Exchange of Contracts

Question 1

preparing for exchange - buyer checklist

Answer 1

• check have received all search results and replies to enquiries, and followed up any issues arising
• check that buyer received survey and is satisfied with it
• advise buyer that insurance must be in place from exchange of contracts
• check that you have cleared funds from the buyer for the deposit (usually 10%)
• for a commercial transaction, ensure that the lender’s solicitor approved the draft certificate of title
• ensure that you have reported fully to the buyer on title and advised on any issues of concern
• send contract to the buyer for signature
• obtain instructions on proposed completion date
• obtain authority of the buyer to exchange contracts (do not rely on merely having a signed contract as authority to exchange!), and if necessary, check again just before exchange

Question 2

preparing for exchange - seller checklist

Answer 2

• if sale proceeds are to pay off loan, obtain a redemption figure from the lender to check that the proceeds of sale will cover it
• reply to outstanding additional enquiries (buyer’s solicitor will likely refuse to exchange without this)
• prepare engrossments (final versions) of the contract and send one copy to the seller for signature, and send another copy to the buyer’s solicitor
• obtain seller’s authority to exchange contracts (do not rely on the signed contract as authority), and if necessary, check again immediately before exchange

Question 3

what must solicitors do regarding authority to exchange?

Answer 3

• buyer and seller solicitors must obtain client’s authority to exchange contracts
• do not rely on the signed contract as authority
• if necessary, check again for authority immediately before exchange

Question 4

how do solicitors exchange according to Law Society Formula B? (6 steps)

Answer 4

VIA TELEPHONE

1. The buyer and seller’s solicitors must receive their respective client’s signed contracts and authority
2. The buyer and seller’s solicitors inform each other of when they are ready to exchange
3. The conversation for exchange will involve:

• Identifying any blanks left in the contract and agreeing what wording or figures must be inserted
• Agreeing handwritten amendments or special conditions
• Agreeing and writing the completion date

4. Both solicitors are happy that the contracts are complete and identical
5. Solicitors agree they will exchange the contracts under Law Society Formula B, agree the date and time of exchange, and give each other their names to write on the contract
6. The contract is exchanged and parties are legally bound to complete

Question 5

what are the undertakings imposed on solicitors under Law Society Formula B after exchange? (4)

Answer 5

1. solicitors hold the signed contracts to the other solicitor’s order = buyer’s signed part belongs to seller and vice versa
2. solicitors undertake they have their client’s signed copies with them during the call
3. undertake to post their client’s part of the signed contract to the other solicitor THE SAME DAY VIA FIRST CLASS POST, DX, OR HAND DELIVERY
4. buyer solicitor undertakes to send deposit

Question 6

law society formula A and C

Answer 6

• A = used when the same solicitor holds contracts signed by both seller and buyer (e.g., where one solicitor will be abroad at time of exchange)
• C = used for chain of transactions but it is rare - B can be used as well via release of contracts

Question 7

how does exchanging contracts take place when there is a related sale?

Answer 7

• achieved via Law Society Formula B and the release of contracts method (better than C)
• release of contracts = solicitor will release the contract to the solicitor who is dealing with the related transaction
• this means that if the solicitor exchanges on the second related transaction by an agreed time, the first contract is treated as exchanged if done on time (otherwise exchange is cancelled)

Question 8

steps to take after exchange (8)

Answer 8

1. solicitors must prepare memorandum of exchange with key contract terms
2. keep a copy of the signed contract
3. parties are bound to complete and face significant financial loss if they do not
4. seller solicitor holds the deposit as a stakeholder
5. risk passes to buyer after exchange = get insurance to cover risk that property is damaged or destroyed after exchange
6. buyer holds equitable ownership of property and seller holds it on trust for the buyer
7. buyer can protect its beneficial interest by a notice on the Land Registry or a class c(iv) land charge
8. parties make arrangements for completion = buyer submits certificate of title to lender, requests mortgage funds, and books removal vans