Understanding conveyancing | The Contracts

The Draft Contract and Exchange of Contracts

Once an offer has been accepted, the seller's solicitor or licensed conveyancer prepares a draft contract package and sends it to the buyer's conveyancer.

The draft contract sets out the proposed legal terms of the sale. It is prepared using information obtained from the seller, the property's title documents and the forms completed as part of the conveyancing process.

The buyer's conveyancer will examine the contract papers, investigate the legal title, carry out searches and raise any necessary enquiries before advising the buyer whether it is safe to proceed.

What Is Included in the Draft Contract Package?

The precise documents will depend on whether the property is freehold or leasehold, but the package will commonly include:

• the draft sale contract;
• official copies of the registered title and title plan;
• the seller's property information form;
• the fittings and contents form;
• planning permissions, building regulations documents and guarantees held by the seller;
• information about boundaries, disputes, rights and restrictions;
• the Energy Performance Certificate;
• leasehold information, where applicable; and
• a draft transfer document or other supporting title documents.

The draft contract will normally identify the seller and buyer, the property, the agreed price and the title being transferred. It will also incorporate standard contractual conditions dealing with matters such as the deposit, completion and what happens if either party fails to comply with the agreement.

Checking the Property Information

The seller must answer the property information forms honestly and accurately to the best of their knowledge.

These forms may include information about:

• boundaries and responsibility for fences or walls;
• neighbour disputes and complaints;
• building work and alterations;
• planning permission and building regulations approval;
• guarantees and warranties;
• flooding and environmental matters;
• services and utilities;
• rights of way and shared access;
• occupiers living at the property; and
• any notices or proposals affecting the property.

A buyer should read these documents carefully and tell their conveyancer if any answer conflicts with something seen at the property, mentioned by the estate agent or revealed by the survey.

Fixtures, Fittings and Contents

The fittings and contents form records which items will remain at the property and which will be removed by the seller.

It may cover items such as:

• kitchen appliances;
• carpets and curtains;
• light fittings;
• fitted furniture;
• garden sheds and greenhouses;
• satellite dishes and television equipment; and
• other items included in or excluded from the sale.

Any agreement regarding fixtures, furniture, or other contents should be clearly recorded. Buyers should not rely only on informal discussions with the seller or estate agent.

Property Searches

While reviewing the contract papers, the buyer's conveyancer will usually order several searches. These are not physical inspections of the property and do not replace a survey.

The usual searches may include:

• a local authority search;
• a drainage and water search;
• an environmental search;
• a flood-risk search;
• a mining or ground-stability search where relevant; and
• other searches required because of the property's location or the mortgage lender's instructions.

Searches can reveal matters such as planning entries, building regulations records, road schemes, drainage connections, contamination risks and other issues that may affect the property.

Enquiries Before Exchange

After reviewing the title, searches, survey and property forms, the buyer's conveyancer may raise additional enquiries with the seller's conveyancer.

These enquiries might relate to:

• missing planning or building regulations documents;
• rights of access or shared driveways;
• alterations to the property;
• restrictive covenants;
• boundary discrepancies;
• occupiers who must leave on completion;
• guarantees for windows, roofs or damp treatment;
• leasehold service charges and planned works; or
• information arising from the survey.

The buyer should not normally exchange contracts until satisfactory replies have been received and any significant concerns have been resolved.

Reviewing the Contract With Your Conveyancer

Your conveyancer should explain the important legal terms, report on the title and tell you about any significant restrictions, rights or risks affecting the property.

You should read the contract, property forms and your conveyancer's report carefully. Ask for an explanation of anything you do not understand before signing.

Signing the contract does not by itself make the transaction legally binding. The agreement generally becomes binding only when the conveyancers formally exchange contracts.

Agreeing on the Completion Date

The completion date is the date on which the purchase money is transferred, ownership changes, and the buyer is normally entitled to collect the keys.

