Memorandums In The UK Property Market: An In-Depth Look At Their Significance And Role
In any property transaction in the UK, various documents play an important role in recording sale details, rights and obligations. One key document regularly used in conveyancing is a memorandum of sale, often referred to more simply as just a memorandum. Memorandums act as evidence that a legal agreement has been made and provide protection to buyers before contracts are signed. For those involved in property transactions, it’s useful to understand what exactly memorandums are, when they are completed, what key clauses are included, how they offer protection and strategies around their use. This article will provide an in-depth look at the significance and role of memorandums in the UK property market.
Let us first see what is a Memorandum? A memorandum of sale, usually abbreviated to memorandum, is a document prepared early in the home buying process once terms have been agreed between a buyer and seller. It records key details of the property sale including:
- Names of sellers and buyers
- Full address of the property
- Sale price agreed
- Any special conditions
- Date the memorandum is completed
- Signatures of both parties
The memorandum provides evidence that a deal has been reached, giving the buyer reassurance while contracts are being prepared. It also allows the buyer a cooling-off period in which they can still withdraw from the purchase if needed. For the seller, the memorandum prevents them from continuing to market the property and locks the buyer into the agreed sale terms.
When is a Memorandum Used?
A memorandum is usually completed shortly after an offer has been made and accepted on a property, either directly between the buyers and sellers or more commonly via estate agents acting on their behalf.
The benefits of creating a memorandum at this early stage are:
- It signals commitment – Shows both parties are invested in progressing with the sale at the price agreed.
- It provides a safety net and gives the buyer time to be sure of the purchase without fully committing.
- It halts marketing – Prevents the seller from negotiating with other interested parties.
- It starts the clock ticking – focuses minds to proceed promptly with formal contracts.
The normal timeframe would be for a full contract to be signed around 2-4 weeks after the memorandum date. The memorandum is not legally binding itself but forms a strong basis for the contract.
Key Clauses in a Property Memorandum
While memorandums are brief documents, certain important clauses are typically included:
- Exclusivity clause – Stipulates the seller must cease marketing and not negotiate any further offers.
- Refunds clause – Covers return of any initial deposit if the buyer withdraws during the cooling off period.
- Warranty clause – Ensures the seller has the legal capacity to sell the property.
- Indemnity clause – Requires the seller to cover the buyer against any legal disputes over ownership that arise.
- Limitations clause – Makes clear the memorandum does not constitute a complete contract or override later contract clauses.
- Dispute process – Lays out a mediation procedure for resolving any disagreements over the memorandum.
- Expiry date – Sets a deadline for the full contract to be completed, normally 10-20 working days.
Conveyancing lawyers will look to maximise protection for their clients when drafting memorandums. Additional clauses may be negotiated to cover aspects like fixtures and fittings, access for surveys, leasehold charges etc.
How Does a Memorandum Offer Protection?
Although not as secure as a signed contract, a memorandum does provide certain legal safeguards:
- It binds the seller – They are duty-bound not to consider better offers, preventing gazumping.
- It guarantees the price – The buyer has the assurance they can complete at the amount agreed.
- It allows withdrawal – The buyer can pull out penalty-free within the cooling-off period if they encounter any issues.
- It creates obligations – If the seller withdraws, the buyer could potentially claim breach of contract and damages.
- It evidences agreement – The memorandum records the core sale terms for reference later.
Without a memorandum, buyers have no security until contracts are exchanged. Memorandums therefore provide more solid foundations to proceed towards completion.
Strategies for Using Property Memorandums
For buyers and sellers to benefit most from using a memorandum, some strategic practices should be followed:
- Seek a 7-10 day expiry period to allow surveys etc.
- Negotiate clauses limiting seller marketing activity after completion
- Ensure deposit return procedures are clear if withdrawing
- Store the memorandum safely as proof of price/terms
- Make the exclusivity period as short as reasonably possible
- Record any spoken agreements about fixtures, fittings etc.
- Set a fixed deadline for the buyer to sign contracts
- Build in room for negotiation within the contract itself
Proper legal advice is essential to ensure memorandums maximise advantages for each party. Conveyancing lawyers can steer negotiations and provide the required property law expertise.
In summary, memorandums of sale serve an important function in UK property transactions, bridging the gap between initial offer acceptance and full contract signing. They record sale specifics for reference and provide reassurance for buyers. However, memorandums are not comprehensive contracts – they simply pave the way towards the binding legal agreement sealed by contract exchange. Used strategically, memorandums form a solid platform to build upon when concluding property deals and conveyancing.