From Agreement To Assurance: Navigating The Exchange Of Contracts In The UK Property Market
The exchange of contracts marks a major milestone in the home buying and selling process in the UK. It is the point where the seller and buyer enter into a legally binding agreement to complete the property transaction. While reaching this stage is exciting, the exchange process itself can seem daunting, especially for first-time buyers and sellers. This guide aims to provide an overview of the key things to know when exchanging contracts to help buyers and sellers navigate this crucial stage with confidence.
Why Exchange Contracts?
Exchanging contracts, also known as concluding missives in Scotland, create a legally binding agreement between the buyer and seller. Up until this point, while terms may have been agreed upon, either party can pull out of the transaction without legal ramifications.
Once contracts have been exchanged, the completion date is set and both parties are legally obliged to complete the sale. If either withdraws at this point, the other can sue for breach of contract and seek compensation for losses incurred.
Therefore, the exchange assures both buyer and seller that the transaction will be completed on the agreed date. This gives buyers and sellers confidence to proceed with related transactions, such as arranging removals, booking travel, or exchanging on an onward purchase.
For buyers specifically, the exchange also signifies the point at which equitabl e interest in the property transfers to them. This means that if anything happened to the property between exchange and completion, such as damage, the buyer would bear the loss.
The Exchange Process
Exchanging contracts involves the buyer’s and seller’s solicitors simultaneously swapping the signed contracts and deposit monies. This is usually done electronically.
The buyer’s solicitor will send the signed contract and deposit cheque to the seller’s solicitor, while the seller’s solicitor will send the signed contract to the buyer’s solicitor.
Once each solicitor has received the respective contracts and is satisfied, they will authorise the simultaneous exchange. The buyer’s solicitor will then notify the estate agent that the contracts have been exchanged.
The deposit amount is usually 10% of the purchase price and acts as a security for the seller that the buyer will complete the purchase. If the buyer fails to complete it for no valid reason, the seller can retain the deposit.
- Notice to Complete – Around 2 weeks before the proposed completion date, the buyer’s solicitor will send a Notice to Complete to the seller’s solicitor, specifying the date and location for completing the transaction. This acts as formal notice of the date completion must take place.
- Pre-Exchange Searches – 1-2 days before exchanging, the buyer’s solicitor will conduct final pre-exchange searches. This includes checking for any entries registered against the property since searches were last done and ensuring nothing has changed.
- Cleared Funds Deadline – The buyer’s solicitor will need to have all purchase monies cleared and available in their client account before an exchange can take place. There is usually a deadline of 1 p.m. on the day of the exchange.
- Simultaneous Exchange – Exchanges usually take place between 2 pm – 4 pm once funds have cleared. The solicitors will exchange electronically once satisfied everything is in order.
- Completion Date – This is set on exchange and is the date buyers must have vacated and sellers must have left the property. Keys are usually handed over around midday.
Getting Ready to Exchange
For the exchange to take place smoothly, there are several things buyers and sellers should do to get ready:
- Ensure you have exchanged on the sale of your current property if applicable or have verified funds available for the completion monies. Your solicitor cannot exchange without cleared funds.
- Arrange building insurance for the new property ready to start on completion. You become liable for the property upon exchange so insurance must be in place.
- Agree on a completion date with the seller that works for both parties and allows enough time to arrange removals, take time off work etc.
- Respond promptly to any additional enquiries from your solicitor to avoid delays.
- Prepare paperwork such as Energy Performance Certificates (EPC), warranties, and instruction manuals ready to hand over on completion.
- Agree on a suitable completion date with the buyer that gives you enough time to pack up and vacate.
- Arrange for final meter readings to be done on the day of completion so utility accounts can be closed.
- Ensure you have fulfilled any conditions of the sale such as repairs agreed upon during the buying process to avoid any last-minute issues.
- Respond to enquiries from your solicitor promptly to prevent hold-ups.
Risks and Delays
While most transactions exchange and complete smoothly, there are some key risks and delays to be aware of:
- The buyer’s mortgage offer expires before the exchange and they have to re-apply.
- The buyer fails to provide cleared funds in time meaning the exchange gets delayed.
- The buyer is part of a property chain that collapses, so they cannot proceed.
- The seller is delayed moving out of the property and needs to push back the completion date.
- Disputes arose over fixtures and fittings that were expected to stay/go.
- Outstanding planning issues or building regulations crop up that hold up the sale.
- One party tries to renegotiate the price at the last minute threatening to pull out if terms aren’t met.
- Completion gets delayed due to solicitor/bank errors meaning buyers/sellers are left in a difficult position.
- Damage or destruction to the property occurs after exchange but before completion.
To limit risks, it’s advisable for both parties to regularly liaise with their solicitor as exchange approaches to stay informed of progress and be ready to act if issues arise. Buyers and sellers should also maintain buffer periods between exchange and completion where possible to allow time to resolve unexpected delays.
Key Things Included in Contracts
The contracts themselves contain the detailed legal terms agreed between the parties. Some of the key sections to look out for include:
- Names – Full legal names of the buyer and seller.
- Property description – Full address and title details confirming exactly which property is being sold.
- Sale price – The agreed amount the property is being sold for.
- Deposit – Amount of deposit paid on exchange and terms for handling it.
- Completion date – Date set for legal completion and transfer of funds/keys.
- Inclusions/Exclusions – Details fixtures and fittings included or excluded from the sale.
- Tenancies – Any tenants who have the right to remain in the property after completion.
- Special conditions – Any terms agreed between the parties above standard conditions.
- Signatures – Signed and dated by the seller, buyer and witnesses.
It is advisable for buyers and sellers to thoroughly review the contract before signing to ensure all details are correct and they understand the obligations. This avoids issues later down the line.
Conveyancer Role in Exchange
While buyers and sellers agree on the overarching terms, qualified conveyancers/solicitors handle the legal technicalities of exchange. Key responsibilities include:
- Doing final pre-exchange searches and enquiries to pick up any changes.
- Preparing the contract documents and engrossments tailored to the specific transaction.
- Obtaining signatures from their client.
- Liaising between parties to agree on a suitable completion date.
- Exchanging the contracts simultaneously between firms.
- Confirming to all parties once the exchange has legally taken place.
- Providing advice on the implications of exchange and obligations taken on.
A good conveyancer will proactively keep their client updated on progress, highlight any issues, and ensure the legal process runs smoothly through to exchange and completion. Choosing an experienced and communicative firm can take away much of the stress.
Once contracts have been legally exchanged, there are a few key next steps:
- Arrange building insurance to start immediately from the exchange.
- Confirm removal and storage arrangements.
- Notify utilities and services of change of occupancy.
- Do final checks and inventory at the property just before completion.
- Agree on handover of keys, warranties, and manuals on completion.
- Reconfirm arrangements for clearing the property.
- Arrange final meter readings and notify utility companies.
- Redirect posts and update contacts with change of address details.
While the legal commitment has been made at the exchange, buyers and sellers should continue liaising with conveyancers up to completion to ensure it goes smoothly. Notification will also be needed to confirm completion has taken place and the property sale is legally complete.
Reaching the exchange of contracts signals an exciting milestone in the property transaction process. But it can also be a nerve-wracking period for buyers and sellers leading up to the commitment. Knowing what to expect from the exchange process, risks to look out for, and preparations to make can help assure this crucial stage.
Engaging a proactive and communicative conveyancer is also key. Their legal expertise handles the technicalities and administrative burden while keeping buyers and sellers informed and advised. Taking the time to get ready for exchange will lead to a smoother journey from agreement to completion.