What is exchange of contracts in conveyancing?

The exchange of contracts legally binds the seller and the buyer into completing the property sale on a fixed completion date or upon notice to complete (for a new build). The buyer pays the seller a 10% deposit, and the seller's solicitor holds this until completion. If the seller agrees, you can exchange on a 5% deposit if you get a 95% mortgage.

It is rare for a transaction to fall through after an exchange due to the buyer losing their deposit. Read more - Can I pull out after the exchange of contracts?

How do solicitors exchange contracts?

1. Sign your documents

Once all of the legal enquiries are satisfied, your solicitor provides you with:

• Report on Title - explaining everything found about your property.
• Contract - this is the exchange contract you sign; it doesn't need a witness. Don't worry if there are typos in names or addresses, simply hand-amend these and sign the contract. You can return it to the seller's solicitor. However, this wastes time as it isn't required.
• TR1 Form - signed and witnessed by the seller and buyer. This document goes to the Land Registry to transfer the title from the seller to the buyer. For any errors on this document, send it back to your solicitor to correct as the buyer's solicitor drafted it.
• Stamp Duty Land Tax (SDLT) return - whether you are paying any stamp duty or not, an SDLT form is sent to HMRC to confirm a transaction has taken place.
• Mortgage deed (if applicable) - signed and witnessed, the mortgage deed is sent to the Land Registry to register the mortgage over the property.

The signed documents must be returned to your solicitor in the post by special delivery. Scan copies are good to have, but originals are required. Read more - What can hold up exchange of contracts?

2. Agree to a completion date

You decide with the seller how long it will take between exchange and completion. Read more - How Long Between Exchange and Completion.

3. Pay exchange deposit

The standard terms of the contract state, "The buyer is to pay or send a deposit of 10 per cent of the purchase price no later than the date of the contract". Here are things that can affect the amount paid for the exchange of contracts deposit:

• 5% Deposits - some developers/sellers may agree to a lower than 10% deposit. The contract of exchange is amended to confirm the buyer is only paying a 5% deposit exchange; however, the buyer is still liable for the difference if they fail to complete after the exchange. Read more here - The risks of buying a house with only a 5% deposit.
• Sale and Purchase - exchanging in a chain means that your buyer transfers their 10% deposit to your solicitor, who will, in turn, send your 10% deposit to your seller. Where the exchange deposit lower down the chain isn't large enough to fund your onward purchase, you'll either have to top up the deposit to 10%, or your seller must agree to accept a lower deposit. The seller often accepts the latter.

Who holds the deposit on exchange of contracts? The buyer pays the exchange deposit to their solicitor on or before the exchange of contracts. Once contracts have been exchanged, the buyer's solicitor either releases the deposit to the seller's solicitor or holds it to order to be sent with the rest of the money on completion.

4. Building Insurance

The buyer is responsible for ensuring the building from the day of exchange. You don't have to do this if you are buying a leasehold because the management company/freeholder will already have building insurance. It is advisable to have a quote saved earlier in the conveyancing process to put it in a place closer to the exchange.

5. Give your consent

Your solicitor needs the consent of all parties to the contract before the exchange can take place. Before you give your consent, here are some things you must check:

• Pre-Exchange Viewing - it may have been a few weeks since you last saw inside the property, so organise a viewing before the exchange.
• Fittings and Contents - ensure you are happy that what you agreed with the seller is reflected in the seller's Fittings and Contents forms. You could find that the bed you thought was being left as furniture is not included.
• Rental Notice - you'll be handing in your notice on your rental property.

6. Contracts are exchanged

The seller and buyer's solicitors will call each other and verbally agree on the following parts of the contract:

• property being sold, including the title numbers;
• names of the buyers and sellers;
• deposit being paid;
• completion date; and
• any additional conditions/amendments

Once the checks are complete, the exchange of contracts is complete, and both solicitors write the completion date into the contract, sign and date with a time. From that point, the buyer and seller are contractually bound to the contract, and the solicitors undertake to send each other their client's signed contracts (hence the name - exchange of contracts).

How long does it take to exchange contracts? The call between the solicitors takes less than 5 minutes; however, preparing and checking beforehand takes time.

Example Exchange Contract

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Pre-Exchange Checklist

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