In this article we explore the intriguing dynamics of contract races in property sales, where sellers, frustrated by slow progress, may pit buyers against each other to hasten the process. In competitive markets, with multiple interested buyers, this tactic becomes even more tempting. This piece delves into the pressures and risks buyers face and the careful navigation sellers must undertake to avoid legal pitfalls, and questions whether the urgency of a contract race justifies disrupting the traditional good faith approach in property transactions.
Who is the winner in a contract race?
Conveyancing in England can be notoriously slow and relies upon the good faith of the buyer and the seller that, provided there are no major issues with the property, exchange will happen when both parties are able to do so.
Often, the seller becomes frustrated that the sale is taking too long. As a seller, if you are lucky enough to have more than one interested buyer, should you engage in a contract race? Sometimes all it takes to reach exchange is for everyone to be focused on the end result, and nothing focuses a buyer quite like the possibility of losing out to another buyer.
In a contract race, the seller's solicitor issues the contract pack to all potential buyers and the first to exchange wins the race and goes on to purchase the property. The others are left to pay abortive fees and look for another property.
What does it mean for the buyers?
For the existing buyer, sometimes matters become protracted for seemingly no reason; often there is a genuine problem that stops the buyer from being ready to exchange. Searches may be outstanding or there may be a practical or legal point that needs further investigation. Starting a contract race puts pressure on a buyer to exchange but, ultimately, no amount of pressure can force a buyer's hand if they are not completely happy with the property. By forcing a contract race, the seller gives the buyer two options: proceed and try to exchange (with the risk of incurring wasted costs) or pull out and be responsible for the abortive costs.
The new buyer may be starting quite far behind the existing buyer and will still want to carry out some, if not all, due diligence. As a bare minimum they will want their solicitor to be sure that they will be registered as the owner of the property at the end of the transaction. Again, this buyer enters the race knowing that if they are unsuccessful, they will have to fund their abortive costs.
Different solicitors need to act for each buyer to ensure that each buyer's best interests are protected.
What does it mean for the seller?
Introducing a contract race may cause a good (albeit slow) buyer to become aggravated and pull out. The seller's solicitor has a duty to tell the buyers when a contract race is taking place and keep them informed of developments (like a party withdrawing), however, they cannot do this without permission from the seller. The solicitor has a duty to inform the buyers as soon as there is "an intention to deal with more than one buyer".
A seller and their solicitor must be very careful what they say as even hinting at another interested party, even if there is no intention to deal with them, can amount to misrepresentation and to the contract being set aside. A contract race intended to speed up a sale could inadvertently delay it further with regulatory issues.
Contract races are reasonably rare and often buyers are not willing to engage in a race. Our system relies on the principle that the buyer and seller have come to an agreement in good faith and barring a title or structural defect or adverse search result, the sale will go ahead on the agreed terms. Entering into a contract race goes against this principle and the seller should not insist upon it lightly.