What is Exchange of Contracts?
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Exchange of contracts binds buyer and seller – until that point, either party can walk away.
Exchange of contracts is the point in a conveyancing transaction where buyer and seller become legally bound to then complete the sale/purchase. Up until that point, either party can withdraw from the transaction without any recourse. Once exchange of contracts has taken place, if either party then fails to ‘complete’ they will be in breach of contract and liable to be sued.
What happens before Exchange of Contracts?
There will be lots to do before exchange of contracts! And, not all of it falls on your conveyancing solicitor. There are two important jobs for you: organise your MORTGAGE and your SURVEY. Your solicitor will need to complete the following 4 key stages of the legal process before you can exchange contracts:-
- ONBOARDING – engaged you as a client, had you agree to their terms of business, and critically have identified you formally
- CONTRACT PACK – as the buyer’s solicitor they will have received this from the seller’s solicitor and checked that all is well with the ‘legal title’
- SEARCHES – undertaken various searches and reported to you on their content
- ENQUIRIES – completed the dreaded pre-contract enquiries! These can be any form of query that has come out of the contract pack, searches, and so on. Enquiries are formal questions put to the seller via their solicitor. This can be a slow and sometimes frustrating process for all concerned.
Will my Solicitor let me Exchange Contracts with stuff outstanding?
No! Conveyancing is very much buyer beware and so you (and your solicitor) must be 100% sure on all legal and other aspects before exchange of contracts happens.
When will my Solicitor get me to sign the Contract?
Your solicitor is likely to ask you sign the contract as soon as its content has been agreed with the other side. However, this might not be until fairly soon prior to exchange of contracts. This is normal practice and signing your contract earlier does NOT speed the overall process up!
Does signing the Contract mean I am ready to Exchange Contracts?
No! You can only exchange contracts once all of the pre exchange work had been done by your solicitor, and you have sorted out your mortgage and survey (and any issues that come out of either of those things). Signing your contract early does NOT speed up exchange of contracts. Also remember that if you are in a ‘chain’, even if you are ready, exchange of contracts is likely to only happen when everyone else is [ready], and then it will occur on the same day up and down the chain. This can be very frustrating for those in the chain that are ready to go.
Will my ‘Chain’ dictate when I can Exchange Contracts?
Yes! Exchange of contracts can generally only happen when everyone up and down the chain is ready to do so – meaning everyone has to have done all of the checks and reporting that you have done on your sale/purchase. This can be very frustrating for those parties in the chain that are ‘ready to go’.
Do I have to be with my Solicitor for Exchange of Contracts?
No – your solicitor will exchange contracts for you, and will only do so with your express authority to do so! So, DO NOT worry that exchange might happen without you knowing – it won’t!
Do I pay the Deposit on Exchange of Contracts?
The deposit (usually 10% of the sale price) is paid on exchange of contracts. Often no money changes hands between solicitors, as equity from houses/deposits in the chain below you ‘comes up’ through the chain as the necessary deposit payment. However, you should err on the side of caution and be ready to pay that 10% deposit for budgeting purposes. Speak to your solicitor if in doubt.
The date of completion (your move date) is fixed on exchange.
How much Deposit is paid on Exchange of Contracts?
A 10% deposit is normally paid on exchange of contracts. Sometimes it is possible to negotiate a smaller deposit but you should assume there will be 10% to pay for budgeting purposes.
How do Solicitors Exchange Contracts?
Exchange of Contracts happens by telephone, and then the actual contracts (of which there are two copies – one for each side) are exchanged by post.
What happens if I do not Complete after Exchange of Contracts?
Once exchange of contracts has happened you are legally bound to ‘complete’. Failure to do so is a breach of contract and you become liable to meet those losses suffered by the other party. If the buyer pulls out they will also loose their deposit.
What is Completion and is it different to Exchange of Contracts?
Completion is the day you actually move house. It happens AFTER exchange of contracts. The date of the move is set when exchange of contracts happens. Both exchange of contracts and completion day tend to be the same up and down your ‘chain’ (if you have a chain).
What should I do between Exchange and Completion?
As soon as exchange of contracts has happened the move should definitely be happening. You will now have your move date (‘completion date’) and so now (and NOT before!) you can:-
- Removals – get them booked
- Utilities – start to organise things like broadband etc
- Work – book time off
- Packing – if your removals are not doing it same day
- Rental notice – if you are in a rental property you can give notice to quit
Why should I not give notice to quit my rental property before Exchange of Contracts?
You should NEVER give notice to quit a rental property before exchange of contracts UNLESS you have alternative accommodation available to you. This is because nothing is set in stone until you have exchanged contracts and so it can all fall through. Put simply, you might end up homeless if you give notice on your rental too soon!
Want to know more about Exchange of Contracts?
If you would like to know more about the law of exchanging contracts that this article or any other content on our website does not cover, then do reach out to our expert team of conveyancing solicitors who will be happy to help.
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