Exchange of contracts
Exchange of contracts is the point at which the buyer and seller become legally committed to the transaction.
Before exchange, each party signs their copy of the contract and gives their conveyancer authority to exchange. The conveyancers will normally carry out the exchange by telephone, following an agreed professional procedure. The contracts are then dated and the completion date becomes fixed.
The deposit
The buyer will usually pay a deposit to their conveyancer before exchange. A deposit of 10% of the purchase price is customary, although a smaller amount may be agreed.
Where the transaction forms part of a property chain, the deposit received on one sale may be passed up the chain and used towards the related purchase. The conveyancers will agree the arrangements before exchange.
A legally binding agreement
Once contracts have been exchanged, both parties must complete the transaction on the agreed completion date.
If the buyer fails to complete, they may lose their deposit and face a claim for interest, compensation or other losses. If the seller fails to complete, the buyer may also have legal remedies. Anyone considering withdrawing after exchange must obtain immediate legal advice.
Before exchange, buyers and sellers should therefore ensure that:
- the agreed price and contract terms are correct;
- the completion date is practical;
- any mortgage offer remains valid;
- the buyer has sufficient funds for the deposit, balance of the purchase price, tax and costs;
- the survey and any related negotiations have been concluded;
- the fixtures and fittings arrangements are clear; and
- everyone in the property chain is ready to exchange.
Insurance
For most freehold purchases, responsibility for insuring the property passes to the buyer on exchange. The buyer should therefore arrange buildings insurance from the date of exchange, unless their conveyancer advises otherwise.
Buildings insurance for a leasehold property is often arranged by the freeholder or management company through the service charge. The buyer should check the arrangements with their conveyancer.
Between exchange and completion
The conveyancers use the period between exchange and completion to make the final legal and financial arrangements.
The buyer’s conveyancer will normally:
- carry out final Land Registry and bankruptcy searches;
- arrange for mortgage funds to be released;
- provide the buyer with a completion statement;
- collect any remaining money required from the buyer; and
- prepare or approve the transfer document.
The seller will sign the transfer document and make arrangements to leave the property vacant by the time required under the contract.
Both parties can now confirm removals, redirect post, notify utility companies and make other practical moving arrangements. Because the completion date is legally fixed at exchange, removal bookings should ideally not be made non-refundable before that point.
