The Law Reform Commission has recommended limited reform of the law to control the practice of gazumping, concentrating on controlling the advertising of new houses and clarifying the nature and role of booking deposits.
The Attorney General referred this issue to the commission in December. This followed a number of court cases in which prospective purchasers had agreed to buy a house at a certain price and paid a deposit, but were later gazumped after the vendor demanded and received a higher price from another party.
The commission carried out a survey to discover the extent of the gazumping problem. It concluded it was not extensive, and was mainly the product of the current boom in demand for houses. But "there is some scope for abuse in the present system, even if the vast majority of vendors do not exploit it," it said.
"The commission concludes that gazumping is both a temporary and an infrequent phenomenon . . . no proposal for a change in the present laws will be recommended if it puts in jeopardy the benefits of the current system."
The commission examined the existing law on contracts for the sale of land and the recent cases in the courts involving gazumping, where booking deposits were paid, but no formal contract signed. It pointed out that, while generally the purchasers had lost these cases, as there had been no written judgments "a really authoritative judgment which clarifies this point is still lacking."
It examined the system of booking deposits, including the possibility of making these a binding contract. However, it concluded the deposits should remain "subject to contract", as they served the interests of vendors and purchasers.
The payment of a booking deposit usually meant the property was withdrawn from the market, according to the commission, and the time which elapsed between that and the formal agreement of a contract allowed the purchaser's solicitor to examine the terms and conditions and carry out necessary checks. It pointed out that purchasers usually do not take legal advice before paying a booking deposit, but do before concluding a contract.
However, it proposed tightening the regulations concerning booking deposits. These should not exceed 0.5 per cent of the purchase price, and there should be an end to the practice with some developers of retaining a portion of the booking deposit for "administration", when it did not lead to a contract being concluded.
The commission also looked at legislation to compel a vendor to issue a contract within a specified time, but concluded this would be inflexible and difficult to enforce. Despite it not being legally enforceable, the commission concluded that a voluntary code of practice among the professional bodies representing vendors was preferable.
The report also examined the advertising of houses, pointing out that land, including houses, was not included in the control of advertising under the Consumer Information Act. It would not, therefore, apply to someone who had been misled about the price of a house by a developer.
The commission therefore recommended legislation controlling the advertising of new houses, specifying the number to be sold at a particular price and the length of time they would be available at that price, in order to prevent developers from raising the price.