Exchange of contracts explained

When you're looking to sell or buy a property, there are so many things to consider, from working out whether to declutter before a move to lining up professionals such as a mortgage lender, a chartered surveyor or your conveyancing solicitor.

When it comes to the conveyancing side of things, there are several legal terms bandied around as if everyone involved is aware of their meaning and what it comprises. Whether they are talking about searches to be completed, or completion day, or exchanging contracts, sometimes the jargon can be a bit mystifying and might even add stress to an already anxious process.

At Homeward Legal, we want to ensure that the legal tasks are clear to you and that you understand unambiguously what your role and position in them are.

Here we look at the term exchange of contracts, a major milestone in the process of buying and selling a home.

The good news is that, if you are at the point where contracts are being exchanged, you're firmly on the final furlong to moving out of your current home and picking up the keys to the new one.

“Exchanging contracts” really does mean what it says. 

When you are selling or buying a property, each transaction has implications which need to be formalised in a legal document - which is the contract. There will be one contract created with your buyer, and another with your seller that lays out the transference of ownership from one party to the other.

It is a critically important step because exchanging contracts is the point at which you are legally obliged to complete the transaction. Not to do so will incur legal penalties and possible heavy financial costs.

As highlighted, the point where you exchange contracts with your seller and/or buyer confirms that you are legally obliged to continue with the sale and/or purchase.

The completion stage usually occurs at a later date, and it is the point where all residual moneys are transmitted between the bank accounts of the parties involved, and legal ownership of the properties involved is formally transferred from the old to new owners.

Essentially, by exchanging contracts you are legally committing to the sale and/or purchase, while completing on the property means that the ownership transfer is completed, and you can pick up the keys to your new home from the estate agent.

It happens towards the end of the conveyancing process (that takes around 8 to 12 weeks) but exchanging contracts doesn't take long and usually requires a few phone calls to coordinate the different parties.

When you embark on buying or selling a property, your conveyancing solicitor will suggest a date for the exchange of the contracts, which will be firmed up as the conveyancing process is worked through.

During that period leading up to contract exchange, this is where your conveyancer really earns the fees that you are paying them. 

They will be under instruction to:

• Complete the Local Authority search - checking building regulations and any planning associated with the property, as well as confirming any schemes for road or rail that might impact, and whether the property resides in a conservation area.
• Complete the Drainage and Water search - checking how and where the property is connected to the mains water supply and the sewerage services connection to the public sewer, and the utilities location and accesses with respect to the property.
• Complete the Environmental search - checking whether there are any environmental factors - local industry, landfill or recycling sites, radon gas hazard information, the stability of the ground around the property and a statement of the flood risk.
• Complete special searches - depending on what the main searches highlight or using their local knowledge, your conveyancing solicitor may recommend additional searches (at extra cost) such as a Coal-Mining Search or a specialised Japanese knotweed or flood risk assessment. There may be an impact caused by national projects like HS2 or local impacts on finances such as Chancel Liability, which might need separate searches to be performed so that you know exactly what you are undertaking.
• Verifying completion of forms - when selling, you will need to fill in a number of legal forms, the two primary examples being the Property Information Form (known as the TA6 form), and the Fixtures and Fittings form (the TA10 form). Similarly, your seller should provide these completed documents to you. Your solicitor will ensure that all the relevant forms and documents are satisfactorily completed and sent to the recipient.
• Prepare the contract - your solicitor's conveyancing work ultimately leads to the provision of the legal document that covers the transference of ownership from your seller to you (and from you to your buyer).
• Set and agree the completion date - you won't be able to exchange contracts until a planned completion date is set in the diary. You can feasibly exchange and complete on the same day, although this is inadvisable because of the extra stress involved and you are likely to be charged an additional fee to effect the exchange and completion in such close proximity.

