Exchange of contracts is the point at which a property transaction becomes legally binding on both parties (seller and buyer) and they are contractually bound to finalise the sale/purchase on the agreed completion date.
What is exchange?
- Both the seller and buyer’s solicitors are in possession of a signed contract.
- The seller’s solicitor also holds the signed transfer (TR1 form).
- The buyer’s solicitor is in possession of the deposit, a mortgage offer and buildings insurance policy (if required).
- A completion date has been agreed
At this point the solicitors confirm with each other they hold all the legal documents required for the sale/purchase to complete and they ‘exchange’ contracts. This now usually takes place over the telephone.
What happens at exchange of contracts?
- Years ago, solicitors used to meet and physically exchange contracts by handing each other their respective clients signed contract. That practice has now been replaced by a verbal telephone exchange.
- If there is a chain of more than two transactions (sale and purchase) then on the day of exchange, the solicitors at the bottom of the chain has to contact the next solicitor up and confirm to them that they are in receipt of a signed contract and deposit and confirm the terms of the sale/purchase and the completion date.
- They will give the next solicitor or conveyancer up the chain a ‘release’ time to come back to them to confirm the exchange, this may be 4pm or 5pm that same day.
- The next solicitor then has to contact their client’s seller’s solicitor or conveyancer in the same way, until the one at the top of the chain has been reached.
- The exchange then needs to be confirmed back ‘down’ the chain, to reach the solicitor at the bottom within the release timeframe.
- If that doesn’t happen, the exchange process will have to be re-started the next day.
- This is only necessary if there is chain. If there is just a sale and purchase then it is not necessary to obtain a “release” and both parties can just do a telephone exchange.
- Once the telephone exchange has taken place the original signed contracts are then exchanged by post and sent to the respective solicitors.
What is the significance of exchange contracts?
- The significance of this stage of the transaction is that it marks the point at which both parties (seller and buyer) are legally bound to complete the transaction.
- It sets the completion date and confirms all the legal paperwork is either already in place for completion or is guaranteed to be in place before then. It is at this point that all parties can make firm arrangements for removals etc.
- If either party were to pull out after exchange, there would be penalties.
Completion is when the property transaction is legally finalised and the new owners get the keys. Completion takes place on the date specified in the contract on exchange of contracts. More details will follow in my next Blog “What is Completion”.
If you would like any further information, please contact our office on 01904 624903, and speak with one of our friendly residential conveyancing team members who will be able to assist.
- Conveyancing Update:I’m purchasing a property, should I worry about the Land Registry delays? - September 7, 2023
- Conveyancing Blog: What is an Unregistered Property? - March 20, 2023
- Conveyancing Update: Local Authority Searches - November 30, 2022