The Role And Importance Of The Memorandum Of Sale In UK Property Transactions

In England and Wales, the main legal documents involved in property sales are the contract of sale and transfer deed. However, another important document regularly features during the early stages of a transaction – the Memorandum of Sale.

This initial agreement, negotiated between the seller, buyer and agent, summarises the key terms verbally agreed including price, property details, and completion timeline. It signals the transition of a sale from informal discussions to a more committed footing.

For sellers and buyers alike, understanding the function and legal status of this Memorandum of Sale is a useful context during property transactions. This guide explains the role it plays in documenting initial sale agreements to foster progress through sale negotiations.

What is a Memorandum of Sale?

The Memorandum of Sale, commonly referred to as the ‘MOS,’ is a crucial document in the world of property transactions. It plays a pivotal role in capturing essential details once a buyer and seller have verbally agreed on the commercial terms of a proposed property sale. This document serves as a critical reference point throughout the property sale process, ensuring transparency, accountability, and a smooth transition from a verbal agreement to a legally binding contract.

The Purpose of the Memorandum of Sale

The primary purpose of the Memorandum of Sale is to formalise the verbal agreement between the buyer and seller of a property. It acts as a bridge between the initial negotiation stage, where terms and conditions are discussed, and the eventual creation of a legally binding contract

In basic terms, it provides a summary of

• The Address of the property to be sold
• Names of the seller and buyer
• Agreed price
• Any special conditions to be included
• Proposed completion date
• Amount of deposit paid
• Signatures of the parties

This memo helps cement consensus following offer acceptance and provides a platform to proceed towards formal contracts.

How is it Used in the Sales Process?

The typical stages where a Memorandum of Sale comes into play are

1. Verbal Agreement of Offer

After a round of offers and negotiations, the buyer and seller verbally agree on a price and other terms through the agent.

2. Documentation of Agreement

The agent draws up the Memorandum of Sale to document the details agreed. This is sent to both parties for review.

3. Signing by Parties

Once the Memorandum is approved, it is signed by the seller, buyer and agent to record mutual commitment.

4. Deposit Paid

The buyer pays an initial deposit, usually 5-10% of the agreed price. This is documented in the Memorandum.

5. Conveyancing Begins

With terms agreed upon, and the legal process of conveyancing commences to prepare for contractual exchange.

The Memorandum thereby bridges the gap between the initial verbal accord and the formal contracts.

How Does it Move the Sale Forward?

The Memorandum of Sale advances the transaction in several key ways

• Records Details – Provides clarity on the agreed position to avoid future disputes.
• Confirms Intent to Proceed – Signals mutual commitment in writing, giving the confidence to begin conveyancing.
• Removes Property from Market – Seller agrees not to consider other offers after signing.
• Buyer Avoids Gazumping – Fixes the price already verbally accepted.
• Deposit Paid – Provides financial commitment from the buyer.
• Focus Shifts to Conveyancing – Enables legal phase to commence.

So the Memorandum effectively cements the initial purchase terms to facilitate progress towards the exchange of contracts.

Is a Memorandum Legally Binding?

An important clarification is that the Memorandum of Sale itself does not constitute a binding legal contract. It is an informal record of what has been verbally agreed at that point.

Either party can still pull out of the proposed deal at this stage, although loss of deposit applies if the buyer withdraws without good reason. The Memorandum helps avoid uncertainty but does not legally compel completion.

That firm commitment only arises once contracts have been signed and exchanged. At that point, a binding agreement is formed. So while useful in cementing consensus, the Memorandum does not force the parties to complete it if issues later arise.

Why Use a Memorandum?

Given it does not form a watertight contract, is a Memorandum of Sale even necessary? Several advantages make it beneficial:

• Avoiding Disagreements – Provides a clear reference record if any discrepancies later arise over what was agreed.
• Smoothes Negotiations – Helps negotiations conclude by fixing key terms in writing.
• Provides Confirmation for Buyer – Evidence the seller has committed to the sale, preventing gazumping.
• Enables Conveyancing Planning – Allows legal teams to gear up with agreed details.
• Signals Intent to Complete – Gives confidence for parties to proceed with arrangements like surveys, movers etc.
• Speeds the Legal Process – Headstart on information needed for contracts and conveyancing.

