Exchange of contracts takes place when the Buyer and Seller are ready to make the transaction legally binding and for the sale and purchase to take place on a particular day.
Regardless of whether the parties have signed contracts in advance, the contract does not become legally binding until it has been exchanged. As a result, either party can change their mind about any aspect of the transaction or withdraw from the transaction altogether without consequence prior to exchange of contracts.
Once the Buyer and Seller have authorised their solicitors to exchange contracts, the Solicitors will effect the exchange by an approved method known as the Law Society Formula. At this time the completion date is inserted into the contract and becomes a binding term, the other terms are reviewed and confirmed and then the contract is dated. Both solicitors agree a time at which the contract becomes binding and then swap (or exchange) parts so that the Seller's solicitors will ultimately hold the part contract signed by the Buyer and vice versa.
Once exchange has taken place, all of the terms of the contract become legally enforceable by the Buyer and Seller and neither party can change their mind and decide not to proceed, alter the price or change the completion date. The Buyer will usually pay a deposit up to 10% of the purchase price and which may be forfeited if they breach their side of the contract.
Exchange can take place any length of time prior to the agreed completion date and conditions can be imposed in the contract requiring certain things to happen between exchange and completion. In some cases, the Seller may agree to carry out works at the property or the Buyer may be permitted to access an already vacant property for the purposes of cleaning and/or decorating.
In other cases, exchange and completion can occur simultaneously.
Completion takes place on the completion date set out in the contract and the Buyer and Seller are only legally obliged to complete on the given day once contracts have been exchanged.
Completion takes place when the purchase price or balance of purchase price after any deposit already paid is received by the Seller's solicitors from the Buyer's solicitors.
Completion is then said to have taken place at the offices of the Seller's solicitors. Once monies are received, the keys are to be handed to the Buyer and the Buyer is permitted to take possession of the property as their own. The Seller must therefore ensure that they vacated the property and handed keys in to the Estate Agent or given them directly to the Buyer once monies are acknowledged as received by the Seller's solicitors.
Exchange and completion are often confused as the same thing or both meaning the conclusion of the transaction. In summary, exchange is when the contract becomes binding and completion is when monies are paid and the property physically changes hands. Contracts can be exchanged days or weeks in advance or on the same day as completion.
Exchange of contracts gives some certainty to the parties in the transaction and means that the completion date cannot be varied. In many cases it is prudent not to arrange removals and changes to utilities and Council Tax etc until contracts are exchanged and dates are fixed.
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