The Exchange of Contracts and Completion process marks the point at which the seller and buyer are irrevocably and legally committed to the sale and purchase of the property. Unlike an estate agent's 'Notes of the sale,' which hold no legal weight and are not binding, the formal legal exchange of contracts ensures that neither party can withdraw or alter the price without consequence.
The term 'exchange of contracts' refers to the practice where the buyer and seller each sign a copy of the contract, which are then officially exchanged by their respective conveyancers via post after a formal agreement is reached over the phone on the same day.
Upon exchanging contracts, the buyer's conveyancer transfers a deposit—typically up to 10% of the purchase price—to the seller's conveyancer through a bank transfer. Often, a smaller deposit is agreed upon, which is then relayed through the chain of conveyancing transactions.
The Point of No Return
It's crucial to verify all the necessary details about a property before proceeding with the contract exchange. Once contracts are exchanged, withdrawing from the purchase is not an option. This is the reason your conveyancer conducts 'searches', examines the legal title, and poses standard inquiries to the seller regarding the property prior to the exchange of contracts.
You ought to thoroughly inspect the property and engage a professional for a survey. Any concerns should be communicated to us before moving forward with the exchange of contracts.
Ideally, a week or two should be allocated between Exchange and Completion to conduct additional legal searches, sign the transfer and mortgage documents, and finalize the financial details of the transaction.
'Risk' Post-Exchange
Typically, unless the purchase involves a property under construction, the risk of damage or destruction of a freehold property transfers to the buyer at the moment of contract exchange, not at completion. This necessitates buyers to arrange for building insurance prior to the exchange of contracts, to activate it immediately upon exchange.
Should the property suffer fire damage or flooding after the contract exchange, the buyer would remain legally bound to complete the purchase on the agreed date, regardless of the damage incurred.
Simultaneous Exchange and Completion
Sometimes, buyers and sellers may wish to exchange contracts and complete the purchase on the same day. However, this can be risky for both parties, as all legal work must be completed in advance of the provisional date set for exchange and completion, with no guarantee that the transaction will proceed until it actually does.
For instance, a seller might choose to raise the price at the last minute, or a buyer could decide to withdraw. If the transaction falls through, neither party is obligated to compensate the other for any incurred costs, such as expenses, mortgage application fees, estate agent's fees, or legal and search costs.
The Completion Date
This date marks the payment of the remaining purchase funds from the buyer's conveyancer to the seller's conveyancer. It is also the date when, legally, 'beneficial ownership' of the property is transferred to the buyer. Typically, both buyers and sellers move on this date, and the transfer documents bear this date.
Legal ownership is altered when the Land Registry records the change of ownership, which may occur several weeks or months later. Until this registration is finalized, the seller holds the property in trust for the buyer legally.
What happens on Completion?
Many steps must occur in the correct sequence today for the completion to proceed, especially if there is a chain of property transactions. Understandably, this can be the most stressful period for both you and us; however, we will ensure you are updated as events unfold throughout the day.
Key steps on the Completion Date
You are required to vacate the property you are selling by the agreed contract time, typically 1pm or 2pm.
We must receive the purchase funds from your buyer's solicitors, and the sellers of your new home should also have vacated their property by the contract time.
Your mortgage advance for the purchase of your new property needs to be received from your new lender (this may occur the day before).
The mortgage on your old property must be settled.
It is essential to verify that the seller has vacated your new property before we transfer the purchase funds to the seller's solicitors.
Typically, money transfers between conveyancers or banks take about thirty minutes to an hour to complete. However, the more links there are in the conveyancing chain, the more transfers are needed, increasing the risk of delays.
At times, banks may not process transfers swiftly enough. Unfortunately, in such instances, the banks seldom bear any liability to you or us for losses incurred due to delays. Typically, all required bank transfers within the chain are completed on the agreed Completion Date, allowing everyone to move as planned.
Your conveyancer is unable to disburse funds for your purchase from their account until they have received the proceeds from your sale. They cannot provide a bridging loan, nor guarantee timely money transfers by banks, other conveyancers, or third parties. Delays can occur even when all parties have taken appropriate actions.
Consequently, on rare occasions, despite all parties fulfilling their obligations, the completion of transactions may not occur on the scheduled date but may be finalized a day or two later.
This delay could result in one party incurring interest charges, cancellation fees for removals, or other expenses under the contract. Your conveyancers will not be liable for these costs provided they have performed their duties as any other reasonable and competent conveyancer would. Additionally, their initial fee estimate typically does not include legal work required to settle such disputes. You may need to seek independent advice at your own expense.
Last Minute Hitches?
Buyers and sellers must acknowledge that if issues occur on the Completion Date, they might need to stay in a hotel and store their furniture until the issues are settled. While this is uncommon, it can lead to compensation claims from sellers if their conveyancers do not receive the purchase funds before the agreed completion time on the Completion Date.
These claims may cover interest, additional removal costs, hotel charges, and other expenses incurred by the seller due to the delay, exceeding the contract's interest rate. Typically, your conveyancers will not be liable for these losses.
Should you have any questions regarding exchange or completion, please do not hesitate to contact us.
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