What Is Exchanging Of Contracts?
Exchange of contracts occurs near the end of the conveyancing process before completion.
Exchanging contracts happens after the buyer and the seller have agreed the finer points of the deal, and the purchase and sale agreement has written into a legally binding contract.
The buyer and the seller each sign a copy of the contract and then exchange their signed copy with the other in order to execute the contract and make it binding.
What is the legal significance of exchanging contracts?
Exchanging contracts legally binds you to complete the transaction. After this point, if you want to pull out of the deal you may find yourself having to pay a significant penalty.
If you're uncertain about anything, you should make sure that everything is in order before you exchange contracts.
Sort out everything you need to before you exchange contracts
If the steps below have happened and if you are happy to continue with the sale or purchase, you can exchange contracts.
You should have agreed on an offer and a price. The offer should be not only for the property, but also for the fixtures and fittings that will be included as part of the sale.
Identification (and resolution) of legal issues with the property
You or your conveyancer should have acquired all the information relating to the property and understand all the risks and obligations attached to it. The process of doing this includes carrying out 'searches': local authority searches, water drainage, environmental and possibly others.
Mortgage in place
If you are buying with a mortgage, you will need to have arranged it, have the offer in writing and be happy that you understand the terms and conditions of borrowing.
Building insurance arranged
You will need to have found building insurance (a type of home insurance that covers the 'fabric' or the bricks and mortar of the building) and arranged for cover to start as necessary.
Your conveyancer will either need to have received the deposit from you, or be happy that the deposit is available.
Like all contracts, before you enter into a legally binding arrangement, you should read the document that records the deal and make sure that you both understand every part of it, and that you do agree to it.
Completion date agreed
You will need to have agreed on a completion date, when the buyer gives up the keys and the seller can move in.
Can you exchange contracts and complete the sale on the same day?
You can exchange of contracts and complete on the same day.
The main advantage of doing so is that you won't need to arrange for a deposit to be made.
However, exchanging contracts at the same time as completing poses other problems.
There is one of practicality. Either the buyer or the seller may not be ready to move home immediately. Particularly, the seller may need time to pack up.
Transferring money may be difficult without advance arrangement. It may take a day or two to transfer, putting the seller at risk in case it doesn't happen and he or she has already given up possession.
Lastly, up to the point of exchange of contracts, either party can still back out of the deal. If you are the buyer, and have arranged to move in, you risk that the seller decides to pull out, leaving you without a roof over your head.
The coronavirus pandemic has delayed steps in the conveyancing process. You can protect yourself from legal risks in case of delay caused by restrictions on movement.
You may want to add a clause to your contract, in case you are hindered from carrying out your obligations after the exchange of contracts. This will prevent what may otherwise be a breach of contract.
You should only commit to the sale, through exchanging contracts, once you know everything about the property and financing and insurance is in place.
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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