The Seller’s Guide To Managing Memorandums And Property Transactions In The UK
When selling property in the UK, various legal documents underpin the conveyancing process between agreeing on a sale and completing contracts. For sellers, understanding the role and importance of memorandums of sale provides helpful guidance when navigating transactions.
A memorandum of sale outlines key details verbally agreed between seller and buyer at an initial stage before contracts are legally exchanged. This article explains what memorandums entail, how they protect sellers’ interests, and why upholding professionalism throughout the transaction timeline following the memorandum is key.
With insight into this interim legal phase, homeowners can approach sales with greater confidence knowing their position is safeguarded before securing deals contractually.
What is a Memorandum of Sale?
In property transactions, a memorandum of sale is a document prepared to evidence the basic terms verbally agreed between buyer and seller before contracts are signed and exchanged.
It captures key details like:
- Names of seller and buyer
- Full property address
- Agreed price
- Amount of any deposit paid
- Proposed completion timeframe
- Brief inclusion list e.g. carpets and appliances
- Any special conditions e.g. subject to survey
The memorandum provides a preliminary written record showing both party’s consent in principle to the sale proceeding based on this core information.
It represents a milestone in negotiations where essential terms have been settled pending fuller legal formalisation through the conveyancing process.
The Role in the Sale Timeline
The typical sequence of events involving the memorandum is:
- Verbal Agreement – Buyer and seller settle the fundamental terms through discussions and negotiation.
- Memorandum – The agreed position is documented in a memorandum of sale and signed by both parties.
- Deposit – The buyer pays an initial deposit.
- Conveyancing – Detailed legal work commences to prepare a full contract pack for signing/exchange.
- Exchange – Contracts are signed and legally exchanged, making the deal fully binding.
- Completion – Legal ownership transfers on the completion date and keys are handed over.
The memorandum therefore signals the transition between the initial verbal agreement and the legal conveyancing work needed to formally finalise the contracts.
It also provides a degree of interim security to the seller before contracts are exchanged to secure the transaction.
Purpose From the Seller’s Perspective
For sellers, the main purpose and benefit of having a clear memorandum of sale in place is:
- Records initial terms agreed – Provides clarity if any disputes later arise over what verbal agreements were reached.
- Signals buyer commitment – Formally documents the buyer’s engagement, giving sellers confidence they are serious about purchasing the property.
- Discourages gazumping – Discouraging unethical late higher bids from other parties once initial terms are memorialised.
- Allows easier enforcement – Gives seller options to pursue legal remedies if the buyer unjustly withdraws from the agreed deal at a late stage.
- Provides leverage re negotiations – Makes it harder for buyers to reopen negotiations around agreed price and conditions if they have signed acceptance of them.
- Confirms agent authority – Where agents are involved, verify their delegated mandate to broker terms on the seller’s behalf.
- Smooth the transaction – Sets solid foundations the legal conveyancing formalities can build on to reach exchange.
While still ‘subject to contract’ until exchange, the memorandum reduces risks for sellers at this initial open phase of transactions.
Legally Binding Contracts vs. Memorandums
It is crucial to distinguish the memorandum of sale from the actual property sale contract.
The key differences are:
Memorandum of Sale:
- Records informal verbal agreement reached between parties
- Not a legally binding document – still ‘subject to contract’
- Outlines core terms only like price and parties
- Provides a basic transitional step towards full contracts being prepared and exchanged
Contract of Sale:
- The formal legally binding document
- Legally secures deal through the exchange process
- Comprehensively details all terms, conditions, limitations etc
- Signed by all parties and witnessed
- Breaching the contract post-exchange has legal ramifications
While the memorandum signals progress, only exchanged contracts make the deal legally watertight and complete the transaction. This guards against risks pre-exchange.
What the Memorandum Should Include
To give sellers the greatest protection, the memorandum of sale should capture:
- Full official names of the buyer and seller
- Signatures of both parties
- The property address
- Agreed price
- Amount of any deposit paid and when
- Proposed completion date
- A brief list of what is included e.g. appliances
- Note of any special conditions agreed e.g. subject to survey
- Name of any agents acting for the buyer or seller
- Actual date of the agreement
Specifying key details provides sellers security in case buyers withdraw for any reason before contracts are legally exchanged.
It also reduces the potential for disputes arising over what verbal agreements were reached between the parties if memories later differ.
While the memorandum records the core agreement, contracts being prepared and signed by both seller and buyer and then exchanged remains the definitive step in making the deal legally binding.
The exchange process involves:
- The seller signs the completed contract and transfer deed documents.
- The buyer signing the contract pack.
- Both parties’ signed contract packs are exchanged.
- The buyer pays the full balance deposit.
- The deal becomes legally binding with a set completion date.
Once contracts are exchanged, the sale becomes legally enforceable. Withdrawing at this stage can incur financial penalties if breaching binding contracts without legitimate reasons.
The memorandum paved the way for the vital exchange by settling initial terms. But only exchanging contracts makes the transaction unconditionally secure.
