In any conveyancing transaction, two key events in process will be the ‘exchange of contracts’ and ‘completion’.
Exchange of Contracts
Whether buying or selling a property, it should be appreciated by the parties that the transaction is not legally binding until the parties have formally exchanged contracts.
The Buyer’s solicitor will effect searches and raise due diligence enquiries in respect of the premises, and a Buyer should ensure that they are comfortable with the results of the due diligence exercise, and of any survey, before committing themselves to the sale by way of a formal exchange.
Broadly, the common law principal of ‘caveat emptor’ (“let the buyer beware”) places the onus on the Buyer to find out all they need to know about the property before committing to purchasing it – the Buyer will be so committed from exchange of contracts onwards.
In a typical transaction, a deposit (often 10% of the purchase price) is paid by the Buyer to the Seller upon the exchange of contracts.
A completion date will also be confirmed within the contract, being the day on which the transaction will take effect and, in most cases, the day on which the Buyer shall be entitled to take occupation of the property.
Buyers should note that, while the legal title does not transfer until completion (or in the case of registered land, until the property is registered at HM Land Registry) the beneficial interest in the property passes across at exchange of contracts.
Consequently, the Buyer acquires an insurable interest in the property and the risk of damage or destruction passes to the Buyer, unless the contract provides otherwise. A prudent Buyer will therefore effect insurance from exchange of contracts.
At completion (and provided the Buyer’s pre-completion checks and searches are in order), the Buyer will pay the balance of the purchase price to the Seller, and the parties’ solicitors shall formally date and complete the Transfer of the premises.
Keys will be released, and the Buyer notified that completion has occurred in order that they can take occupation of the premises.
It is important that the parties agree on an achievable completion date, as failing to complete can have serious financial consequences for the party at fault.
While exchange and completion are key events, there are a number of stages to a conveyancing transaction, and legal advice should be sought at an early stage.
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