Voluntary Reservation Agreements: A Comprehensive Guide
Voluntary reservation agreements are becoming increasingly popular amongst individuals and businesses alike. These agreements, also known as VRAs, are legally binding contracts that allow parties to secure a property or asset by making a reservation deposit as a way of showing their interest in purchasing the property.
In simple terms, a VRA is a contract that allows a buyer to reserve a property without having to enter into a binding agreement to purchase it. With a VRA in place, the seller cannot sell the property to anyone else, and the buyer is granted the exclusive right to purchase the property within a specific timeframe and subject to certain conditions.
Why Use Voluntary Reservation Agreements?
VRAs provide an effective way for buyers to secure a property while they complete their due diligence and finalize their finances. The reservation deposit represents a commitment from the buyer that they intend to purchase the property and are serious about the transaction. This deposit may also be used to cover any costs that the seller incurs due to holding the property off the market.
VRAs also provide sellers with reassurance that the buyer is committed to purchase the property. By entering into a VRA, the seller is confident that the property will not be sold to someone else while the buyer is carrying out their due diligence and arranging their finances.
Key Provisions of a VRA
The terms of a VRA can vary depending on the specific agreement. However, there are certain provisions that are common to most VRAs, including:
1. Reservation deposit: The amount of the reservation deposit will be agreed upon by both parties and typically ranges between 1% and 10% of the purchase price.
2. Exclusivity period: The exclusivity period is the timeframe during which the buyer has the exclusive right to purchase the property.
3. Conditions precedent: The VRA may include certain conditions that must be met before the purchase can proceed, such as the buyer obtaining financing or a satisfactory survey.
4. Termination: The VRA will specify the circumstances under which the agreement may be terminated by either party.
5. Consequences of termination: The VRA will outline the consequences of termination, including the return or forfeiture of the reservation deposit.
Voluntary reservation agreements are increasingly being used by buyers and sellers as a way of securing properties. These agreements provide a way for buyers to secure properties while they complete their due diligence and arrange their finances, and for sellers to have reassurance that the buyer is committed to purchasing the property. As with any legal agreement, it is important to seek expert advice to ensure that the VRA is legally binding and protects the interests of both parties.