Legal matters: what does ‘exchange of contracts’ mean?
Sarah Sargent, Partner and Head of Residential Property at Lupton Fawcett, answers your questions on property issues.
Once your solicitor has completed all of their searches and enquiries, they will report to you to obtain a signed contract and, in the case of a purchase, your deposit monies. Once they are in receipt of this, they are then in a position to exchange contracts.
What is exchange?
Both parties’ solicitors are in possession of a signed contract
A completion date has been agreed.
What happens at exchange of contracts?
The solicitor acting for the first buyer in a chain will give the next solicitor or conveyancer up the chain a ‘release’ time to come back to them to confirm the exchange, usually this will be 4pm or 5pm that same day.
This process moves up the chain until the last party in the chain at which point the exchange then needs to be confirmed back ‘down’ the chain. Only once this process has gone all the way up and back down can the exchange be confirmed.
Often this cannot all be completed on the same day, there may be outstanding issues or often it has simply not been possible to make contact with all parties in the chain in the required timescale. If that happens then the chain will try again the following day.
What is the significance of exchanging contracts?
After exchange, the contract is then legally binding and the terms and conditions of the contract come in to force.
Perhaps most importantly it sets down the completion date – this is the date you can actually move in to your property and collect keys.
If either party were to pull out after exchange, there would be penalties.
How long will there be between exchange of contracts and the completion date?
There is no fixed time between exchange and contracts, it is possible for this to happen all on the same day and this is often referred to as a ‘simultaneous exchange and completion.
The benefit of exchanging in advance on the completion date is a degree of certainty. You know that all parties have agreed this date and that there would be financial penalties for a delayed completion. We would not advise you to book any removals until contracts have been exchanged.
During COVID-19 there have been new risks which all parties have had to consider such as lockdown restrictions or quarantine provisions. As a result of this many legal advisors have recommended as little time as possible to cut down on these risks and for a time many firms had a policy of only doing a ‘simultaneous exchange and completion’. You should make sure you speak to your legal advisor and understand all implications of exchange of contracts and fully understand the risks.
For further help or guidance on this article or in relation to Residential Property generally, please contact Sarah Sargent, on 0114 228 3281 or [email protected]