Crucial Documentation: What The Memorandum Of Sale Means In The UK
In England and Wales, residential property sales involve key documents that secure transactions through the legal process. One pivotal document is the memorandum of sale, which serves an important function following auction sales. For buyers, sellers and conveyancers, understanding what memorandums represent provides valuable insights into the implications and requirements following property auctions. This guide examines why memorandums are required, what they contain, how they make sales binding and key steps following signature to progress smoothly to completion.
Memorandum Of Sale
Let us first understand what is a Memorandum of sale. In essence, it is a document that formally records the property transaction details following a successful auction bid. Key features include:
- Records Sale – Confirms the property address, sale price and relevant parties involved.
- Legally Binding – Signing the memorandum commits the parties to complete the sale under the auction terms.
- Basis for Contract – Provides core details that get incorporated into the full contract prepared post-auction.
- Required by Law – Provides written documentation to satisfy legal requirements for property contract validity.
- Also Called – Other terms like “memorandum of agreement” or “note of sale” may be used interchangeably.
Without this evidencing document, auction sales can lack the required legal substance. The memorandum captures vital information.
Why A Separate Memorandum Is Required After Auction
Auction sales have certain motivations necessitating a clear memorandum:
- Rapid Pace of Auctions – Unlike private sales with protracted negotiations, auctions require swift, binding commitments.
- Public Bidding Format – As an open bidding forum, documenting the winning bidder and price is required.
- Legal Requirements – To legally form binding contracts, property transactions require identification documentation.
- Avoid Bid Withdrawals – It commits bidders to follow through after the auction, preventing non-serious bidding.
- Outward Contracts – Full particulars are not stated outwardly before the auction. The memorandum captures key particulars.
- Next Steps Reference – Provides critical details conveyed into the full contract prepared post-auction.
In an accelerated auction setting, the memorandum provides a swift means of securing deals legally.
Key Information Contained In A Property Memorandum
While formats vary slightly by the auctioneer, core details within a memorandum of sale include:
- Parties Names – Records the successful buyer’s and seller’s full legal identities.
- Property Address – Identifies the exact property lot reference and full postal address.
- Sale Amount – States the winning bid sale price agreed for the property at auction.
- Deposit Paid – Confirms the deposit amount contractually paid by the buyer on the auction day.
- Completion Date – Specifies the date by which legal completion must occur. Typically 28 days after auction.
- Signatures – Signed and dated by the buyer, seller and auctioneer as the agreeing parties.
Clarifying these details within the memorandum provides legal certainty to all involved in the transaction.
How Signing Makes Auction Sales Legally Binding
The implications of signing a memorandum of sale include:
- Commitment to Complete – Signing legally commits the parties to complete the purchase as outlined.
- Deposit Held – The buyer’s deposit paid on auction day is held as a deposit towards completion.
- Date of Contract – The memorandum signing date will be deemed the official date of contract formation.
- Basis for Contract – The memorandum details will transfer into the full contract prepared post-auction.
- Removes Negotiation – The signed terms are fixed. Neither party can attempt to renegotiate on second thoughts.
- Enforceability – If either party later withdraws, the opposite side can pursue legal judgements via the courts.
Both buyers and sellers must therefore be certain before signing, as the memorandum makes sales binding.
What Happens If One Party Refuses To Sign The Memorandum?
If buyers or sellers refuse to sign the memorandum after the hammer falls, implications vary:
- The seller can pursue legal action to force completion based on the publically made bid. But this involves time delays.
- The auctioneer will retain the deposit paid to secure the purchase. This will be released to the seller if the buyer is confirmed as defaulting.
- The auctioneer may ban the buyer from making future bids for a period due to wasted time and costs.
- The seller’s options are receiving the deposit, selling to the second highest bidder if applicable or re-listing the property in a future auction.
- The buyer has limited leverage as the seller is not obligated to accept any offer pre-contract.
- The easiest resolution is for the buyer to persuade the seller to complete based on public commitment and deposit implications.
- If the seller’s withdrawal appears permanent, the buyer’s deposit must be returned in full by the auctioneer.
- The frustrated buyer may leave negative feedback or complaints. However extensive legal action has low prospects.
In essence, buyer refusal carries greater risks under auction terms. But both parties aim to avoid the upheaval of refused memorandum signing if at all possible. Open communication is key.
Critical Steps After A Successful Auction Sale
Once sales are complete by the auctioneer’s gavel, the next steps include:
- Pay the Deposit – The buyer pays their 10% deposit, usually on auction day. The money is held by the auctioneer temporarily.
- Sign the Memorandum – Both buyer and seller sign the memorandum recording the transaction details.
- Confirm Completion Date – The completion timeline is agreed upon, typically 28 days after the auction. Faster can be requested if agreed by the seller.
- Appoint Conveyancers – Buyers and sellers instruct conveyancing solicitors to execute the legal documentation and transfers.
- Mortgage Application – If requiring finance, the buyer should apply promptly to ensure funds are available on time.
- Draft Final Contract – Conveyancers utilise the memorandum contents to create the full detailed contract.