While not essential, taking a few extra days to formalise agreement details through a Memorandum of Sale helps reduce uncertainty and progresses the transaction.

Details Included in the Memorandum

To maximise its benefit in cementing the position, Memorandums of Sale typically document

Property Details

Full address

Type e.g. semi-detached house

Number of bedrooms

Sale Details

Names of seller(s)

Names of buyer(s)

Agreed sale price

Amount of initial deposit

Completion Conditions

Proposed completion date

Special conditions e.g. subject to survey

Any fixtures or fittings included/excluded

Agent Details

Estate agent name

Contact details

Declaration of Agreement

Signatures of seller(s)

Signatures of buyer(s)

Estate agent signature

Ensuring these key facts are captured provides sufficient initial clarity for conveyancing to proceed.

Can Special Terms Be Included?

The Memorandum provides scope to record any special terms verbally agreed between buyer and seller. Common examples include:

• Date Flexibility Clause – Allows the completion date to be moved back if delays occur.
• Subject to Survey – Makes completion conditional on a satisfactory structural survey.
• Subject to Mortgage – Ensures the buyer can obtain financing.
• Fixture Inclusions/Exclusions – Details specific items included or excluded from the sale.
• Option to Withdraw – Where both parties require an ‘out’ if issues arise.

Including tailored conditions gives contractual flexibility where required at this interim stage.

When Should the Memorandum be Signed?

Ideally, the Memorandum of Sale should be signed within 1-2 days of verbal agreement being reached. This promptly formalises the position before memories fade. Rapid follow-up also builds momentum to propel the sale forward.

In a hot market, signing on the same day prioritises cementing the deal amid competing interests. However, allowing a short window for review still provides an important check before signing.

How Long are Terms Valid For?

To prevent uncertainty, Memorandums usually state they remain valid for a defined window, such as 6 weeks. This gives a timeframe to complete conveyancing preparations before the formal exchange.

If completion is delayed beyond this initial period, the buyer and seller may sign an updated Memorandum confirming the extended terms. This provides ongoing mutual commitment.

Can a Memorandum be Amended?

The terms documented can be amended by mutual consent via an ‘addendum’. These formally updates the record. For example, the completion date could be revised if needing to extend the initial proposed timeline before contracts are ready.

However, any addendums should be signed by all parties to ensure continued consensus. Unilateral changes could invalidate the Memorandum.

At What Stage Does the Deposit Change Hands?

The Memorandum records payment of an initial deposit, typically 5-10% of the agreed property price. However, at this pre-contract phase, the deposit is merely held by the agent, not passed to the seller.

Only once contracts have been signed and exchanged does the deposit formally transfer to the seller’s solicitor’s account. At that binding stage, the deposit secures the transaction.

Does the Signed Memorandum Guarantee Completion?

Unfortunately not. Until contracts are legally exchanged, either party can still withdraw from the proposed sale, often at cost of the deposit. This includes if issues arise midway through conveyancing.

So while the Memorandum provides a degree of commitment and security for both parties, it should not be relied on as a guarantee the transaction will ultimately be complete. That firm obligation only arises later under the contractual agreements.

How is the Memorandum Used During Conveyancing?

The documented details within the Memorandum provide a head start on information needed to draw up contracts and transfer deeds. It acts like a reference datasheet enabling conveyancers to populate key facts required in the legal paperwork.

Details like names, addresses, price agreed, and any special terms can be copied straight across into contracts. This smooths the administrative process.

Can Electronic Memorandums be Used?

Traditionally, paper Memorandums with handwritten signatures have been standard. However, electronic versions are increasingly being adopted, sent via email for digital signature using platforms like DocuSign.

As long as legally admissible electronic signatures are applied, e-Memorandums carry the same evidential weight to record and confirm agreement.

Should Separate Legal Advice be Taken?

