Exchange of Contracts during a house purchase

30/04/2020
Exchange of contracts is the key moment in the conveyancing process because it legally binds the seller and the buyer into the transaction. Until contracts are exchanged either party can pull out without any financial penalty, other than to cover their own costs and any reservation deposit paid. With so much riding on this moment we've created this article to explain:

    1
    How do solicitors exchange contracts in 6 steps
    2
    Exchanging Contracts in a Chain - What can you do?
    3
    What can hold up exchange of contracts?
    4
    Can you exchange contracts without a completion date?
    5
    How long between exchange and completion?

If you haven't done so already then watch our video below and the also what happens after exchange.


Leave no stone unturned with and download our Pre-Exchange Checklist used by all our clients.

How do solicitors exchange contracts in 6 steps

    1
    Sign your documents

Once all of the legal enquiries are satisfied by the seller your solicitor will provide you with a report on title explaining about all they have found our about the property. This will be accompanied by the following documents:

  • Contract - it confirms the amount you are paying, the property, title number, names of the sellers and buyers, any special conditions and the standard conditions.
  • TR1 Form - signed and witnessed as a deed. This is the document that goes to the Land Registry to transfer the title from the seller to the buyer.
  • Stamp Duty Land Tax (SDLT) return - whether you are paying any stamp duty or not, an SDLT form is sent to HMRC to confirm a transaction has taken place.
  • Mortgage deed (if applicable) - signed and witnessed the mortgage deed is sent to the Land Registry to register the mortgage over the property.

Used on all conveyancing transactions. Your contract of exchange may include additional clauses.

The signed documents need to be returned to your solicitor in the post by special delivery.

    2
    Agree a completion date
If you haven't already agreed a completion date at the outset, then the best time to discuss when you want to complete is when you receive your report on title from your solicitor. The reason for this is that until this point, you don't know how close you are to exchange and the report on title stage is the final part prior to singing everything ready for exchange.

    3
    Pay exchange deposit
The standard terms of contract states "The buyer is to pay or send a deposit of 10 per cent of the purchase price no later than the date of the contract". Here are things that can effect the amount paid for the exchange of contracts deposit:

  • 5% Deposits - under Help to Buy you can buy a property with a 5% deposit. The contract of exchange is amended to confirm the buyer is only paying a 5% deposit. The buyer is still liable in the event of the buyer pulling out. Read more here - The risks of buying a house with only a 5% deposit
  • Sale and Purchase - exchange of contracts in a chain means that your buyer is transferring their 10% deposit to your solicitor who will in turn send on your 10% deposit to your seller. Where the exchange deposit lower down the chain isn't large enough to fund your onward purchase then you'll either have to top up the deposit to 10% or your seller will need to agree to accept a lower deposit. The latter is often accepted by the seller.

Exchange of Contracts Deposit is paid to the buyers solicitor to be held within their client account until exchange of contracts. Whilst the deposit is held in the solicitor's client account it will accrue interest.

When does exchange of contracts happen?

When you pay your deposit and exchange contracts depends on the type of property transaction.

  • Standard sale and purchase - the most common type of transaction, a property exchange of contracts takes place once the buyer and seller are ready.
  • Auction - you pay a 10% exchange deposit when you win the bid.
  • New Build - you pay a reservation deposit, normally £250, and pay the balance of the deposit 28 days later when you exchange contracts.

Who holds the deposit on exchange of contracts?

The deposit is sent from the buyer's solicitor to the seller's solicitor and they hold the deposit after exchange of contracts within their client account. The deposit is not sent to the seller until after completion takes place unless agreed prior to exchange (most developers on a new build transaction agree for the deposit to be sent to them on exchange of contracts).

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    4
    Building Insurance
It is the buyer's responsibility to insure the building from the day of exchange. You don't have to do this if you are buying a leasehold because the management company/freeholder will already have building insurance. It is advisable to have a quote saved down earlier in the conveyancing process so that you can put it in place closer to exchange of contracts.

    5
    Give your consent
Your solicitor needs the consent of all parties to the contract before exchange of contracts can take place. Before you give your consent here are some things you must check:

  • Pre-Exchange Viewing - it may have been a few weeks since you last saw inside the property so make sure to organise a viewing before exchange of contracts.
  • Fittings and Contents - make sure you are happy that what you agreed with the seller is reflected in the seller's Fittings and Contents forms. You could find that the bed you thought was being left as furniture is in fact not included.

Leave no stone unturned with and download our Pre-Exchange Checklist used by all our clients.

