Whether you are a first-time buyer or simply can’t remember, hopefully the following should make things clearer.
Exchange of contracts involves all lawyers in the chain exchanging contracts over the telephone. It is not until exchange of contracts have taken place that your sale or purchase to the other party becomes legally binding.
The completion date is set on exchange of contracts and failure to follow through with the transaction after exchange can result in legal and financial penalties. It is incredibly important therefore that you are happy with every aspect of your sale or purchase, before contracts are exchanged.
Common questions from clients regarding exchange of contracts:
Q. What will I be responsible for doing before exchange of contracts can take place?
A. We will write to you with instructions. However generally you will need to provide us with the signed contract and the deposit if you are buying (normally 10% of the purchase price which needs be cleared in our account), before we can exchange contracts on your behalf.
If you are purchasing, it would be a good idea to get a buildings insurance quote you are happy with as, in most cases, this will need to be effected on exchange of contracts. Removals is also something to consider. You may wish to get this lined up before exchange of contracts but remember not to give the go-ahead until the completion date has been set i.e. exchange of contracts has taken place.
Q. When can I exchange contracts?
A. We will let you know. Everyone in the chain needs to be ready before we can exchange – i.e. all mortgage offers have been received, all enquiries have been dealt with, and everyone has been reported to on their respective titles. Everyone in the chain also needs to agree on the same completion date.
Q. How important is the Fittings and Contents Form?
A. Very! This forms part of the contract. If you are selling you must ensure that all items to be left at the property are clearly marked on the form. If you are buying, be sure to check the form properly to ensure any items which you are expecting to remain at the property on completion are noted on this form. If you wish to purchase any other items from the property which are not indicated as remaining, your estate agent can help you negotiate this. It is very important that if any changes are agreed to the Fittings and Contents Form between the buyers/sellers/agents that we are informed prior to exchange of contracts.
Q. I’m currently renting a property. When do I hand in my notice to quit the property?
A. Your purchase is not legally binding until exchange of contracts has taken place. The safest thing for you to do therefore may be to wait until exchange of contracts has taken place.
Q. What happens if I decide I don't want to buy/sell the property anymore but exchange of contracts has already taken place?
A. Once exchange of contracts has taken place there is a legal obligation on both parties to complete the sale/purchase. If the buyer pulls out following exchange then they will lose their deposit and may incur other financial consequences. If the seller pulls out, the buyer could potentially apply to the court for the contract to be enforced, forcing the seller to vacate, or damages can be awarded to the buyer.
Q. Can I exchange and complete on the same day?
A. In certain circumstances yes, however this is not generally considered possible when there is a chain of transactions involved. There is typically one or two weeks between exchange and completion. As the sale/purchase is not binding until contracts have been exchanged, it can be useful to have this time between exchange and completion to arrange removals, pack etc., without the worry of the other party potentially pulling out.
Completion is the date on which the transaction is formally completed, the ‘moving date’. It involves the transfer of money from the buyer’s lawyer to the seller’s lawyer and, under the terms of the contract, completion is usually intended to take place by 1pm or 2pm on the set completion date. Formal completion takes place once the money has successfully moved.
Common questions from clients regarding completion:
Q, How will I know I have completed?
A. We will contact you as soon as we have completed. If you are selling you need to leave your keys with the estate agent and if you are buying you need to collect your keys from the estate agent. Occasionally there is no estate agent involved and we will advise you of the procedure if this is the case.
Q. When will I have to leave the property?
A. You will need to be ready to leave the property, with all of your belongings (as specified in the Fittings and Contents Form – see above), by the time stated in the contract (usually 1pm or 2pm) as that is the moment that ownership passes to the buyer.
Q. Is there anything else left to do?
A. Whether you are selling or buying, it is wise to take meter readings when you leave the property and/or arrive at your new property, to avoid any later disputes.
If you are buying, you will need to set up your utilities by contacting the utility providers so that they can open accounts in your name.
For buyers, we will need to pay your Stamp Duty Land Tax (“SDLT”) or Land Transaction Tax (“LTT”), for properties in Wales, and register you as the new owner of the property at the Land Registry. This can take a few weeks and we will write to you again with confirmation of your registration as soon as it is received.
As ever, please speak to us about any questions you may have.
Although every effort has been made to ensure that the information provided in this article is accurate and correct, the information provided does not constitute any form of advice, recommendation or opinion. DPM Legal Services Limited accepts no liability for any loss or damage, howsoever caused, as a result of any reliance on any information provided.