How Sellers Should Progress After the Memorandum
While the memorandum helps secure initial buyer commitment, sellers should uphold professionalism following its signing by:
- Avoid reopening negotiations – stick to the agreed price and terms rather than seeking improved deals later.
- Responding promptly to conveyancer queries – delays risk transactions falling through.
- Providing due diligence documents swiftly – delays frustration and opens gambles.
- Securing property access for surveys – facilitate bookings so buyers gain assurance.
- Flagging any issues arising – conveyancers can resolve quicker before escalation.
- Maintaining property condition – buyers expect the property to remain well presented.
- Being flexible on completion date – where possible accommodate buyer requests.
Continuing constructive engagement and responsiveness ensures buyers remain fully on board as sales progress towards exchanging contracts.
Withdrawing from Sale After Memorandum
Legally, the memorandum of sale does not prevent a seller from ultimately withdrawing from the agreed sale even at late stages before contract exchange takes place.
However, doing so risks legal claims from the buyer for losses they incur linked to the seller pulling out of the transaction at an advanced stage without reasonable justification.
For sellers reneging on sales agreed post-memorandum, potential consequences include:
- Repaying buyers’ costs like surveys, legal fees and mortgage valuation costs.
- Repaying any initial deposits handed over by buyers in expectation of sales completion.
- Paying compensation for losses like rearranging removals or lost alternative purchase deposits.
- Damage to professional seller reputation making future sales more challenging.
Withdrawing therefore carries financial risks that could require repayment of significant sums to the buyer. This emphasises the need for caution when verbally agreeing to sales.
Gazumping refers to an unethical practice where a seller accepts a higher offer from another buyer after already agreeing on a sale price with the original buyer.
While not fully legally binding, having an agreed memorandum of sale in place makes gazumping more difficult for sellers as it documents agreed terms.
Reneging to accept a higher bid from new buyers after signing a memorandum leaves sellers open to legal action by depriving original buyers of losses suffered from the seller withdrawing from the transaction at that advanced stage.
While still possible, the memorandum provides a degree of deterrent against gazumping by emphasising the established position agreed between the seller and the original buyer.
Limitations of Memorandums
Despite benefits, limitations exist:
- Not legally binding – Contract exchange remains necessary to fully secure deals.
- Scope for seller withdrawal – Sellers can still withdraw potentially after signing, creating buyer risks.
- Risk of being gazumped – Buyers could still potentially lose properties if sellers withdraw after accepting improved offers.
- The burden of proof – Buyers may encounter difficulties conclusively enforcing memorandums if disputes reach court.
- No guarantee of completion – The sale remains at risk until contracts have been exchanged.
- Protection Duration – Memorandum benefits only span the pre-exchange phase, which is typically relatively short.
While useful, memorandums do not provide cast-iron guaranteed security for sellers or buyers during agreed sales. But they plug a dangerous gap.
Using Estate Agents
Legally, estate agents must follow instructions agreed upon with clients when negotiating sales. However, challenges arise if selling directly or via multiple agents.
The memorandum usefully verifies the appointed agent’s authority to act for sellers in agreeing to deals.
Issues that could emerge without a clear memorandum evidencing agents acting for sellers include:
- Unofficial direct sales – Agreed deals could be disputed as agents were not involved.
- Rival agents – Competing agents could allege another was unauthorised if not clarified.
- Commission disputes – Agents may dispute their fees if engagement is ambiguous after sales are complete.
- Intermediary authority – Questions could arise around intermediaries like auctioneers acting for sellers if not memorialised.
Securing de facto agent authority within the memorandum provides sellers helpful protection against such scenarios undermining transactions or creating complications.
Summary Benefits to Sellers
To conclude, key benefits to sellers from having a robust memorandum of sale include:
- Signals sincere buyer commitment to the transaction.
- Discourages unethical gazumping practices should sellers be tempted by higher later offers.
- Strengthens seller positions if any disputes arise over what was verbally agreed previously.
- Creates evidence of the estate agent’s authority to act in negotiating the sale for legal certainty.
- Smooth the pathway towards securing transactions fully through formal contract exchanges by defining expectations early.
- Offers sellers clearer routes to legal redress if unjustified buyer withdrawal transpires pre-exchange.
While still requiring contracts to legally complete deals, conscientious use of memorandums of sale plugs an important gap for sellers pre-exchange during property transactions.
“What is a memorandum of sale?” you might wonder. In summary, this important document represents a key milestone in securing property transactions by defining the initially agreed parameters between sellers and buyers. This interim documentation provides essential early evidence of intentions to purchase and sell, effectively setting the stage for the forthcoming stages of the transaction. It positively steers deals towards the essential exchange of binding contracts while giving sellers helpful contingency options if sales collapse before legal completion.
For sellers who are focused on maximising assurance during the often-uncertain pre-exchange phase, proactively utilising memorandums of sale brings confidence to the process. When handled professionally, these documents signal that the journey to completion is purposefully underway. They serve as a foundational piece of documentation, ensuring that transactions commence on a clear, documented footing. When reviewed in the context of the broader transaction and its limitations, memorandums of sale remain an important instrument upholding the integrity of the entire process as property sales progress towards their final and binding contractual exchange.