The date is usually negotiated between the buyer and seller once the legal work is sufficiently advanced and everyone in the property chain is ready to proceed.

The agreed completion date is inserted into the contract before exchange. It is therefore not necessarily fixed at the time the first draft contract is issued.

Exchange and completion are commonly separated by one or two weeks, but the period can be shorter or longer. In some transactions, exchange and completion take place on the same day.

What Happens at Exchange of Contracts?

Exchange is normally carried out by the buyer's and seller's conveyancers, often by telephone using an agreed professional procedure.

Each party will usually have signed an identical copy of the contract beforehand. When the contracts are formally exchanged:

• the sale becomes legally binding;
• the purchase price is fixed;
• the completion date becomes binding;
• the deposit becomes payable under the contract; and
• neither party can withdraw without potentially serious consequences.

In England and Wales, an accepted offer is not generally legally binding until contracts have been exchanged.

Paying the Exchange Deposit

The buyer will normally transfer the required deposit to their conveyancer before exchange.

A traditional contract deposit is 10% of the purchase price, but a lower amount may sometimes be accepted. This commonly occurs where a buyer has a high loan-to-value mortgage, is using sale proceeds from another property or does not have the full 10% immediately available.

A reduced deposit must be agreed through the conveyancers. The contract may still make the buyer liable for the full 10% if they fail to complete, even if a smaller amount was paid on exchange.

The exchange deposit should not be confused with the buyer's overall mortgage deposit or equity contribution. The mortgage deposit describes the difference between the purchase price and the mortgage advance, whereas the contract deposit is the amount dealt with at exchange.

Buildings Insurance After Exchange

In many residential transactions, the contractual risk in the property passes to the buyer at exchange. The buyer should therefore normally arrange buildings insurance to begin from the date of exchange, unless their conveyancer advises that different arrangements apply.

A mortgage lender will also commonly require suitable buildings insurance to be in place.

Different arrangements may apply where:

• the property is leasehold and insured under a policy arranged by the freeholder or management company;
• the property is a new-build being purchased from a developer;
• the contract changes the usual position regarding risk; or
• the property is already covered under another acceptable block policy.

The buyer should check the insurance position with their conveyancer before exchange rather than assuming that the seller's policy will provide protection. Government home-buying guidance states that the exchange should have arranged buildings insurance.

What Happens if Someone Withdraws After Exchange?

Once contracts have been exchanged, both parties are legally committed to complete the transaction.

If the buyer fails to complete, the seller may be entitled to keep the deposit, claim interest and losses, and take further legal action. The buyer may remain liable for the balance of a 10% contractual deposit even where a smaller amount was paid on exchange.

If the seller fails to complete, the buyer may be able to recover the deposit, claim compensation or seek a court order requiring the sale to proceed.

The precise remedies will depend on the contract and the circumstances. The Law Society warns that a buyer withdrawing after exchange could lose the deposit and incur additional legal costs.

Before Authorising Exchange

Before telling your conveyancer to exchange contracts, you should normally be satisfied that:

• you have read and understood the contract and title report;
• the searches and enquiries are satisfactory;
• you are satisfied with the survey and any further investigations;
• your mortgage offer is valid and all lender conditions can be met;
• the deposit money is available;
• the completion date is practical;
• buildings insurance has been arranged where required;
• the fixtures and fittings arrangements are clear; and
• you are ready to become legally committed to the purchase.

Do not authorise exchange if you are still waiting for an important survey, mortgage decision, search result or answer to a significant legal enquiry.

Find a Conveyancing Solicitor

A conveyancing solicitor or licensed conveyancer can review the contract, investigate the property's title, carry out searches, raise enquiries and explain the legal consequences of exchange.

Use Solicitors.com to find conveyancing solicitors throughout England and Wales or submit an enquiry through our Ask a Solicitor service.

Important: This guide provides general information about residential conveyancing in England and Wales. It is not legal or financial advice. The conveyancing systems in Scotland and Northern Ireland are different.