What is the exchanging of contracts?
Exchanging of contracts occurs in the latter part of the conveyancing process. It happens after the parties are agreed to a deal which has been written down in the form of a legalized contract and before completion. In between these two points, the parties will exchange the legalized contracts to sign and execute them.
What is the legal significance of exchanging contracts?
This will legally bind you to carry out the transaction. After exchanging of contracts, if you want to pull out of the deal, you may find yourself having to pay a significant penalty. Therefore, you should make sure that everything is in order before you exchange contracts.
Sort out everything you need to before you exchange contracts
It would help if you kept the following in mind before you exchange the contracts:
- Offer - You have agreed on an offer, including which fixtures and fittings will be included within the agreement.
- Legal Issues with the Property - You have acquired all the information relating to the property and understand all the liabilities it is under. This includes carrying out the local authority searches, water drainage search, and environmental search.
- Mortgage - If you are taking a mortgage, you have arranged one, offered one in writing, and understand its terms and conditions.
- Building Insurance - You may need building insurance, and it is essential to have it in place beforehand.
- Deposit - You have sorted out the finances for the contract deposit upon exchange of contracts.
- Read the contract - You have correctly understood the contract.
- Completion - You have agreed on a completion day for the sale to take place.
Can you exchange the contract and complete the sale on the same day?
After sorting out the issues highlighted above, the contracts will be exchanged. You may also prefer to have the exchange of contracts and completion to happen on the same day. This will save you the trouble of having to arrange a contract deposit. However, it may pose its problems as well.
For instance, there may be issues of money transmission, which will delay the matter to the next working day. Furthermore, as neither party is bound to carry out the deal before the exchange of contracts, you may find yourself in a tough spot if the other party backs out, mainly if you were the buyer and planning on moving in.
The COVID-19 global pandemic has posed some issues in the conveyancing process. You would want to protect yourself from legal exposures in case of delay in the conveyancing process caused by a change of circumstances such as lockdowns.
Therefore, you may want to add a COVID clause to your agreements, in case you are hindered from carrying out your obligations after the exchange of contracts which may otherwise amount to a breach of contract. You should speak to your solicitor or licensed conveyancer regarding adding a COVID clause in your contract.
You should only commit to the sale, through exchanging contracts, once you are completely aware of the practical information regarding the property. You will need to get a formal mortgage offer if you require a mortgage to finance the deal.
Further, as restriction on movement and otherwise due to the COVID-19 global pandemic may cause delays on your part, you should protect yourself by adding a COVID clause to the contract which would absolve you of any legal exposure, in case there is a delay on your part.
Please note that the information provided on this page:
- Does not provide a complete or authoritative statement of the law;
- Does not constitute legal advice by Net Lawman;
- Does not create a contractual relationship;
- Does not form part of any other advice, whether paid or free.
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