    6
    How do solicitors exchange contracts?
Under the laws of England & Wales, exchange of contracts takes place once the buyer's solicitor has completed all of their investigations into the property to ensure the buyer is fully aware of any known legal pitfalls. Before your solicitor exchanges contracts they will:

  • Pre-Completion Check these are to ensure there have been no changes to the the legal title of the property since we were first given the title information at the start of the transaction;
  • Verify Seller's Solicitors Bank Details using the Lawyer Checker system, solicitors can verify the sellers solicitor's bank account details. Delays can arise if the seller's solicitor does not frequently complete conveyancing transactions or there is an alert related to the bank account;
  • Bankruptcy Check a bankruptcy check is completed on all purchasers when obtaining a mortgage;
  • Confirm receipt of deposit the solicitor requires the deposit to be cleared to use within their client account before they can exchange;
  • Give release up (and down the chain) once the solicitor has given the release that they are ready, they will wait to hear back from the otherside confirming the same; and
  • Authority to exchange the solicitor gets authority from their client to exchange and then exchange can take place.

The actual process of exchange of contracts happens over the phone between the buyers and sellers solicitor. Both will verbally agree the property being sold, the buyers and sellers names, the price, deposit to be paid, completion date, additional conditions/amendments and then confirm that exchange of contracts can take place. After this call the properties are formally exchanged and the solicitors undertake to send to each other their client's signed contracts (hence the name - Exchange of contracts).

Can you pull out after exchange of contracts?

Once you exchange contracts you are legally bound to buy the property however you can still pull out (and face the financial costs).

This is the reason why your solicitor must ensure they have completed their full due diligence in relation to the property and your finances (including mortgage offer and your own funds). Read our article on what happens if you have to pull our after exchange of contracts or call us on 0333 344 3234.


Frequently Asked Questions

Exchanging Contracts in a Chain - What can you do?

The challenge with a chain is there are a lot of people involved and any part of the chain can slow everyone else down. The best advice is to find out from all parties in the chain who is getting a mortgage and an estimated completion date for everyone to work towards. It helps to have a far off completion date as exchanging contracts in a chain takes longer than when there is no chain.

What can hold up exchange of contracts?

Here is a list of the top 5 things that can hold up exchange of contracts:

    1
    No mortgage offer
    2
    Delay with local authority search
    3
    Buyer delaying as they live in rented accommodation
    4
    Solicitor is slow/over worked/on holiday
    5
    The buyer's money is in a high interest account with a 30 to 60 day lock in

How long does it take to exchange contracts when buying a house?

Exchanging contracts on a property like a house takes far less time than it does with a leasehold property. Industry standards state a freehold can complete within 6 to 8 weeks which means it can get to exchange within 4 to 6 weeks. A leasehold however takes longer to get to exchange contracts because it has more parts to complete such as:

  • Leasehold Information Pack - it can take between 3 to 8 weeks to get a leasehold information pack (or also know as a management pack). Find out why here - Why does it take so long to get a leasehold pack
  • Leasehold enquiries - the solicitor raises more enquiries as there are two leases/titles to check the freehold and the leasehold.

Whats the difference when Taylor Wimpey exchange contracts?

Exchanging contracts with Taylor Wimpey when buying a new build property means that you are either:

  • buying a property that is new and ready to move into; or
  • buying a property that hasn't yet been built and there is no fixed completion date (although there is an estimate).

Taylor Wimpy exchange contracts normally have a 28 day exchange deadline in them from receipt of contracts so the buyer need to move quickly to be ready for exchange. We can meet these time frames if you need a solicitor for your conveyancing so call 0333 344 3234 (local call charges apply).

Can you exchange contracts without a completion date?

As we've seen above, you can exchange contracts without a completion date however there will most likely be a long stop date in the contract. A long stop date allows the buyer to pull out and get their deposit back if the seller isn't ready by to complete by the time the long stop date comes around. This is one of the only ways to pull out after you've exchange contracts.

Having a long stop date protects the buyer for a developer who may never complete the build for whatever reason. If you exchange contracts without a completion date and without a long stop date then the buyer is locked into the purchase until the developer serves notice to complete.

How long between exchange of contracts and completion?

We explain this in more detail within our article, How long between exchange of contracts and completion, however the time between exchange and completion is agreed between seller and buyer. Most transaction choose to have a week, however you can have 2 months or more. Read our article to see the issue when there is too long a time between exchange and completion.

Can I exchange and complete on the same day?

It can also make the process more stressful for you. Trying to book home removals or take time off to move is hard enough as it is, however when you have one day for exchange and completion to take place you are faced with the challenge of keeping everyone involved working to provisional times that keep getting pushed further back.

It is possible to exchange and complete on the same say and this is called a Simultaneous - although you should steer clear of doing this. The average time between exchange and completion is 2 weeks and in this time you'll know the completion date and can book everything knowing your completion date won't change. As a first time buyer, you'll more than likely need the time because you'll be handing in your notice on your rental and won't want to do this until you exchange because you don't want the purchase to fall down and end up being forced to leave your rental.

When should you hand in your notice to your landlord?

You should never hand in your notice until you have exchange contracts. If you do hand in your notice before you exchange then you run the risk of the transaction falling through before exchange and leaving you with no where to live. Then again, if you wait until you exchange contracts before handing in your notice then you could end up paying mortgage and rental payments for a short period of time - depending on how long you have in between exchange and completion.


Related News Articles

 
Attended Exchange of Contracts: Beware the Pitfalls
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What happens after completion
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What happens on completion day?
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