- Conduct Searches – Conveyancers arrange local authority searches on the property ahead of exchange.
- Exchange Contracts – Once searches are returned, the final contract is signed by the parties and legally exchanged.
The memorandum provides the foundation enabling swift progress through the remaining conveyancing steps.
Protecting Buyers If Sellers Withdraw After Memorandum
This is fortunately rare, but buyer options if sellers unexpectedly pull out despite having signed include:
- Deposit Return – The auctioneer will be obliged to return the full deposit amount to the frustrated buyer.
- Fee Recovery – Conveyancing fees spent by the buyer may be partially recoverable from the seller if reasonable costs were incurred based on the memorandum commitments.
- Damages Claims – The buyer could pursue the seller through small claims court for losses like failed survey costs, though this is unlikely to be worthwhile in most cases.
- Negative Feedback – Naming the seller when leaving truthful feedback for the auctioneer acts as a deterrent against repeat withdrawals.
- Request Ban – The auctioneer may temporarily or permanently bar the unreliable seller from future auctions if the behaviour represents a pattern.
While ultimately the memorandum offers limited buyer controls if sellers still withdraw, reputational warnings do deter repetition of non-completion.
Handling Property Access Between Auction And Completion
A fair memorandum should set guidelines for access:
- Mortgage Valuation – Most buyers require valuation inspection for financing. Sellers facilitate this by providing access.
- Survey Inspections – Buyers can undertake survey inspections to identify any repairs required before exchanging contracts.
- Conveyancer Visits – Where possible, buyers’ conveyancers should be permitted to conduct property inspections to satisfy legal obligations.
- Owner Removal of Items – Memorandums may permit sellers to retrieve certain fixtures and fittings before completion, subject to buyer agreement.
- Securing the Property – Sellers must ensure buildings remain secured between auction and handover.
Enabling access reduces completion risks but requires sellers to remain contactable and cooperative.
Can Auction Sale Price Be Negotiated Down After Memorandum?
In short, no – the memorandum records the bidding amount as final. However, in exceptional circumstances:
- Material New Findings – For example, surveys revealing major structural issues or planning refusals not known in advance may allow price renegotiation. But strong proof is required.
- Seller Agreement – If having second thoughts, some sellers may volunteer reductions to ensure sales still proceed smoothly rather than have to relist. However, buyers cannot compel sellers to lower prices.
- Special Auction Terms – Very rarely, some auctions may have terms allowing conditional negotiation for a short post-auction period. But the usual policy is binding property prices.
- Reserve Prices – The final price can still be challenged if it fails to meet the confidential reserve price threshold set out in auction terms. Evidence must confirm reserves were stated and not met.
Barring unforeseen events, auction prices secured through open bidding are legally binding. Buyers and sellers must transact at the memorandum price.
Can Sale Completion Dates Move After The Memorandum Is Signed?
Again, as a rule, the memorandum completion date is binding. However, there are exceptions:
- Mutual Agreement – If aligned, both parties can mutually consent through conveyancers to move dates. Common if more time is required for surveys, mortgage lending applications or final arrangements.
- Buyer Delays – Issues like complex mortgage lending can sometimes permit buyers extra time if sellers are compensated for costs like ongoing property taxes incurred by delays.
- Seller Delays – If sellers require more time to vacate, buyers may permit extensions in exchange for temporary occupancy rights after completion.
- Force Majeure – Rare events like property damage, illness or death that physically prevent completion may allow date changes by mutual consent.
- Auctioneer Advisory – Most memorandums do allow auctioneers discretion to agree on reasonable completion extensions. But this is not guaranteed.
While binding, mutually agreed or externally compelled changes do allow some flexibility if completion dates become unworkable for justifiable reasons post-auction. But there is no unilateral right to alter dates.
Partnering With Conveyancers Experienced In Auction Transactions
Given fast turnarounds between auction and completion, partnering with experienced conveyancers is advisable for:
- Expediting Documentation – Swift preparation of contracts based on the memorandum particulars helps progress sales quickly.
- Auction Familiarity – Regular auction transaction experience translates into efficient handling of each stage through to completion.
- Accessibility – Buyers and sellers require conveyancers who are consistently available to arrange property visits, answer queries and sign documents at often short notice.
- Proactive Approach – Conveyancers should lead in prompting all parties to fulfil obligations before looming deadlines.
- Relationship Building – Constructive relationships with fellow conveyancers smooth coordination between both sides of transactions.
With the right conveyancing support, sales can proceed seamlessly from auction bids through to completion.
In the accelerated world of property auctions, the memorandum of sale performs a vital role in capturing bid details and securing transactions through legal documentation. Providing a swift means of recording contract particulars, the memorandum also signals the transition point where bidders become legally obligated buyers. Understanding the implications of signing a memorandum empowers bidders to participate in auctions with confidence. While limited in detail, this concise document holds the power to make deals contractually binding. When executed carefully alongside experienced conveyancers, auction transactions can then proceed efficiently from the thrill of bidding through to satisfactory completion.