“Am I bound to buy/sell my property?”29th June 2020 11:36 am Comments Off on “Am I bound to buy/sell my property?”
This is a question that I have been asked numerous times over the past few weeks. The answer is dependent on if contracts have been Exchanged or not; if contracts have been Exchanged then generally “yes”, if they have not then generally “no”. In essence “no one is bound in a sale and/or purchase transaction until contracts have been Exchanged.”
This inevitably leads to the question, “What are the risks once a person is contractually bound and how can the risk be mitigated?”
Once all parties in a chain of transactions are satisfied with their investigations the chain is then ready to proceed to Exchange of contracts. The entire chain will need to be ready to proceed to Exchange of contracts with an agreed Completion date, regardless of the size of the chain of transactions.
On Exchange of Contracts a date for Completion of the transaction (moving day) is agreed. The Seller contracts to sell the property to the Buyer and the Buyer contracts to buy the property on Completion day; both the Seller and Buyer are contractually bound to Complete on the date agreed once contracts are Exchanged.
The Buyer usually pays a deposit of 10% of the purchase price of the property with the balance of the purchase price paid on the day of Completion. The solicitors will draft Completion Statements including all costs and disbursements (including Stamp Duty, if any) which has to be with the Buyer’s solicitor at least one working day before the date set for Completion.
The Seller’s solicitor redeem any mortgage or other charge registered against the property on the day of Completion and will request these from the lenders and any other outgoings, for example estate agents commission (if any); the time taken to obtain redemption figures differs from lender to lender.
All parts of the chain are buying except for the top of the chain.
In the vast majority of transactions, the balance required to Complete is from the Buyer’s own sale proceeds, some monies from the Buyer’s own resources (for which proof of funds must be provided) and a mortgage advance. The mortgage advance has to be requested, with most lenders requiring at least 5 working days notice, to release the advance.
If any party in the chain fail to Complete the transaction in which they are contractually bound then the financial consequences for the defaulting party can run into the tens, if not hundreds of thousands of pounds.
In these times guidance and dictum from government and other authorities may change very quickly or is interpreted in different ways– for example, it may be safe to move to a new house today but may not be by the end of the week. In addition, there is always the possibility that a party in the chain may not be in a position to move on the Completion date due to medical reasons. In essence if the time between Exchange of Contracts and Completion of the transaction is kept to a minimum then the time for any external factors affecting the transaction minimises accordingly.
One of the widely suggested methods for Completion of transactions in these uncertain times is to Exchange contracts and Complete the transaction on the same day. It is, however, extremely difficult, though not impossible, to simultaneously Exchange and Complete in a large chain of transactions; simultaneous Exchange and Completion requires the agreement and forward planning on the part of not only the buyers and Sellers but also of all conveyancers in the chain
A sim Ex and Comp allows all parties a degree of protection in that no Conveyancer will proceed to Exchange without having all matters in place; if one person fails to exchange in the chain then the whole chain cannot confirm an exchange of contracts. The risk of loss in this instance is that is that if one person in the chain refuses to Exchange and Complete on the agreed date then everyone has a financial loss (for example failed removals fees and additional solicitors fees) which would not amount to the same potential loss that can be suffered if the chain had exchanged contracts. The emotional stress is of course a different, though not any less important issue.
It is important to note, however, that there is always a risk once contracts have been Exchanged that external factors may dictate circumstances (see Article “What if my Seller dies between Exchange and Completion”) and one should bear this in mind with the risks being heighten somewhat with the current Coronavirus Covid 19 crisis.
We, at Colemans, have Exchanged and Completed on numerous transactions since the lockdown has started. We treat every transaction as individual transaction and do not have a “one box fits all” approach. Each transaction is unique, and we will discuss and explain all the options to you in clear and simple language that is easy to understand. In these times we may not be able to proceed at a pace that we would achieve prior to the lockdown but we continue to strive forward with transactions and continue to provide quality advice on an individual basis supporting our Client’s and their transactions during these turbulent times.
Should you wish to discuss any proposed transaction then please contact Sid Garg on 01628 631 051 or email firstname.lastname@example.org.
Categorised in: Residential Property
This post was written by Colemans Solicitors LLP