Jargon Buster: Exchange of Contracts
The Conveyancing system is full of legal jargon (even the word Conveyancing doesn’t come up often in day-to-day life for most of us).
We wanted to write a series of blogs to help our clients understand some of the key terminology used on a day-to-day basis when buying and selling property.
We are aware that legal language can be complex and at times overwhelming. It became apparent to me after having a culture shock of my own when I moved over to Residential Conveyancing from Criminal Law five years ago. I became acutely aware of the jargon phrases used and have never lost sight of the fact that what we deal with on a day-to-day basis is often unfamiliar territory for many.
One of the phrases I am often asked to explain is: ‘What does Exchange of Contracts actually mean’?
Exchange of Contracts
‘Exchange of Contracts’ happens towards the end of the buying or selling process. It is the point when the agreement between the buyer and seller becomes legally binding, the purchase price is finalised and Completion Date is set.
Starting from the beginning:
At the outset of most transactions an offer will be made to purchase a property, usually via an Estate Agency. At this point neither the person making the offer nor the Seller of the Property are legally committed to the transaction going through. Terms can still change from this point and either party can still withdraw from the transaction.
Once an offer is accepted buyers will usually begin to make detailed checks on the property to make sure that it is worth the sale value placed on it. Usual checks include a survey which checks the condition of the property and assesses whether additional work is needed. At the same time, Solicitors will check the legal title and ensure that all is in order.
Naturally some transactions fail to proceed at this point. This can be for a number of reasons varying from adverse Survey results, delays or changes in circumstances. If contracts have not been exchanged at the point that a transaction fails, then generally, each party walks away without owing the other any monies.
Usually most transactions do proceed. Once it appears that both parties are close to continuing, we will invite you to come into the office to sign your contract.
Confusion can arise at this point. Signing the contract does not commit you to the transaction. Simply signing the contract is not the same thing as exchanging contracts. We find people often associate the act of signing with committing yourself to the transaction, which is not the case.
When the deal becomes binding
‘Exchange of Contracts’ is the point in the process of buying or selling a property that the deal becomes binding. We will be able to exchange contracts for you once:
- You have performed all the checks you want to on the property.
- Your mortgage offer (assuming you are using one) has been received.
- Your searches and surveys are received, checked and cleared.
- You and the other parties in the chain are happy with the moving date.
- Everyone in the chain has signed their contract and returned it to their Solicitor.
- You have passed us your deposit monies (for a purchase).
- The price for the Property is finalised.
Once we are ready to exchange and you have given us your instructions, we will proceed with the process of exchange. This involves us calling the other side’s solicitors and reading through the terms of the contract to ensure both contracts match one another. Subsequently, there should be no misunderstanding or difference on any terms of the contract.
Assuming that they are identical, we will send your signed contract to your seller’s solicitors and they will send us their clients signed contract. That is the process of exchange of contracts and is the point when you and the other party to the transaction are legally committed to the transaction.
From thereon, if either party to the contract were to withdraw from the ‘exchanged’ contract or breach any of its terms, you would be liable to one another for damages. Moreover, if you as the buyer were to withdraw from the transaction then you will lose your deposit.
The Moral of the Story
The moral of the story is that unless you are sure you want to buy the property and you have the means to – don’t exchange contracts!
More from our Jargon Buster series:
If you would like to talk to a member of our Residential Conveyancing department, we will be happy to help you.Back to News