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Lesson for Developers – Don’t Fear Perfection – 5 Tips for Providing a Good Well Drafted Reservation Agreement

Lesson for Developers – Don’t Fear Perfection – 5 Tips for Providing a Good Well Drafted Reservation AgreementWritten from the perspective of a law firm comprising lawyers who have handled tens of thousands of property transactions between them, have seen developer’s succeed; some fail; some succeed and then surprisingly fail and everything in between.

1.  The Three ‘P’s – Define the Parties; Property; and Purchase Price

Are you planning to present the reservation agreement at a Beach Club in Phuket whilst your purchaser is in a happy mood ? If so, make sure you at least manage to define who is buying the property and who is selling it, properly. Maybe the buyer will set up an offshore company, maybe husband and wife or partners both want their names on the agreement. What are the proper addresses of the parties, and for identification purposes attach copy passports. This is all standard stuff, but so often ignored.

If the property is a villa such as ‘A1’ – show a site and location map. You don’t have to turn the Reservation Agreement into a full Sale and Purchase style agreement to be precise and professional. How big is the property; how many floors; bedrooms and what are the basis amenities.

Surely everyone can get the purchase price right, right ? Wrong… So often Reservation Agreements have a purchase price but don’t mention who will pay registration fees and taxes, administrative fees are missing; a price for furniture is missing and where there are clearly going to be staggered payment, the payment milestones may be completely missing.

2. Include Particular Terms to Avoid Debate and Confusion Later

If you shook hands on an extended balcony, a purple tiled swimming pool, a games room and wine cellar basement, leaving it out of the reservation agreement for the sake of saving a few seconds writing time could lead to misplaced mistrust and may give the impression of a lack of professionalism. Maybe you are good at building properties, but if you find it hard to focus on putting some words on a page, buyers may suspect you will find it hard to look at the grouting standard on their tiling, or find it hard to have your sub-contractors fix any finishing defects. If you really dislike contracts, then spend some money on a lawyer to assist you and give yourself and your project a rounded edge. Copying an old Reservation Agreement you have seen on an email from 4 years ago generally won’t cut the mustard and will inevitably contain mistakes or inconsistencies. There is no such thing as a one-size-fits all contract.

3. Don’t give genuine buyers the brush off; attack their choice of legal counsel or criticize them for being cautious. You would be cautious if you bought a family home for yourself 

This applies to many professions across the board. Nobody wants to meet with a doctor to discuss the birth of a new child and be greeted with an ice cold boredom as the doctor has been through the process so many times before.

Similarly, a house purchase, especially an overseas investment may be an incredibly exciting but also nerve wracking experience for a buyer, even if they are astute investors in their own field.

They may want to know about the financial health of the developer, if there have been any disputes or fallings out with other owners, if your plans for managing the estate are solid and reliable, and whether their neighbours will be pleasant. Some buyers find it difficult to raise these questions directly with a developer; seller or agent as they might be embarrassed to be perceived as being too aggressive or probing. Instead, they may instead ask their lawyer to raise these questions for them.

When that happens, don’t attack their lawyer! It may be you are in fact attacking your own customers by doing so. It isn’t clever to try and undermine someone’s choice of legal counsel unless legal counsel behaves in a hostile or unprofessional way. A property deal is supposed to be a nice experience for buyers – they should enjoy spending their money and choosing how to.  Some developers have this process nailed down and their service is impeccable. Others haven’t quite understood the nature of the source of the revenue streams.

4. Be Flexible; Magnanimous and Accommodating – most like that will be reciprocated

If you are asked to change something which appears to be pedantic, and to do so will take you a few seconds of time, just change it. There is no harm in making people feel they are achieving something by asking you to change a semi-colon to a colon, or asking you to number the clauses in your contract properly. It may in fact not be the lawyer that is asking for such changes, but perhaps an inexperienced buyer who is simply concerned about mistakes they can ‘see’ as opposed to bigger issues they should think about which can’t be seen in the contract. Just saying yes where you are easily able to can bring rewards later and improve your relationship with your customers.

5.  Be clear about deposits; refundability and time periods for due diligence and signing of full agreements

The nature of many is to put off a decision until later, especially if a decision may attract discussion which could detract from the main objective of the parties. Developer’s may feel if discussions become bogged down in ‘what ifs’ that the purpose of the reservation is lost. However, buyers must feel that a transaction will be fair, even if to the developer’s mind they will be fair. Surely if your land was completely illegal and proven to be so, you would refund the monies to a buyer ? Surely if you are bankrupt, you would allow the buyer to withdraw? All of these types of points are conditions. They do not need to be as extensive or as detailed as terms in a full sale and purchase agreement, but material points must be included to avoid unnecessary ambiguity.

Conclusion

If turning a one page poorly presented reservation agreement into a 3 page confidence inspiring clearly drafted reservation agreement will assist your relationship with buyers; assist with making the full contract negotiation process easier, and reduce lawyer time in the future, then make the effort and adjust your style accordingly.

If you are a good developer, but don’t possess the patience or people skills to understand the different business cultural beliefs and backgrounds of your customer base, then appoint a very good agent, and a good lawyer to help you communicate in a manner conducive to moving your sales processes forward positively.

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