Understanding exchange of contracts

The exchange of contracts is the point in the conveyancing process where the property transaction becomes legally binding. The buyer and seller are legally bound to complete the property transaction, otherwise, they’ll incur financial penalties for withdrawing. This is also when they agree on the completion date.

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What is exchange of contracts?

The exchange of contracts is the latter part of the conveyancing process, in which the property transaction becomes legally binding between the buyer and the seller. At this point, both parties agree on the completion date and can no longer withdraw from the process without incurring penalties.

The conveyancing contract contains all the terms and conditions of the transaction. This includes:

• Identity of the parties
• Price
• Amount of deposit
• List of the fixtures and fittings to be included in the sale

The contract also stipulates the completion date, i.e., the day ownership of the property formally transfers to the buyer, allowing them to move in.

In the run-up to exchange, the conveyancer will provide the buyer and seller with a copy of the contract and answer any questions. Once both are satisfied with the terms, they’ll sign identical documents and prepare to exchange contracts.

These days, exchange of contracts can take place over the phone. The solicitors for each party verbally confirm the terms and then immediately send the documents to one another.

How long does it take to exchange contracts?

On average, it takes 8-12 weeks from agreeing on an offer to exchange contracts.

Timing depends on the length of the chain you are in or the complexity of the property transaction.

For instance, if the existing property being sold is part of a chain and the seller is moving to a new one, they won’t want to exchange contracts on the purchase until everything is agreed on the sale.

Or if a buyer is purchasing an inherited property, additional steps may be needed to ensure applicable taxes, such as inheritance tax, are paid, or the title is clear and not jointly owned with someone else.

Or if it involves a leasehold property, the provisions of the Leasehold and Freehold Reform Act 2024 need to be considered to ensure the transaction is legally sound.

This is why an experienced conveyancer is invaluable. They will:

• Coordinate the requirements for the whole transaction
• Identify and help resolve any hold-ups
• Ensure legal accuracy
• Communicate efficiently with the other parties
• Make sure everything is in place at the right time

This ensures the process is completed swiftly.

Find out more about the stages of the conveyancing process.

Can you exchange contracts without a completion date?

No. The buyer and seller need to have a completion date agreed before exchange of contracts can take place.

In some situations, such as cash purchases and buy-to-let investments where there is no chain, it may be possible to exchange contracts and complete on the same day.

However, in most transactions, there is a 1-2 week gap between exchange of contracts and completion. This gives sufficient time for the mortgage lender to send through the funds.

Who holds the deposit on exchange of contracts?

On exchange of contracts, the buyer pays a deposit to the seller. The deposit is usually held by the seller’s conveyancing lawyer. The standard amount for this ‘exchange deposit’ is 10% of the purchase price. However, if the buyer doesn’t have 10% available, for example, if they are purchasing with a 95% mortgage and only have 5% available before completion, it is usually possible to negotiate the amount payable on exchange down to 5%.

If the buyer is unable to complete after the exchange of contracts, the seller keeps the deposit. And if the buyer has paid less than 10%, the seller can pursue the buyer through the court system to recover the balance needed to reach the full 10%, plus compensation.

What happens if a buyer pulls out after exchange of contracts?

Since exchange of contracts makes the property transaction legally binding, pulling out after is considered a breach of contract. If the buyer fails to complete, they lose the deposit and may be liable for additional damages. The seller may also claim compensation for losses like wasted removal costs, loss of earnings, temporary accommodation, and storage costs.

Both the buyer and seller must complete on the date and time agreed in the contract. Under the standard conditions, the time is usually 2.00 p.m., but can sometimes be varied if the parties agree.

If this doesn’t happen, the seller can file a ‘Notice to Complete’, which confirms the buyer’s breach of the contract and gives them 10 days to rectify it.

If the buyer eventually completes but is late in doing so, the seller can claim interest. For each day they are late, this is calculated at a daily rate of 4% above the Bank of England base rate (currently 0.1%) on the purchase price, less any deposit already paid, divided by 365.

Where the seller has to find a new buyer and market prices have fallen in the meantime, the seller may also be able to claim compensation to reflect the difference between the agreed purchase price in the original transaction and the amount they eventually receive in the new sale.

What happens once contracts have been exchanged?

The buyer’s conveyancing lawyer contacts the mortgage lender to ensure the remaining funds are available in time for the completion. The buyer should also get building insurance for the property as soon as the exchange has taken place. This protects the buyer against any damage to the property between the exchange and completion.

With the final completion date agreed, the buyer can:

• Finalise the move
• Book removals
• Prepare utilities and address changes

If you need practical information on exchange of contracts, Muve’s conveyancing lawyers are here to guide you and make the whole property transaction a smooth process. Our digital tools can help you track completion readiness, including mortgage status, document submission, and moving logistics.

Are you ready to make your move? Meet our team here or contact us directly for a conveyancing quote.