When it comes to the conveyancing process in England and Wales, two significant milestones stand out: the exchange of contracts and completion. These terms often cause confusion among buyers and sellers, but understanding their differences is crucial for a smooth property transaction. Let’s delve into the details and shed light on these important stages.
Exchange of Contracts:
The exchange of contracts is a pivotal moment in the conveyancing process. It occurs when both the buyer and seller have signed identical copies of the contract and their respective solicitors or conveyancers swap (or exchange) these contracts. Here’s what you need to know about this stage:
- Legally Binding: Once the contracts are exchanged, the agreement becomes legally binding. Both parties are obligated to fulfil their contractual obligations.
- Deposit Payment: The buyer is typically required to pay a deposit upon exchange of contracts. This deposit is usually a percentage of the property’s purchase price (usually five or ten percent) and is usually held by the seller’s solicitor or conveyancer until completion.
- Completion Date: The completion date is agreed upon during the exchange of contracts. It is the date when the property officially changes ownership and the buyer takes possession.
- Consequences of Breach: If either party fails to fulfil their obligations after the exchange of contracts, they may be subject to financial penalties or legal action.
Completion:
Completion is the final stage of the conveyancing process. It is the day when the property officially changes hands and the buyer becomes the legal owner. Here’s what you should know about completion:
- Transfer of Funds: On the completion day, the buyer’s solicitor or conveyancer transfers the remaining balance of the purchase price to the seller’s solicitor or conveyancer.
- Title Transfer: Once the funds are received, the seller’s solicitor or conveyancer confirms receipt and authorises the release of the keys to the buyer. The property’s legal ownership is transferred to the buyer, and they can take possession.
- Registration: Following completion, the buyer’s solicitor or conveyancer registers the change of ownership with the Land Registry. This ensures that the buyer’s ownership is officially recorded.
- Handover: The keys to the property are typically handed over to the buyer on the completion day, allowing them to move in or take possession as agreed.
Simultaneous Exchange and Completion:
A simultaneous exchange and completion occurs when exchange and completion happen on the same day, usually at the same time. In practice, simultaneous exchange and completions are relatively uncommon for the following reasons:
Simultaneous exchange and completions are relatively uncommon in conveyancing due to several reasons:
- Complexity: Simultaneous exchange and completions involve coordinating multiple parties, such as buyers, sellers, solicitors and mortgage lenders. This complexity can make it challenging to align everyone’s schedules and requirements.
- Chain transactions: often in conveyancing transactions, there is a chain of buyers and sellers, where the sale of one property is dependent on the purchase of another. Coordinating simultaneous exchange and completions across multiple properties in a chain can be logistically difficult.
- Financing and mortgage issues: Buyers often rely on mortgage financing to purchase a property. The timing of mortgage approvals and funds availability can create delays and make it difficult to achieve simultaneous exchange and completions. Most lenders need at least three working days’ notice to draw down funds.
- Flexibility and risk management: Many parties involved in conveyancing prefer to have a gap between exchange and completion to allow for flexibility and risk management. This gap provides time for any last-minute issues or changes to be addressed before the final completion of the transaction.
While simultaneous exchange and completions are not common, they can still occur in certain situations where all parties involved are able to coordinate their schedules and requirements effectively.
Understanding the distinction between the exchange of contracts and completion is vital for buyers and sellers alike. It helps manage expectations, ensures compliance with legal obligations, and facilitates a smooth property transaction.
Remember, the conveyancing process can vary depending on the specific circumstances and parties involved. It is always advisable to seek professional advice from a qualified solicitor or conveyancer who specialises in property law to guide you through the intricacies of the process and ensure a successful outcome.
At Alexander JLO we have decades of experience of dealing with conveyancing and would be delighted to assist you in any sale or purchase. Why not give us a call on 020 7537 7000 or email quote@london-law.co.uk for a free, no obligation quotation and see what we can do for you?
This blog was prepared by Alexander JLO’s property partner Matt Johnson. Matt has many years of experience of dealing with property work and specialises in new build and shared ownership properties. His profile on the independent Review Solicitor website and be found Here