Top 10 facts about Exchange on Contracts
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Exchange of Contracts is the point at which buyer & seller become legally bound.
Exchange of contracts is the point during a conveyancing transaction that the buyer and seller become legally bound to then ‘complete’ the sale/purchase. Getting to the point of exchange of contracts can be a tiresome and frustrating process for all concerned – particularly when there is a ‘chain’ involved.
Here we look at the top 10 facts around exchange of contracts to help you understand the basics of the process, and hopefully make it a little less frustrating next time you are caught in the dreaded conveyancing process!
1. What needs to happen before I can Exchange Contracts?
Before contracts can be exchanged 6 key things need to have happened – 2 with you, and 4 with your solicitor. You need to have done the following (including resolving any and all queries that crop up around them):-
- MORTGAGE – have this in place with a formal offer
- SURVEY – have undertaken whatever you wanted (full survey or homebuyers report)
Your solicitor will deal with the legal side, and this will include:-
- ONBOARDING – formally engaged you as a client, agreed terms and conditions with you, and critically to have formally identified you in accordance with legal money laundering requirements
- CONTRACT PACK – thoroughly checked this and reported to you
- SEARCHES – raised, thoroughly checked, and reported to you on these
- PRE-CONTRACT ENQUIRIES – raised with the seller all formal queries that arise out of the contract pack and searches and ‘reported’ to you that all is well
Then and ONLY THEN can exchange of contracts take place. NB, this process must also be complete for all transactions up and down your chain as exchange invariably will happen on the same day for all in that ‘chain’. Put another way (excuse the analogy/pun) but the chain is only as strong as the weakest link.
2. Why will my Solicitor NOT Exchange Contracts with stuff outstanding?
‘Buyer beware’ is the key with conveyancing. Once you have exchanged contracts you are bound to go through with the sale/purchase whether you want to or not. So, you must do all of checks (legal and otherwise) BEFORE exchange of contracts, not after.
Also, if you are taking a mortgage (which most people do), then there are strict rules which all lenders (and solicitors) are bound by which in short mean if you wanted your solicitor to cut corners for you, they cannot, will not, and must not where a lender is involved. Your solicitor has a duty to your lender (as they do) to make sure that the legal title to the property is sound. They can only certify that with all pre-exchange of contracts checks and enquiries complete.
3. Why is my ‘Chain’ stopping me Exchange Contracts even though I am ready to?
This is a source of enormous frustration for many when they are caught in a property chain. This is where there are dependent sales above and/or below you. This ‘chain’ (as it is known) must have all parties ready to exchange in order for any or all of the others to do so! This is because most sales/purchases are dependent upon each other happening and so both exchange of contracts and then later completion will happen on the same day.
Any chain is only as strong as the weakest link – and this is true of conveyancing unfortunately. And so, even you appear to be ready to exchange contracts, your solicitor can only do so when the whole chain is also ready.
4. Why can’t my Solicitor talk to other Solicitors up and down the Chain?
Solicitors are bound by very strict professional conduct rules that mean they are specifically forbidden from talking to any solicitor in the chain other than those solicitors directly above and below your own transaction – ie the sellers solicitor of the house you are buying, and the solicitor acting for the buyer of the place you are selling.
If you want to know what is going on up and down the chain, your estate agent may be able to help with this as they are permitted to talk to all of the solicitors up and down the chain (though some solicitors are often reluctant to talk to or help estate agents).
5. Is Exchange of Contracts the same as Completion?
No! Exchange of Contracts is when the contract for sale becomes binding, and when the completion date is set. Completion is the actual day of your move. The gap between exchange and completion can be anything (typically) from the same day of exchange of contracts through to a few weeks. With new build properties there may be several months between exchange and completion (whilst your house is finished).
A 10% deposit is usually paid on Exchange of Contracts.
6. Can I pull out before Exchange of Contracts?
Yes you can pull out of a house sale/purchase right up until exchange of contracts and you can do so without any recourse whatsoever. This is a great frustration for many as the process of getting to exchange of contracts is likely to take a couple of months or more, and the buyer will have committed to various costs during that period including search fees, surveyors fees, and their solicitors fees too.
However, once exchange of contracts has taken place then both parties are legally bound to ‘complete’. And failure to do so (complete after exchange) leaves the party pulling out in breach of contract and liable to meet any and all losses suffered by the other party. If the buyer pulls out, they will also lose their 10% deposit.
7. How does Exchange of Contracts happen?
The actual exchange of contracts now happens between the seller and buyer’s solicitor and is conducted by telephone. It is a quick and simple process which once done, sees buyer and seller legally bound to complete the sale/purchase.
The solicitors then send each other their client’s part of the contract (there are two contracts both of which will have been signed by both seller and buyer) and this is the actual exchange of documents. NB, the contract is binding as soon as the solicitors have finished the ‘telephone exchange’
8. How much deposit is due on Exchange of Contracts?
The normal deposit payable on exchange of contracts is 10%. This can sometimes be negotiated down but it is a decision for the seller.
9. Do I have to find the cash for the 10% deposit on Exchange of Contracts?
You should budget to find the money and it will be payable at exchange of contracts at a standard rate of 10% of the sale price. However, if you are buying, and have what is called a ‘related sale’, then it is normal practice for the deposit on your related sale (and potentially deposits from further below you in the chain) to be held by the solicitor on account of your own purchase deposit. So, you may not have to find some or even all of your own deposit, depending on your particular circumstances. You should speak to your solicitor early in the conveyancing process to be clear on what is likely to apply in your own move, so that you can budget accordingly.
10. Can I commit to stuff before Exchange of Contracts (like leaving my rental property)?
You can, but our advice would always be to NEVER commit to anything like this until and after exchange of contracts. Unfortunately, the conveyancing process in England & Wales is less than perfect, and it is only once exchange of contracts has taken place that the deal with definitely happen (or should!). Until then – either party can simply walk away.
So, bear with it, try to plan ahead, but also try to not commit to anything until you have exchanged contracts. This might include other things such as booking removals. Remember that at exchange, you will not only be tied into the contract, but you will have also then fixed your day of completion (the day you move) so you can book all of the stuff you need – once exchange has happened….!
Want to know more about Exchange of Contracts?
If you would like to know about exchange of contracts then do check out the other content here on our website, plus our various social media accounts. Or, we’d love to hear from you directly so please reach out to our team of expert conveyancing solicitors.
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