Chapter 8: Exchange of Contracts (Stage 3) Flashcards
When will the solicitors be ready to exchange contracts?
Once the buyer + their solicitor are happy with the pre-contract search results and answers to all enquiries, and the buyer has accepted a mortgage offer, the solicitors will be ready to exchange contracts.
When is synchronisation of contracts essential? What does this mean?
When the client has a related sale + purchase of a house.
This means that the solicitor must ensure that both transactions:
i. exchange on the same day, and
ii. have the same completion date.
If it is essential, what will a failure to synchronise result in?
A negligence claim against the solicitor
What happens when contracts are exchanged for a new lease?
If the conveyance is for a new lease, the contract will provide that the buyer agrees to take a lease in the form of the agreed draft, and the landlord agrees to grant the lease in the form of the agreed draft.
Contracts are exchanged, and after this the form of lease cannot be changed except by mutual agreement of the parties, usually by executing a new lease agreement.
What happens once the contracts are exchanged?
The parties become bound on the terms included.
Terms orally agreed but not reflected in the contracts are generally not binding/
What are the methods for exchange of contract?
- In person,
- By post,
- By phone
How are contracts exchanged in person?
Solicitors can meet + exchange the contracts in person.
The matter becomes binding at the point they agree face-to-face that exchange has happened.
This had the advantage of certainty but is rare due to time + distance constraints
How does exchange of contracts happen by post?
Each solicitor posts their client’s signed part of the contract to the other.
Exchange takes place when the seller’s part is posted to the buyer’s solicitor.
This method is never used in practice now due to the lack of certainty associated with it.
How does exchange of contracts happen by phone?
The solicitors have a telephone conversation with each other, go through the contracts, insert the completion date + the date of the conversation ( exchange date) and exchange takes place at that point.
This is the most common method of exchange.
What has the Law Society introduced to help with certainty when exchanging contracts by telephone?
Introduced formulae for exchange:
- Formula A, B and C
What do the Law Society’s formulae for exchange do?
Set out a required list of steps that the solicitors must take during the exchange telephone conversation.
It stipulates that the solicitors must keep a memorandum (file note) of the exchange conversation.
What is Formula A?
Used when 1 solicitor holds both signed parts of the contract.
Usually, this will be the seller’s solicitor and they will also hold the buyer’s deposit cheque.
The buyer’s solicitor will have sent the buyer’s signed contract + deposit cheque to seller’s solicitor in advance.
The seller’s solicitor will confirm that both parts of the contract are the same during the telephone call + agrees to insert the date of exchange and completion into both contracts.
On exchange, the solicitor who holds both parts of the contract will send the contract signed by their client to the other solicitor.
What is Formula B?
Used when each solicitor holds their own client’s signed part of the contract, and the buyer’s solicitor has cleared funds for deposit.
The solicitors will confirm that the versions of the contract are the same + once exchange has taken place, each will send their client’s signed part of the contract to the other and the buyer’s solicitor will send the agreed deposit to the seller’s solicitor, setting out the same information as in Formula A.
What is Formula C?
Used when there is a chain of transactions and deposit monies are to be sent directly to another firm further up the chain.
Relies heavily on undertakings.
Exchange happens in 2 stages and 2 phone calls.
The first call confirms that the solicitors are ready to exchange and the second call confirms the actual exchange of contracts.
After exchange of contracts by phone, what must both solicitors do?
Make a file memorandum
