Can I Pull Out After Exchange of Contracts?
Exchanging contracts is the point of no return in the conveyancing process. Once you and the other party have exchanged, the contract becomes legally binding. However, circumstances can drastically change, leaving many buyers and sellers asking: can I pull out after exchange of contracts?
The reality is that you can pull out, but doing so means you are in breach of a legally binding contract, and there are severe financial penalties for the party that defaults. The costs for failing to complete typically include paying the other side's notice to complete legal fee, daily penalty interest, and the specific penalties outlined under the contract. For buyers, it will also mean losing your 10% deposit.
This article will help you navigate how to pull out, the cost implications, and how you can do this before the need to pull out after the exchange of contracts.
- It is legally binding: You can pull out after exchange, but you will be in breach of contract and face severe financial consequences.
- Buyer penalties: If a buyer pulls out, they will lose their 10% exchange deposit, pay daily penalty interest, and cover the seller's legal fees.
- Seller penalties: If a seller pulls out, they must return the buyer's deposit with accrued interest and could be sued for damages.
- Insurance protection: A Home Buyers Protection Insurance Policy can help cover your expenses if you are forced to pull out due to circumstances beyond your control.
Why is the exchange of contracts legally binding?
In property law in England & Wales, verbal agreements mean nothing. The physical exchange of written contracts is the exact legal threshold where the transaction becomes binding. This strict rule is governed by Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, which states:
"A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each."
From the moment you exchange contracts, the buyer and seller are legally bound to the contract for sale and the terms contained within it. This means that if either party wants to pull out, there are serious financial implications.
What can go wrong between exchange and completion?
After months of preparation (and often years of saving for a buyer), pulling out after the exchange of contracts is the absolute last thing anyone wants to do. The risk of this happening is incredibly low, but here is what can go wrong that forces a buyer or seller to withdraw:
Why a buyer pulls out after exchange | Why a seller pulls out after exchange |
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Because these risks exist, you may wish to consider taking out a Home Buyers Protection Insurance Policy. This can cover your legal and surveying expenses if you are forced to withdraw under circumstances entirely beyond your control.
The penalties under the contract of exchange
The penalties for breaching the contract differ depending on whether it is the seller or the buyer who pulls out. These rules are not simply arbitrary industry guidelines; they are the definitive regulations drafted by the Law Society, known as the Standard Conditions of Sale (Fifth Edition - 2018 Revision). They form the backbone of almost every residential property contract in England and Wales.
Furthermore, under the case law precedent of Raineri v Miles (1981), the House of Lords held that failing to complete on the agreed contractual date is an immediate breach of contract. This entitles the injured party to claim damages (such as hotel bills or storage costs) immediately, even if a formal Notice to Complete has not yet been served.
Buyer pulls out after exchange | Seller pulls out after exchange |
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7.4 Buyer's failure to comply with notice to complete 7.4.1 If the buyer fails to complete in accordance with a notice to complete, the following terms apply. 7.4.2 The seller may rescind the contract, and if he does so: (a) he may: (b) the buyer is to return any documents he received from the seller and is to cancel any registration of the contract. 7.4.3 The seller retains his other rights and remedies. | 7.5 Seller's failure to comply with notice to complete 7.5.1 If the seller fails to complete in accordance with a notice to complete, the following terms apply. 7.5.2 The buyer may rescind the contract, and if he does so: (a) the deposit is to be repaid to the buyer with accrued interest (b) the buyer is to return any documents he received from the seller and is, at the seller's expense, to cancel any registration of the contract. 7.5.3 The buyer retains his other rights and remedies. |
What is the process to pull out after exchange of contracts?
- Exchange occurs: Exchange of contracts takes place for a legally binding, future completion date.
- Notice is served: The buyer is unable to complete on the day of completion, so the seller's solicitor serves a 'Notice to Complete' (usually at 2:00 PM on the day of completion). The buyer then has 10 working days to find the funds and complete.
- Contract is rescinded: If the buyer is still unable to complete after the 10 working days expire, the seller formally rescinds the contract, keeps the 10% deposit, and pursues the buyer for their legal fees and any further damages.
Because of the severe risks involved if either party fails to complete, it is strongly advised not to give the buyer access to the property before completion.
Can a buyer ever get their deposit back?
The default penalty for a buyer failing to complete is the complete loss of their 10% exchange deposit. However, there is a legal loophole. Under Section 49(2) of the Law of Property Act 1925:
"Where the court refuses to grant specific performance of a contract, or in any action for the return of a deposit, the court may, if it thinks fit, order the repayment of any deposit."
This means a court has the ultimate discretion to order the seller to return the deposit. However, courts only use this power in highly exceptional circumstances, such as if the seller was guilty of trickery or directly caused the buyer's breach.
Why is the deposit strictly capped at 10%?
If a seller demands a 15% or 20% exchange deposit and the buyer subsequently pulls out, the seller cannot legally keep the entire amount. In the case of Workers Trust & Merchant Bank Ltd v Dojap Investments Ltd (1993), the Privy Council confirmed that a standard 10% deposit is considered a reasonable "earnest for performance". Anything over 10% is generally viewed by the courts as an unenforceable "penalty" rather than a true deposit, meaning the seller is legally obligated to return the excess amount to the buyer.
Example of the costs if a buyer pulls out after exchange:
Here is an example of the financial impact if a buyer pulls out after exchanging contracts on a £500,000 property:
- Loses their 10% exchange deposit of £50,000
- Pays daily penalty interest (typically 4% above the Bank of England base rate). For example, £770.54 (£450,000 balance * 6.25% / 365 x 10 days)
- Covers the seller's legal fees of £1,500
In this example, it has cost the buyer a staggering £52,270.54 to pull out after exchanging contracts.
Need help pulling out of a purchase contract?
We have specially trained solicitors on hand to help you if you need to pull out after the exchange of contracts. If you need urgent help with your exchange contract, please email us at help@samconveyancing.co.uk providing the following information:
- Your full name and contact number;
- A copy of your exchange contract;
- Confirmation of your exact reason for pulling out; and
- Any further evidence to support your case.
Upon receipt, we will get in contact and provide a quote for the urgent legal work required. Alternatively, you can call us at 0333 344 3234 (local call rate) or get in touch using the button below:
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Andrew Boast FMAAT is a qualified accountant, conveyancing specialist and author with over 25 years of experience in the UK property sector. Since beginning his career in 2000 within established SRA and CLC-regulated conveyancing solicitor firms, Andrew has overseen the legal journeys of more than 75,000 clients.
He is the self-published author of the first-time buyer guide: How to Buy a House Without Killing Anyone, and a frequent contributor to mainstream UK media on legislative updates, property law, first-time buyer guides, conveyancing best practices, and stamp duty changes. Andrew specialises in resolving complex title issues, property conflict disputes, and property tax options, streamlining the enquiry process to reduce transaction times and maintaining a client-friendly focus.
Amanda Ambler is a highly accomplished conveyancing specialist with over 15 years of dedicated experience across residential property law, legal compliance, and practice management. Having held senior roles, including Head of Legal Practice and Head of Conveyancing at established UK law firms, Amanda possesses a profound, hands-on understanding of the technical intricacies of the property market.
As the designated Legal Content Reviewer for SAM Conveyancing, Amanda ensures that every guide, legal update, and resource published meets the absolute highest standards of accuracy, regulatory compliance, and factual integrity. Her rigorous review process guarantees that complex property legislation and industry processes are communicated clearly, transparently, and safely for home buyers and sellers alike.
