the deposit in full due to the fact the sellers were not in a position to proceed.

The agent emailed offering to reimburse £500 of the deposit instead, and said they would return the other £500 should the sale fail to complete within six months. The buyers raised a formal complaint in writing to the agent.

There was no evidence to suggest the agent responded to the buyers’ formal complaint letter until pressed by TPO to do so. Within their subsequent response, the agent reminded the buyers that, while there was not a formal terms and conditions document, they had agreed to the terms upon payment of the pre-contract deposit via email, which stipulated:

‘The commitment fee is refundable if you cannot purchase due to bad survey, ill health, any eventuality that is not directly your own fault. If you do decide to pull out for whatever reason, i.e. you found another property or something that would leave the vendor and myself [the agent] out of pocket you will receive a portion of this back proportionate to the costings involved up to that point.’

In addition to this, the agent also pointed out that the property remained off the market and therefore the sellers had not yet ended their commitment to selling the property to the buyers.

The sellers had been actively seeking a new property to purchase and it was pointed out that there was no time frame when dealing with a property transaction.

The agent added that the purpose of the ‘commitment fee’ was that the buyers were expected to remain committed to their purchase regardless of the time taken.

They repeated their offer to refund half of the deposit and the other half upon completion; or allow them to re-market the property and refund the other half of the fee once another buyer was found.

The 2019 edition of the TPO Code of Practice for Residential Estate Agents was considered, specifically Paragraph 11a which states that agents:

‘…should not generally facilitate pre-contact deposits. However, if instructed to do so, agents must ensure that before a deposit is taken, the circumstances under which the deposit is to be held, refunded, forfeited or used towards the purchase, are clearly stated in writing, agreed by the relevant parties and a copy of the agreement provided to those parties.’

As it was evident that the agent took a pre-contact deposit they were therefore required to clearly state in writing how it was going to be held and used.

While there was no formal set of terms and conditions, the Ombudsman noted that the agent’s initial email had set out the written terms regarding the deposit. However, it was not reasonable that no time limit was specified within which both parties would agree to complete the transaction. As it stood, without a timescale one party would be able to lock the other party into the agreement for an indefinite period of time.

The buyers were entitled to expect to complete their purchase within a reasonable period of time. On average, the period to reach completion of a sale following formal agreement is approximately two to three months. In this case, the transaction remained live for around eleven months after the deposit was paid.

This was an unreasonable length of time to expect the buyers to wait for the sellers to be in a position to proceed.

While the agent did offer to refund half of the deposit and the other half after a further six months if the transaction had not moved forward in that time, the time limit had since elapsed, and the Ombudsman therefore concluded that they were entitled to receive the return of the full deposit.

Outcome

The Ombudsman supported the compliant and directed the agent to return the deposit in full to the buyers.

 
*This Case Study featured in Property Professional Magazine in 2022