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Ever heard of “Gazundering” or maybe you’ve been “Gazumping”

The question of the “gazumping” of buyers by sellers or the “gazundering” of sellers by
buyers often gives rise to expressions of public disquiet.

“Gazumping” occurs where there has been an oral pre-contract agreement between a buyer
and a seller, including the payment of an initial “booking deposit”, for the sale of property at a
particular price and, subsequently, the seller either
• Refuses to execute a formal contract of sale to the buyer in question and sells to
someone else for a higher price; or
• Refuses to execute a formal contract of sale to the buyer in question unless the buyer
agrees to pay a higher price.

“Gazundering” occurs where there has been a pre-contract agreement between a buyer and a
seller, including the payment of an initial “booking deposit”, for the sale of property at a
particular price and, subsequently, the buyer refuses to execute a formal contract of sale and
revises his original offer downwards.

“Gazumping” and “Gazundering” are market-driven phenomena. “Gazumping” typically
occurs in a “seller’s market” where house prices are rising rapidly. Sellers, knowing that
buyers are extremely anxious to secure a house before prices rise further, can put pressure on
buyers to increase their offer above the agreed amount. “Gazundering”, on the other hand,
happens in a “buyer’s market” where a buyer becomes aware of a general lack of interest in
the property and decides that the original offer is too high given the prevailing market conditions.

Where such practices are perceived as commonplace public disquiet often gives
rise to calls for “booking deposits” to be equated with an option to purchase the property.

There is a general lack of understanding as to the legal effect of paying “booking deposits” on
property, outside of an auction situation. In general, “booking deposits” are made against a
specified price and accepted on the basis, expressed in writing by the seller at the time, that
the sale of the property is “subject to contract”.

While the law on contracts for the sale of land and/or buildings is complex it is for the most
part well established and indeed the Law Reform Commission “Report on Gazumping” gives
a very detailed account of the law in this area. Consequently, it is not proposed to go into the
detail of the law in this guide but to simply address certain issues which might help place the
problems and misconceptions associated with “booking deposits” in context.

A central element of the law is Section 2 of the Statute of Frauds (Ireland) Act, 1695. Section
2 governs contracts for the sale of land and/or buildings and provides that, even if there is a
concluded oral agreement, it will not be enforceable unless the provisions of the section are
satisfied. Section 2 effectively provides two ways in which an enforceable contract for the
sale of land and/or buildings can come into being: either the agreement itself is in writing, or
there is an oral agreement of which there is “a written memorandum or note”. This means that
an oral contract for the sale of land can be enforced provided the person seeking to enforce it
can produce appropriate evidence in the form of “a written memorandum or note”. It is
possible therefore that a very informal document, which was not intended to have any legal
effect, may constitute evidence of an oral agreement and render it enforceable. As this can
have significant implications, legal advisers for the parties concerned will be anxious to avoid
“accidentally” creating “a memorandum” which may inadvertently bind their client in
circumstance which may not be in their client’s best interests.

There are dangers associated with committing to an enforceable agreement without a formal
contract, particularly for the buyer. The buyer runs the risk of finding himself bound to buy a
property which has problems that were not apparent at the time of agreeing to the purchase
and the payment of a booking deposit. For example, the buyer may not, at the time of
agreeing to purchase the property and paying the booking deposit, have secured the necessary
finance and it is most unlikely that he will have had the necessary professional surveys carried
out to ensure that there are no structural defects before being legally bound.

At the stage where “booking deposits” are taken, no contracts are signed by either party.
However, some written record of the agreement usually exists, for example a receipt for the
booking deposit, and legal advisers for the parties will endeavour to ensure that such written
record does not constitute “a memorandum” which satisfies Section 2 of the 1695 Act. In
order to avoid creating “a memorandum”, a denial that any contract exists is invariably
inserted into any written document or note. That is usually done by heading the document
“subject to contract,” or “subject to contract/contract denied” or similar meaning words. This
means that, even where there is a concluded oral agreement, without “a memorandum” that
oral agreement is not enforceable.

While there have been cases where the Courts have held that the use of the words “subject to
contract”, or similar meaning words, did not prevent the creation of “a memorandum” and
that the agreement was therefore enforceable, such cases have been few and are regarded as
exceptional. The traditional view, and that which is strongly supported by case law, is
that a written note such as “subject to contract”, which denies the existence of a
contract, cannot constitute a memorandum for the purposes of the Statute of Frauds.
This phrase means that no agreement has been concluded since the parties have agreed that
they will not be bound in the absence of a formal contract, and, as a result, any note which is
headed with this phrase cannot constitute “a memorandum”.

It is important for the reader to remember that neither “Gazumping” nor “Gazundering” is
illegal and such practices arise from the fact that legally binding contracts are not entered into
by the parties at the time the price is agreed and a “booking deposit” is paid. During this precontract
period, the seller may, in a “seller’s market”, try to exploit the buyer by threatening
to withdraw from the deal unless an increased price is paid or the buyer may, in a “buyer’s
market”, try to exploit the seller by threatening to withdraw from the deal unless the seller
lowers the price.

As distinct from buying at Auction it is important to understand that, in a “Private Treaty”
sale, the payment of an initial “booking deposit” is no more than an indication of the
seller’s and buyer’s good faith in entering into negotiations for the sale/purchase of the
property.

Payment of a “booking deposit” in that situation neither obliges nor entitles the buyer to
complete the purchase nor does it impose any such obligations on the seller. The seller, in
other words, remains free to sell to somebody else as no contract has been signed.
No legal obligations are created on either side solely as a result of a “booking deposit”
having been paid. The buyer is of course normally entitled to get back the booking deposit
should he wish not to proceed with the sale.

For further information on GAZUMPING/GAZUNDERING; visit the Law Reform Commission website at  http://www.lawreform.ie/news/-report-on-gazumping.654.html