What Is Exchange Of Contracts?
What is exchange of contracts?
Exchange of contracts refers to the legal process of handing over the signed contract documentation relating to a house sale/purchase. During exchange, you solicitor will contact the buyer/seller’s solicitor and agree a time of exchange, which will be noted on the contract document. Your solicitor will then sign the contracts documentation and you will have a legal obligation to proceed with the transaction. From this point on you must continue with the transaction according to the terms given in the contract – once you exchange, there’s no going back.
Although historically solicitors would often meet for the exchange of contracts, nowadays completion nearly always takes place over the phone. Whilst the relevant parties do need to give their authority for the exchange to take place, there is no need for the buyer or seller to be present.
How does it differ to completion?
Completion refers to final transaction during which a property is legally transferred to the new owners. A completion date is agreed upon by both parties and is included as a term in the contract. On completion day, both the buyer and the seller are legally bound to fulfill the terms of the contracts. This is when the money exchanges hands and the keys are given to the new owners. Whilst exchanging contracts means you have an obligation to buy the house as agreed, you won’t actually legally be the owner until after you have completed.
How long is it usually between exchange of contracts and completion?
The time between exchange and completion can vary greatly, and is dependent on any number of variables. An average period between exchange and completion may be between 5-20 days, although it can range anywhere from a few hours to a few months (and occasionally even years). Many people are happy to have a lengthy gap between exchange and completion as once the exchange has taken place the completion is assured, whilst others may want to complete soon after exchange – perhaps so they can avoid temporary accommodation, or the use the money for a related purchase. Having a gap between exchange and completion offers some advantages – for instance, it allows you to book time off work or arrange removals safe in the knowledge that completion is assured.
Talking about your preferred timescale with your solicitor is the best way to negotiate a time that suits you.
Can I exchange and complete on the same day?
You can exchange and complete on the same day, although you should be aware that this can be risky – there is no guarantee that the transaction will go ahead until exchange has happened and this can make organising removals difficult.
Can I change my mind after exchange has taken place?
Once you have exchanged contracts, you must comply with the terms stated in the contract. Breaking the terms of the contract can cause serious problems and you are likely to face financial penalties from the other parties involved.
If you are responsible for delays to completion, the other side are entitled to charge you interest for each day that completion is delayed. A typical interest rate for delaying completion is around 1% of the overall price of the property per day. The best way to avoid a situation like this is obviously to make sure you are completely committed to the sale or purchase before agreeing to exchange contracts! You are free to walk away from the deal at any time without repercussions as long as contracts have not exchanged. If you have have doubts about proceeding with the transaction then speak with your solicitor.
You can find further advice on the conveyance process on our information pages. If you’d like to speak to a conveyancing professional then call one of our team on 0191 567 7244 – a consultation is free and there’s no need to act.