When do I sign the contract?
The Seller’s Solicitor will draft the contract and provide a contract pack to the Buyer’s Solicitors. The Buyer’s Solicitors will then raise any queries they may have about the legal title or that the Buyer has specifically asked about. The Buyer’s Solicitors will also instruct Searches and make any amendments to the contract that are deemed necessary. Once any amendments are approved and the Buyer’s Solicitors have all the information that they require, the contract will be sent to you for signing.
When is the buyer or seller legally bound to complete the transaction?
It is important to note that, at the point of signing, the Contract is not legally binding and does not become legally binding until Exchange of Contracts has taken place. The Contract would, therefore be simply held on file, strictly to order, pending the agreement of dates for Exchange and Completion. Our conveyancing solicitors would never proceed to Exchanging without obtaining express authority to do so.
The Seller or Buyer can pull out (without financial penalty) any time until the exchange of contract. Unfortunately, if the other side pulls out of the transaction before the exchange of contracts, you are not entitled to claim any costs/expenses from the other side.
What is included on a Contract for Sale of a Property?
The Contract is a standard form that our solicitors in Preston use for residential property transactions. The front page of the Contract sets out the main terms and conditions, which we recommend that our clients read through, to satisfy themselves that there are no glaring errors. This includes checking basic details, inclusive of those of the seller and buyer, the sale price and the property address.
The Contract then provides for a number of other items, including the following:
Title Number: The title number is a unique number allocated to the property which is registered at the Land Registry. Upon contacting the Land Registry for details of a specific title number, this then shows all of the details the Land Registry hold in connection with that particular property. This is a standard entry within the Contract, unless the property is unregistered, in which case no title number will be available, and a root of title document will be required. See our blog on unregistered land for more information.
Specified Incumbrances: The Contract goes on to make reference to the ‘incumbrances affecting the property’. This, in effect, comprises the various covenants, stipulations and any other matters disclosed within the deeds and documents to the property, which have been disclosed to the buyer’s solicitor.
Title Guarantee: Selling with full title guarantee means that you are selling the property with full knowledge of the same. On Completion, you are transferring to the buyers the same title that you hold, but are guaranteeing that you will be discharging all mortgages, secured debts and other liabilities. If you are selling the property as an Attorney, for example, you may be selling with limited knowledge of the property, therefore may not be able to provide responses to comprehensive enquiries, where requested. In such cases, the Contract would be drafted to reflect this and state ‘limited title guarantee’.
The Contract Rate: The Contract Rate is a penalty clause, imposed on the buyers should they delay in completing the purchase, in the event that Exchange has taken place. Upon Exchange of Contracts, a Completion date is inputted within the Contract and is legally binding on all parties. On this date, you are legally bound to sell the property and hand over the keys. In return, the buyers are to ensure they have all necessary funds in place to allow them to Complete the purchase of the property.
If, for any reason, the buyers are unable to Complete on the agreed and Exchanged date, they will not be entitled to the keys to the property. In addition, they are also obliged to pay interest at the Contract Rate on any money outstanding, which amounts to 4% over base rate of most of the clearing banks.
In addition, if the buyers fail to pay the whole of the purchase monies, a Notice to Complete can be served. This requires them to pay the outstanding funds within ten working days. If they do not, then the seller is at liberty to terminate the Contract and are entitled to retain, as compensation, 10% of the purchase price.
The buyers are normally asked to lodge a 10% deposit in the client account of their solicitor, in order to secure the Exchange. It is not always the case that the buyers are able to pay the 10%, particularly if, for example, the buyers are obtaining more than 90% of the purchase price by way of a mortgage or if the buyers are selling their own property, and are receiving less than 10% from their own buyer. The Contract does, however, provide that, in the event of default, the buyers are liable to the seller for the whole 10%. In any event, our solicitors in Preston would always check with the buyer’s solicitor as to whether the full 10% deposit is going to be available.
At MG Legal, we advise our clients to carefully review the points of the Contract and, if satisfied with the same, to sign where indicated.
When considering the Contract, use our trusty guide to help in understanding the process. Alternatively, contact our solicitors in Garstang, Preston, or solicitors in Lancaster, today with your conveyancing queries at firstname.lastname@example.org.