Exchange of Contracts Flashcards
Who is responsible for drafting the initial contract for a property transaction?
A. The buyer’s solicitor
B. The estate agent
C. The seller’s solicitor
D. The mortgage lender
C. The seller’s solicitor
Explanation: The seller’s solicitor drafts the initial contract based on title documents, heads of terms, and standard conditions, before sending it to the buyer’s solicitor for review.
What is the legal significance of exchanging contracts?
A. The parties become legally bound to complete the transaction
B. The buyer is given ownership of the property
C. The seller receives full payment for the property
D. The mortgage lender secures a charge on the property
A. The parties become legally bound to complete the transaction
Explanation: Exchange of contracts creates a binding agreement between buyer and seller. Neither party can withdraw without serious legal and financial consequences.
Under Law Society Formula B, what must solicitors confirm during the telephone exchange?
A. The completion date and any contract amendments
B. That the buyer has the mortgage funds ready
C. That the seller has vacated the property
D. That the estate agent has received their fee
A. The completion date and any contract amendments
Explanation: Law Society Formula B requires solicitors to confirm contract details, including any handwritten amendments and the agreed completion date, before formally exchanging.
What happens if a buyer fails to complete after exchange of contracts?
A. The buyer automatically gets extra time to complete
B. The seller must return the deposit
C. The seller can serve a notice to complete and claim damages
D. The seller has no legal recourse
C. The seller can serve a notice to complete and claim damages
Explanation: If a buyer fails to complete, the seller can serve a notice to complete, setting a deadline for completion. If the buyer still fails, the seller can keep the deposit and sue for damages.
A buyer’s solicitor is preparing for exchange. What must they confirm before proceeding?
A. That the seller has moved out of the property
B. That the buyer’s mortgage funds are received in full
C. That all search results, enquiries, and the buyer’s survey are satisfactory
D. That the seller has paid all estate agent fees
C. That all search results, enquiries, and the buyer’s survey are satisfactory
Explanation: Before exchange, the buyer’s solicitor must confirm that all legal checks, surveys, and financial preparations are complete, as the buyer is legally bound after exchange.
A solicitor is handling a chain transaction where the buyer is selling a property to fund their purchase. How can they ensure both contracts exchange together?
A. Use Law Society Formula A
B. Use a “release” method to link the transactions
C. Exchange the purchase contract first and hope the sale follows
D. Request the buyer’s mortgage lender to guarantee the second exchange
B. Use a “release” method to link the transactions
Explanation: The release method allows a solicitor to provisionally exchange one contract, subject to the successful exchange of the second contract by a set deadline.
A solicitor has received a signed contract from the seller but no authority to exchange. What should they do?
A. Proceed with exchange, as the contract is signed
B. Request written authority from the seller before exchanging
C. Assume authority unless told otherwise
D. Hold off exchanging and inform the buyer’s solicitor
B. Request written authority from the seller before exchanging
Explanation: Solicitors cannot rely on a signed contract alone as authority to exchange. They must confirm instructions from the client before proceeding.
A solicitor exchanges contracts on behalf of the seller. The next morning, the seller says they do not want to proceed. What happens?
A. The seller can withdraw by forfeiting their deposit
B. The seller is legally bound to complete and may face legal action if they refuse
C. The buyer must agree to rescind the contract
D. The exchange is invalid unless the seller signed a separate authorisation form
B. The seller is legally bound to complete and may face legal action if they refuse
Explanation: Once contracts are exchanged, the seller is legally bound to complete. If they refuse, the buyer can sue for breach of contract and claim damages.
A buyer exchanges contracts but later discovers an undisclosed right of way that affects the use of the property. What can they do?
A. Rescind the contract if the seller misrepresented the title
B. Automatically get a price reduction
C. Delay completion until the issue is resolved
D. Ignore it, as minor title defects are expected in property transactions
D. Ignore it, as minor title defects are expected in property transactions
Explanation: Minor title defects do not typically allow a buyer to rescind a contract. However, if the defect is serious and undisclosed, there may be a claim for misrepresentation.
What is the main purpose of Law Society Formula A in contract exchange?
A. It allows a solicitor holding both signed contracts to exchange without a telephone call
B. It is used for chain transactions involving multiple properties
C. It allows a party to withdraw after exchange under certain conditions
D. It allows the buyer’s lender to exchange contracts on the buyer’s behalf
A. It allows a solicitor holding both signed contracts to exchange without a telephone call
Explanation: Formula A is used when the same solicitor holds both signed contracts, allowing them to complete exchange without a telephone agreement.