While your conveyancer is working through that list above - all the time keeping you apprised of the status as well as dealing with the other conveyancing solicitor - there are some tasks that you need to ensure are completed before the contracts can officially be exchanged:

• Offer made to seller and price agreed - this is obviously fundamental to the process. Without it, nothing can proceed. And, if you are selling, you need to have accepted the offer made by your prospective buyer.
• All forms completed accurately - if there are any points that are not clear or have not been filled in on the TA6 or TA10 forms, this will incur a delay until they are satisfactorily completed, since they are legal documents.
• Read and question any forms you receive - if there is anything that doesn't make sense or that you want to question, then you should do this as soon as possible to prevent any possible delay.
• Property surveys completed - this is not an essential step, but, if you have ordered a survey, you need to have the report delivered to you so that you can raise any questions or objections with your seller based on the findings. To delay those until after exchange of contracts will not only create delay but could create legal issues.
• Mortgage and other funding confirmed - simply put, you need to guarantee that you can pay for the purchase.
• Deposit funding secured - you'll need to be able to pay the deposit (usually around 10% of the agreed sale price).
• All warranties and certificates available - you'll need to get an Energy Performance Certificate (EPC) completed on your property that you are selling (as you can expect one for the property you are buying) - this will appear in the estate agent's particular
• s on the property. There may be other warranties and certificates that are still in term and valid that you need to provide for your prospective buyer.
• Buildings insurance in place - if you are purchasing a property with a mortgage, your lender will require evidence that you have set up buildings insurance; without it, they will not release funds when it comes to completion, which will mean that you forfeit the deposit and potentially lose the home you were planning to buy.
• Read and understand the terms and details of the contract(s) - it is imperative that you understand what you are signing up to in buying and selling properties. Don't feel rushed into signing the document before you have fully understood its contents. If there is anything that you don't understand or think is incorrect, you should immediately highlight the issues to your solicitor, who will ensure rectification of the document or explain anything that might be unclear.
• Sign the contract - once everything is in place, you can sign the contract. Assuming your opposite numbers in the sale/purchase have done their bit, you should now be ready to exchange contracts.

To start the exchange of contract process, your solicitor will contact their opposite numbers in the sale and purchase to exchange the contracts that have been signed along the entirety of any chain that the process might be involved in.

The completion date will be ratified, which will then give you time to contact your removals firm (or van rental if you are planning to do it yourself) so that you can confirm your plans for the day of moving. At the same time, your solicitor will discuss the details of the contracts with the other conveyancers to guarantee that everything is in place.

At this stage, your deposit will be paid via your solicitor to your seller's solicitor. Similarly, your buyer's solicitor will send the deposit through to your solicitor.

And that, as they say, is that! 

You have officially exchanged contracts and are legally obliged to continue with the sale and/or purchase of the properties you are involved with.

You can now plan what you are going to do with your new home once you take ownership of the keys on the forthcoming completion day!

Some common factors that can delay the exchange of contracts include:

• Problems with the property title
• Issues with the buyer's mortgage application
• Missing information from the seller
• Delays in receiving local authority searches
• Problems uncovered by a building survey
• Purchasing a leasehold property
• Being involved in a chain
• A probate sale
• Buying a new build property that isn't yet completed

You can also check our guide about conveyancing timings, delaying factors and how to speed up the process.

The average time between exchange and completion is 7 days.

Sometimes both the exchange and the completion can be done on the same day, and in some cases the period can be much longer.

Completions are arranged more often than not on a Friday, to help movers and solicitors be coordinated.

Exchange of contract usually happens before noon, between 10am and midday. It will also depend on your conveyancer schedule as they will be responsible for exchanging the contracts.

When you're planning on buying or selling a home, you need to protect yourself as much as you can, which is why you should appoint a solicitor with Homeward Legal, because we guarantee that if your transaction falls apart for any reason, you won't have to pay any of the solicitor's fees.

The experts at Homeward Legal are well-versed in all aspects of the conveyancing process, providing a quality service at a fee that is great value for money!

Call  to get your conveyancing quote started, or to discuss your concerns with your plans to purchase or sell your home. You can also submit a quick quote online and we'll be happy to help!