Exchange of contracts happens towards the end of the legal process when you sell or purchase a property.
Before exchange of contracts, there are processes and checks which will need to be completed before you can exchange and ensure the property and the legal title are satisfactory for both yourself, and your mortgage lender (if applicable). Mortgage lender’s have their own terms and conditions which need to be met, which your conveyancer will need to comply with, before they will proceed with your mortgage offer. During the process of conveyancing, the draft contracts will be issued to the purchaser’s solicitor. The purchaser’s solicitor will review the contract pack and raise any necessary enquiries on the title of the property and the contract pack. The purchaser will also need to submit their searches (this is optional if you are a cash buyer). The searches consist of local search, water search and an environmental search. Based on the search results, you may require further searches. For example, a coal mining search. It may be necessary for further enquiries to be raised off the back of the searches. Once all enquiries are satisfied and the contract paperwork is signed and returned, you would be in a position to agree a completion date and proceed to exchange of contracts.
Once all enquiries have been answered, all contracts are signed and everyone within the chain are willing to proceed, contracts will be exchanged. Prior to exchange, there will be a negotiation on what the completion date will be and this will need to be agreed between the chain. Once this is agreed, your solicitor will need to prepare your exchange. If you are selling this will include requesting your redemption statement from your current lender, to repay the mortgage. If you are purchasing and have a mortgage lender, this will include requesting mortgage funds from the lender in readiness for the completion. The lender will usually require 5 working days notice. If you are a cash buyer, your conveyancer will let you know how to transfer the required funds. The conveyancer needs to ensure everything is in place prior to exchange of contracts, to ensure there is nothing to prevent you from completing on the legally binding completion date.
On exchange of contracts, you are committing to sell or purchase a property. This is a legally binding contract, so once contracts are exchanged, if you do not complete on the agreed completion date, there will be legal consequences which can come at a great cost to you. This can include paying interest to the other party (seller or buyer), loss of your deposit (which is usually 10% of the price of the property) and paying costs to the other party in the contract.
It is therefore important that when you do come to exchange contracts, you are sure you are happy to proceed with the transaction, as it is difficult to get out of a contract once contracts have been exchanged.
