Prior to exchange, any party is free to withdraw on the proposed transaction at any time. Common reasons for this may include being unable to obtain a mortgage or simply one party decides it no longer wishes to go ahead. Withdrawing from a transaction before exchange has no legal penalty to either party for doing so, expect potentially incurring legal and other fees. The legal and beneficial interest of the property being sold remains with the current owners until exchange. In addition, the current owners must disclose all material information about the property prior to exchange. This is normally dealt with by means of enquiries and by discussions between the parties and their representatives.
On exchange, both parties become bound to complete the transaction and the contract becomes effective. The legal ownership of the property remains with the seller, but the buyer obtains beneficial ownership. This means that if anything goes wrong a seller is responsible to the buyer for the issue. In addition, the buyer is unable to raise any more enquiries about the condition of the property and is considered to have accepted the property in the condition as at the point of exchange, although minor queries that do not affect completion can be raised.
To ensure there is no dispute that contracts have been exchanged, the Law Society has created a formula which conveyancers follow. Due to the legal consequences, exchange will not take place until all contracts have been signed, all enquiries answered and both parties have given their consent. In addition, the buyer will normally pay a deposit to the seller and a completion date is agreed and inserted into the contract. The parties will then physically exchange contracts by sending their client’s part to the other solicitors.
Completion, when it occurs is the actual finalisation of the transaction. On completion the buyers will pay to the seller the money needed to complete the transaction and the sellers will hand over the property. It is at this point that the buyers become the legal as well as the beneficial owners of the property. Completion is normally a more straightforward process and is normally done by the money being sent to the sellers via electronic banking and then the sellers releasing the keys to the estate agent for the buyer to collect.
Occasionally, there will be a simultaneous exchange and completion. When this happens, the steps are, for the most part, exactly the same as if exchange and completion are done separately. The main difference is that once a contract is exchanged, the completion money will be released immediately, and the transaction will complete on the same day.
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