Exchange of Contracts is the fourth part of our in-depth look at the conveyancing process, and follows on from Part 1, 2 and 3 where we talked about the initial steps and the early stages to any conveyancing transaction and the conveyancing enquiry stage.
After all the toil of completing the paperwork, reading the report and returning everything to your conveyancer, now comes the point you’ve been so anxiously waiting for…..exchange of contracts!
What does “exchange” actually mean?
In the good old days, an exchange of contracts would involve two solicitors sitting in a room with their clients signed contract, they’d run through the terms and details of the agreement, date the document and swap copies there and then. That was it. The deal was done!
The same principle applies today except thanks to advances in modern technology it now only takes two solicitors on the phone and posting our own corresponding signed contracts to one another. But make no mistake…the modern way is just as legally binding.
Once exchange of contracts has taken place, you will be legally bound to complete the transaction on the completion date as shown on the contract. Your conveyancer will have taken your instructions before legally committing you to the transaction, and you will need to authorise them to effect exchange on your behalf.
The terms of the exchange (Standard Conditions of Sale)
When your conveyancer sent you your contract to sign for the property, you’d have seen a mention of the Standard Conditions of Sale. These are all the little terms of the contract that you will be bound by once you have exchanged contracts.
Now there’s a lot of them, but some of the most important ones are:
Now in all the discussions leading up to exchange of contracts you will have heard mentioned a lot the topic of an exchange deposit. If you’re purchasing then you’ll have had to send this deposit over to your conveyancer in advance of exchange for it to be used as consideration for the contract (i.e to make it binding). Under the first section of Standard Condition 2.2, the figure required is 10% of the purchase price for the property. This is what is required under the Standard Conditions, however often in practice it is at the sellers discretion whether they require the full 10%, or whether they’ll accept a lower deposit depending on their buyers circumstances.
3.2 Physical State:
One of the most annoying things when moving house can be once you’ve moved in problems start to appear that you hadn’t noticed at your first viewing 3 months prior. Under 3.2.1 of the Standard Conditions the buyer of the property accepts the property as it is on the date of the contract. Whatever condition it is in, by exchanging contracts you’ve agreed to accept it in that condition, therefore best practice is often to arrange a final viewing with the estate agents, prior to exchange of contracts. Always better to be prepared!
6.1.2 Completion time:
The big question on the day of completion….when can I pick up my keys? Well the answer can vary depending on many factors, including whether or not you’re in a chain. The key element looked at by the Standard Conditions under the contract however is 6.1.2, which states legal completion has to have taken place by 2pm in the afternoon. If you’re at the top of a long chain and completion hasn’t yet taken place and you’ve gone past 2pm, it is at your discretion as the seller on whether or not to serve notice to complete. A notice to complete is served on your buyers solicitors and gives the buyer 10 working days to legally complete the transaction. If however your conveyancer has been told the monies have been sent by the buyers and should be with them shortly, it is often worth waiting. But the 2pm deadline is there if needed.
7.4 Failure to complete:
This is the Condition that covers what happens if everything really goes wrong! If you are purchasing a property and you fail to complete on the fixed completion date, but then you further fail to complete once the completion notice has been served for whatever reason, under Standard Condition 7.4.2 the seller will have the right to retain your deposit and rescind the contract, then proceeding to go on to sell elsewhere.
And then in the reverse, if you are selling and you fail to complete for whatever reason, under Standard Condition 7.5 your buyer is entitled to serve notice to complete on you, and if you fail to comply you are obliged to return their deposit back to them with any accrued interest.
What happens after exchange?
Once exchange of contracts has taken place, your conveyancer will then work towards getting you ready to complete. The average time between exchange of contracts and the completion date is around 5-7 working days but this can vary depending on your circumstances and the circumstances of your chain.
So in the time you’ve got, what will your conveyancer be doing….
If you’re selling:-
• Redemption statement will need to be obtained from your lender
• The commission account for your estate agents will need to be obtained from them
• The necessary undertakings to the buyers conveyancer that all mortgages will be paid off on completion
• A completion statement will need to be drafted to send to you to show the proceeds of sale that will be sent back to you on completion
• If you’re selling a leasehold property, an up to date statement of the service charges and ground rent you pay will be requested from your management company so that the correct apportionments can be paid (and you can be paid back anything you’ve over paid!)
If you’re buying:-
• Your mortgage advance will be requested for the day of completion
• Land Registry searches will be carried out against the title to the property to ensure no additional charges/mortgages have been added
• A completion statement showing the amount to be transferred over to complete (including any apportionment figures if you are buying a leasehold property).
So in short, exchange of contracts is what all of the process since you had an offer agreed on the property has been leading up to. It’s the point of no return, no going back, you will definitely be getting your new house!
Now just to book the removals and get excited for the day of completion!