Climate of Change
You might have missed a news item reported in the London Evening Standard a few weeks ago which if you had seen it would have given you a quiet moment of schadenfreude. Cherie Blair was gazumped. The story went that she offered £2.75m for a house in Marylebone and her offer was accepted, until the twice ex-wife of Elon Musk, actress Talulah Riley bid £3m and stole it from under her nose.
Picture the scene. For the seller the offer of an extra quarter of a mill is irresistible and the celebrity down-trading from the wife of a past Prime Minister to the star of two St Trinians films is hardly slumming it. Cherie no doubt was relaxed in the expectation that no-one would mess around with a high profile lawyer like her and will have been spitting feathers when she was outbid after she thought the deal was done. But although it may be unethical and immoral there is nothing illegal about gazumping and her only remedy would have been to bid even higher.
Fast forward to last week, and another high profile piece of gazumping. Donald Trump pulls out of the Paris Accord on Climate Change. He and his spokespeople make it clear that he is not heading for the hills, he simply wants to renegotiate a deal which is ‘fairer for the USA’ notwithstanding that the deal is already done and that the Accord in its present form has been ratified by 148 of the 195 countries who signed it.
Trump wants a better deal, and his tactic of reneging on the agreement (like the house seller did) poses all sorts of problems for his fellow country heads. They might complain about his lack of ethics and morals, they might write open letters to his administration appealing to his better side (does he have one?) but they have no legal remedy and I expect that Climate Change talks will reopen.
Negotiating deals relies on trust; that the parties to the deal will stick to their word and perform on their agreements. In our increasingly uncertain world the propensity to play dirty has eroded the value of trust to the point that negotiators need to realise that the deals they do are potentially all at risk. Negotiators used to say that it wasn't a deal until the ink was dry on the order form. Nowadays, it isn't a deal until the goods have been delivered and the money is in the bank.
So what suggestions for a potential gazumpee. As usual in our Uncertainty Series here is one piece of advice each on strategy, tactics and skill.
Strategy: keep the time line as short as possible. The longer the opportunity to unpick a deal, the more likely it is. If Cherie could have completed the deal in a few days maybe neither the seller nor Talulah would have had the opportunity to disrupt it. Did you know that the Paris Accord doesn’t even begin until 2020. Not a wise move – elements of it should have kicked in straight away.
Tactics: use the Lock In tactic to minimise the risk. In house purchase, both seller and purchaser commit a small percentage of the price, typically 2-3% to a contract which commits both parties to go through with the deal except in certain specific exceptional situations. If the contract is broken by either party out with these exceptions then the contracted percentage is forfeited. All signatories to the Paris Accord could have been locked in in the same way.
Skill: do some homework before you make an offer. Not about the property but about the seller. Have they been trying hard to sell? Is the sale a distress situation (they need the money badly)? Does the estate agent speak well of them? Do you have any links – friends of friends – who might be dropped into a conversation. Manufacturing a closer relationship than is really true might make the potential gazumper more reserved about doing it to you.
About the author:
My background is sales and marketing. I read Law at University and worked for 2 major packaging companies for 13 years in sales and sales management. I joined John McMillan and Scotwork in 1984. For the next 25 years together with our colleagues we delivered training and consulting, built the global business and developed the Scotwork product portfolio.