Option agreements have many similarities with exclusivity agreements. The main difference with an option contract is that the buyer has the right to purchase the property if they issue an option notice during the option period (once their due diligence has been done and they are ready to proceed). There is a strong argument that non-refundable and non-deductible expenses are not paid for any type of land interest and are not paid for the property, but only for the booking contract. The reservation contract gives the buyer certain important rights, in particular, the seller is not allowed to negotiate with other parties and must take steps to advance the sale process. After the conclusion of the reservation contract, the property is built and after completion, the contracts are exchanged, and after payment of the balance of the purchase price agreed in advance, the parties conclude. In this case, it is customary for the booking fee to be deducted from the pre-agreed purchase price, which is due in full after the completion of the transaction. The information provided by the auctioning company indicates that SDLT may be due on both the non-refundable fee and the price offered, although only the bid price is included in the contract and transfer. My analysis of the terms of „reservation contracts“ and auction conditions that I have seen is that of a reservation contract: The purpose of an exclusivity agreement, sometimes called a lockout agreement, is to prevent the seller from negotiating with a third party during the exclusivity period, which gives the buyer the opportunity to perform due diligence and bear the costs, who are sure (theoretically) that the seller will sell them. If you have purchased or would like to purchase a property with a booking contract, or if you, as a developer, are offering a booking contract to potential buyers, we will be happy to discuss your position in detail to see if SDLT savings can be achieved.
Now consider a position where a reservation agreement was reached between the buyer and the developer before the start of construction of the property. Under these Terms, SDLT`s liability may be calculated as follows: – The purchase of a property under a regulated sale and lease agreement constitutes a criminal offence, unless the person is an authorized or exempt person under financial services legislation or there is an exclusion: there is an exclusion when the buyer and the seller/tenant are closely related. Exempts include local authorities and registered social landlords. But in the usual case of a buyer who offers to allow the seller to remain in the profession, there is no exception, and the buyer, if it is an individual, will not have the authorization or exemption under financial services legislation. However, exclusivity agreements do not give the buyer the certainty that the seller will sell to him and cannot prevent the seller from allowing time to elapse and entering into a transaction with another buyer at the end of an exclusivity period. I have encountered the use of this method of selling for residential property twice in the last week. A fee (usually 3.5% of the prize or at least £6,000 including VAT) is paid by the auction „winner“, who receives a „booking contract“ and 56 days to negotiate a purchase contract and complete the transaction. For SDLT purposes, the amounts paid for the booking contract and for the property should be divided fairly and appropriately. It seems justified to divide them as the parties have documented them, especially since the figures are determined at an open auction. This means that SDLT is only due for the price specified in the contract and transfer and not for the booking fee.
In this context, the reservation contract allows a buyer (`A`) to pay a reservation fee to the developer („B“) in exchange for the reservation of a plot on a certain date and at a pre-agreed price. Of course, since this is essentially the purchase of a residential property, this means that SDLT`s residential rates are applicable to the transaction. However, if a booking contract meets various conditions, the transaction could actually result in a decrease in SDLT`s non-residential rates. Booking agreements are often seen when buying properties at auction. It would be typical for the highest bidder attempting to acquire the property in question to pay a sum, usually a relatively small single number based on a percentage of the final offer amount, to obtain the booking agreement, which would provide almost exclusivity and a time to close the deal. This blog focused on an unmarried couple where only Donald raised capital for a purchase. Hilary (who owned another property) should not have a share in the new property, but should be jointly and severally liable with Donald for the mortgage; they would both live in the new house. A cohabitation agreement (also known as a cohabitation agreement) could protect Hilary to some extent, especially her position in a relationship breakdown (where she could potentially remain fully responsible for the joint mortgage but still has no interest in the property).
In the scenario presented by the blog, the structure worked well for SDLT, with Donald being the only buyer of a £400,000 property who could count on relief from first-time buyers and pay SDLT £5,000 instead of the £22,000 that would have been due if Hilary had taken an underlying stake in the property. Reservation contracts are also particularly common when residential real estate developers sell to „off-plan“ buyers, i.e. agree to a sale before construction of the property begins. The buyer usually pays an exclusivity fee, which may be refundable in certain circumstances, such as. B the discovery of a defect in ownership or a material investigation. At the conference, we debated the limits of the case. This is neither an objection to the favouritism that the sale of the land and the construction contract are essentially a good deal, nor that the parties would not have entered into a contract without the other. However, there is a prerequisite that the sale of the land must be carried out „independently“ of the construction contract.
This requires that the sale of the land after the completion of the land (with ownership of the transfer of the land) can in no way be „reversed“ on the basis of the construction contract. If a company violates this rule, the transaction will be treated as a sale of land with completed buildings for the sum of payments made for the land and for the work. SDLT would therefore count towards the total. .