Conveyancing 
Insights
 

What is Exchange of Contracts?

Exchange of contracts is arguably one of the most important steps in the conveyancing process. Albeit buyers and sellers are usually very pleased when an offer is made and accepted at the very beginning of the conveyancing process, it is only at the point of exchange of contracts that the offer and acceptance becomes legally binding on the parties. It is also at this stage the completion date becomes set in stone. The completion date is the date the purchase monies are transferred to the seller’s solicitors and the keys to the property are released to the buyer.

To enable exchange of contracts, the buyer needs to be in a position where they are happy with all the replies to enquiries arising from their survey, the solicitor’s title investigation and search results. The solicitors representing the parties will need to ensure they hold all the relevant signed documents. The buyer will also need to ensure they are able to provide their solicitor with their deposit (or it the buyer has a related sale, then the solicitor needs to ensure the deposit is made available to solicitors in the lower chain). Once the buyer has reached this stage, the buyer and seller can negotiate a completion date. 

If there are lenders involved, the solicitors will also need to ensure the lenders can commit to a completion date. Therefore if a buyer is purchasing with a mortgage, the solicitor will need to check the lender can commit to an agreed completion date and transfer the mortgage advance in time. If a seller has a current mortgage on the property to be sold, the solicitor needs to make sure they have everything needed from the lender to repay the mortgage on completion. 

If either party pulls out after the point of exchange of contracts, they can face serious legal consequences and financial penalties. The binding nature of exchange of contracts means the parties can take steps and have the confidence to incur costs such as booking removal/storage companies etc. 

What happens on the day of Exchange of Contracts?

Once the solicitors have had any confirmation they require from lenders (for instance confirmation the lender will send the buyer’s mortgage advance in time) and all pre-exchange compliance checks have been carried out, the solicitors will contact their client to obtain ‘authority to exchange contracts’. This authority is important as the solicitor needs to ensure they have full instructions from their client to enter into contract on their behalf. When obtaining this authority the solicitor will usually check the price, completion date and whether the party is buying/selling any extras such as furniture from the seller. 

Once the authority to exchange has been obtained, the solicitors will perform a Law Society prescribed formula, usually by telephone, where they each check the contents of their client’s signed contract is identical to the other party’s signed contract. Once the prescribed formula is completed, exchange of contracts is deemed to have taken place and the contracts become legally binding. The solicitors will confirm exchange of contracts has taken place to their clients and the clients and the solicitors can then take steps to prepare for completion. 

Overall ….

Confirming exchange of contracts to a client is one of the highlights of a conveyancing solicitor’s day. Clients are usually very happy to get this news. Any anxiousness that the transaction could fall through disappears and they are able to make all the necessary arrangements to physically move in/out of the property and get on with the rest of their lives!