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Right to refund

"A buyer paid a reservation deposit and a buyer’s premium but the sale did not go ahead, so should the agent repay the fees? Katrine Sporle, The Property Ombudsman supported the claim and made an award of £6300."

Katrine Sporle
COMPLAINT

Calculating the cost imageA case that The Property Ombudsman was asked to review came from a potential buyer concerning the agent’s refusal to refund a reservation deposit and a buyer’s premium.

The buyer explained to the TPO Office that he agreed to purchase a property for £75,000 and paid a reservation deposit of £2,000 and a buyer’s premium of £4,500.

Katrine Sporle image

Katrine Sporle

He said that the contract he signed suggested his money would be returned if the property was down-valued at survey, but despite his mortgage survey returning a valuation of £60,000, the agent told him that they would only be willing to transfer the money to another purchase. As a result, the purchase price was reduced to £65,000.

The agent maintained that all the money paid by the buyer was non-refundable.

In addition, despite the buyer having been required to exchange contracts within 28 days, the seller failed to progress the transaction. The agent made excuses for these delays and refused to refund the buyer’s money. After the buyer had agreed to purchase the property, he learnt that the whole block of flats where the property was situated was being advertised for sale.

INVESTIGATION

Within the agent’s agreement, the following was stated:

In addition, a buyer’s premium of the greater of 2.5 per cent of the final purchase price or £3,750 (plus VAT) is payable by you to us on each property we introduce to you either:

On acceptance by the seller of an unconditional offer made by you, unless the seller subsequently withdraws from the sale for any reason other than your failure to perform.

The agent’s contract stated the following:

Subject to the following conditions, the Applicant will exchange contracts within 28 days of the Applicant’s solicitor receiving the sales contract from the vendor’s solicitor, if necessary on a conditional basis subject to outstanding information including but not limited to receipt of local authority searches and/or mortgage offer;

The stated conditions were:

  • (i) The Property achieves a RICS valuation equal to or greater than the Contract Price
  • (ii) The Property achieves a RICS valuation without retention
  • (iii) The Property has correct and property legal title
  • (iv) The Property is deemed to be adequate security for a mortgage
PROGRESSING THE SALE

The agreement also said that a non-refundable reservation deposit would be payable in order to take the property off the market.

In this case, the terms of the agreement clearly stated that the buyer’s premium was not payable if the seller withdrew but was non-refundable as long as the property remained available for the buyer to purchase.

The agreement clearly stated that the buyer’s premium wasn’t payable if the seller withdrew. The buyer persevered but the seller did not.

Having looked at the evidence provided by both the buyer and the agent, the Ombudsman was satisfied that the buyer had persevered with his proposed purchase of the property, but the seller failed to progress the sale. Later on, the entire block of flats was put up for sale, which meant that at that point the property was no longer available for the buyer to purchase and that the seller had effectively withdrawn from the transaction.

With regards to the £2,000 reservation deposit, records supplied showed that this was paid to remove the property from the market and that it would be deducted from the sale price upon completion. The agent confirmed that £1,000 of the deposit was paid to the seller and the other £1,000 was either held by them, pending exchange of contracts.

The buyer also requested that the agent refund his mortgage application fees relating to the second mortgage application he made after the reduced purchase price of £65,000 was agreed.

OUTCOME

It was the Ombudsman’s view that the seller withdrew from the transaction and no contracts were exchanged. Therefore, the buyer’s premium should be refunded in full.

In addition, the buyer received no benefit from the service provided by the agent in accordance with the terms of their agreement, in that the property had not been reserved for the buyer. Therefore, the reservation fee should be refunded.

Finally, the buyer would not have incurred costs associated with applying for a second mortgage if the agent had acted correctly and promptly advised, once the property had been down-valued, that the monies should be refunded. Therefore, the agent should make a further a refund of £300.

The Ombudsman supported this complaint and made an award of £6,300. This award reflected the buyer’s premium of £4,500, £1,000 of the reservation fee, the mortgage fees of £300 and £500 compensation for the avoidable aggravation, distress and inconvenience caused by the agent.

The buyer was directed to seek a refund of the remainder of the reservation deposit (£1,000) from the seller directly.

June 12, 2018

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