Legal professionals do not normally get involved at the Memorandum stage. However, for very high-value properties or complex sales, seeking a brief solicitor review of the Memorandum terms before signing provides an additional safeguard.

This gives peace of mind that what is being signed seems fair and workable based on professional advice.

Can the Signed Memorandum be Relied On?

While extremely useful for recording and progressing agreement, the Memorandum alone does not provide failsafe security, for several reasons

• It is not a binding legal contract.
• Special conditions may allow parties to later withdraw.
• Buyers could renegotiate if new issues come up.
• Price increases could tempt sellers to delay completion.
• Delays in conveyancing may require reconfirmation of terms.

So while an important milestone, completion still hinges on the successful exchange of contracts. The Memorandum helps smooth the path but does not guarantee the destination will be reached.

Pitfalls to Avoid

To gain full benefit from the Memorandum stage without legal pitfalls, parties should

• Avoid including specific statements that contradict or pre-empt the eventual contract terms.
• Refrain from making binding completion promises – use tentative language.
• Ensure special conditions don’t introduce contractual uncertainties.
• Keep declarations general rather than absolute.

With care around wording, the Memorandum will support rather than complicate the legal transaction.

Can Issues Invalidating the Memorandum Arise?

While issues invalidating the Memorandum outright are rare, in certain situations, it may occur

• If misrepresentation or incorrect property details are provided.
• If either party denies or disputes signing the Memorandum.
• If completion dates or deadlines are unachievable.
• If financial, legal or planning issues emerge meaning property cannot be conveyed.

In such cases, conveyancing cannot rely on an invalid Memorandum but must revert to squaring off positions verbally again.

What Happens If a Buyer Withdraws After Signing?

If, after signing the Memorandum, the buyer gets cold feet and attempts to withdraw without good reason, the typical outcome would be

• Forfeiture of the deposit paid as noted in the Memorandum.
• The seller is then free to remarket the property and accept an alternative buyer.
• Legal action could be pursued by the seller against the buyer for losses if a lower sale price results.

So while not binding completion, withdrawal post-Memorandum still carries significant financial consequences.

Conclusion

The Memorandum of Sale serves as a pivotal document in the intricate process that transpires between the verbal acceptance of an offer and the final exchange of contractual agreements in an estate agency transaction. This intermediary documentation plays a significant role in solidifying the consensus reached between the buyer and seller, providing a structured framework that paves the way for the subsequent legal formalities.

For sellers, the Memorandum of Sale offers a sense of security and peace of mind. It serves as a written confirmation that an offer has been accepted and that the property will not be subject to gazumping—a situation where another buyer makes a higher offer after the initial acceptance. This assurance allows sellers to initiate the necessary conveyancing preparations with confidence, knowing that the agreed-upon terms are legally binding to some extent.

Buyers, too, find solace in the Memorandum of Sale. It acts as tangible evidence that the seller is committed to proceeding with the transaction at the previously agreed-upon price. This commitment helps to alleviate any concerns the buyer may have about the seller’s intentions and adds an extra layer of protection against unexpected changes or reversals in the negotiation.

While it is important to note that a Memorandum of Sale is not a legally binding contract in itself, its significance lies in the discipline it imposes on the parties involved. By formally documenting the agreed-upon terms, it reinforces the moral obligation for both buyer and seller to cooperate and advance the transaction in good faith. This commitment helps to ensure that all parties involved work towards a common goal of completing the sale successfully.

Additionally, Memorandums of Sale serve a practical purpose by clarifying the details and conditions of the transaction. They help align the expectations of both parties, ensuring that there is a mutual understanding of what needs to be done before the exchange of contracts. This clarity can help prevent misunderstandings, disputes, and unnecessary delays in the process.

In summary, while Memorandums of Sale are not foolproof and do not replace the need for legally binding contracts, they play a vital role in the estate agency transaction process. They offer sellers and buyers a sense of security, promote cooperation, and enhance the transparency of the agreement. When used judiciously, these documents contribute significantly to the overall success of property sale completions by providing a solid foundation upon which the contractual exchange can take place.