If a buyer fails to complete, the seller can forfeit the contract of sale, keep the deposit and sue the buyer.
In this article, we’ll discuss whether commercial litigation is worth the price.
We’ll also cover whether you should sell for cash, and position yourself as a cash buyer for your onward purchase.
Table of Contents
What is exchange Of Contracts?
At Exchange:
Both parties’ solicitors possess a signed contract.
- The seller’s solicitor has the signed transfer of title deed (TR1 form). The buyer’s solicitor has cleared deposit funds, a mortgage offer, and a building insurance policy (if applicable).
- They have agreed on a completion date.
- Once the solicitors confirm they have all the necessary legal documents, they ‘exchange’ contracts. This is usually done over the phone and makes the transaction legally binding.
What happens at exchange of contracts?
- Years ago, solicitors used to physically exchange contracts in person, but a verbal agreement over the phone has replaced that.
- On the day of exchange, the legal company at the bottom of the chain must contact the next legal company up and confirm they have received a signed contract of sale, along with the deposited funds and the terms of the sale and completion date.
- They will then give the next solicitor or conveyancer up the chain a ‘release’ time to come back to them and confirm the exchange, which is typically 4 or 5 pm on the same day.
- The next conveyancer must contact their client’s seller’s solicitor or conveyancer in the same manner until the one at the top of the chain has been reached.
- The exchange must then be confirmed back ‘down’ the chain to the first legal company within the release timeframe.
- If this doesn’t happen, the whole process will have to be restarted the following day.
What is completion?
- Completion is the last step of the property sale/purchase process.
- The seller’s solicitor confirms receipt of the full purchase monies when ownership is transferred from the seller to the buyer.
- Title documents are dated and transferred at this point.
- Vacant possession is usually given to the buyer by 1pm. When this happens, the seller should have already left the property.
- The buyer is free to move in, as the selling agent gives them the keys. Unless otherwise agreed, possession is given at 1pm.
What happens on completion?
- Once the seller’s solicitor or conveyancer has received the full purchase funds, they will inform the buyer’s legal representative and the selling agent that the sale has been completed.
- The seller is obliged to give vacant possession by 1pm, so they will usually move out on the morning of the completion day.
- The buyer is then free to collect the keys (usually from the selling agent) and move in. After the sale has gone through, the buyer is responsible for paying any Stamp Duty Land Tax due to HMRC (usually handled by their solicitor on their behalf).
- The buyer’s conveyancer will also register their ownership with the Land Registry. However, it is the buyer’s responsibility to ensure that the money is paid and the ownership is registered.
Agreeing your completion date
Given that the transaction is not legally binding until the exchange has taken place, there are usually between two to four weeks between exchange and completion to give all involved the opportunity to make preparations for moving.
These include:
- Depositing to the removal company to secure a date,
- Organising the transfer of services such as broadband and TV,
- Informing friends and family of the change of address
- Setting up mail redirection with Royal Mail,
- Booking time off work.
The amount of time it takes to find a completion date that fits everyone’s schedule increases if there are more people in the chain, so it’s important to be willing to compromise and accept that you may not get your first choice.
Due to most people having full-time jobs, completions usually take place on a Friday, allowing everyone the weekend to get the initial moving in and unpacking done without having to take too much time off work.
This is why it’s a good idea to make a tentative booking with the removals company once you have an idea of when you’re likely to complete, as most removals companies will be happy to ‘pencil in’ a date, although they won’t guarantee it until you pay the deposit.
Can you avoid Friday?
If you can agree to complete on a different day, it is likely that the transaction will be concluded earlier in the day, as the mortgage companies and solicitors won’t be as busy, and you may be able to get a better price for your removals. It’s worth making enquiries early on.
Furthermore, avoiding a Friday move allows for more time to settle into your new home, as a weekend may not be enough. If there is a delay, your possessions can be stored overnight rather than for an entire weekend.
Any issues with bank transfers or long chains can be resolved within 24 hours rather than taking up an entire weekend.
Can you pull out after contracts exchange?
Pulling out after exchange is very uncommon. Buyers and sellers are contractually obligated to complete the transaction, so deciding not to go through with it is a breach of contract and can incur financial penalties.
As a buyer
If you decide to pull out, you’ll have to forfeit your entire deposit and might be liable for the interest on the remaining completion funds. Before exchanging, make sure you’re certain that you’re able to complete the purchase.
If a seller backs out
They will be responsible for the costs the buyer has incurred, such as their conveyancing solicitor’s fees and the survey fee, though it’s not as severe as what the buyer would have to pay. Estate agents may be wary of doing business with them in the future. You’ll have to pay estate agent fees.
In some cases, such as unexpected divorce, death or a required job move, a seller may have no other option but to pull out. If such a situation arises, it’s worth seeing if a settlement can be reached and if the buyer is sympathetic to your circumstances.
What happens if completion doesn’t take place?
If either party fails to meet the completion date as outlined in the contract, they are in breach of the agreement and will face penalties.
If the buyer fails to complete
- They will be served with a notice to complete within ten working days (2 weeks).
- If they are unable to do so,
- The seller has the right to withdraw the contract and the buyer will lose their deposit. Furthermore,
- They are liable to pay interest to the seller on the amount of the purchase monies not sent through, usually at a rate of 4% above the Bank of England Base Rate.
- If the seller is unable to resell the property and does not achieve the same sale price, the buyer may pursue them for losses incurred.
In the event of the seller being unable to complete
- The buyer has the right to rescind their contract if the seller has not already withdrawn it.
- The seller must then return the buyer’s deposit and cover their costs, such as legal, mortgage and survey fees.
Return of deposit
However, the buyer can get the deposit back under two conditions.
- They can prove that the Notice to Complete is invalid. This includes if it wasn’t drafted correctly, the seller didn’t satisfy the pre-condition of being ready, able and willing to complete or if it was served incorrectly.
Case law tells us that the seller doesn’t need to be ready to finish immediately, and they need enough time to put together the necessary administrative arrangements.
If the Notice to Complete is invalid, the seller wrongfully terminates the contract, and the buyer is eligible to get the deposit back.
- The buyer can apply to the court for the repayment of the deposit under the Law of Property Act 1925. It is not possible to waive this rule.
While there aren’t many court cases related to this, the court needs to see something “special or exceptional” to go against the normal contractual expectation that the deposit will be retained if the buyer defaults.
Even if the seller sells the property to a third party for a higher price, they can still keep the deposit.
What is considered a penalty?
Payments of more than 10% are seen as a penalty, and the buyer will receive a full refund. Even instalment payments are treated as a larger deposit, and so this doesn’t solve the Penalty point.
What can the seller do?
Along with forfeiting the deposit, the seller can also sue for damages. This includes any loss from the re-sale plus wasted costs.
Credit is given for the deposit, so the seller will not receive the money twice. If a seller wishes to keep the deposit, they must serve a Notice to Complete and not delay in doing so.
If they do, it can be seen as a waiver of the Notice, especially if they are still discussing completion with the buyer.
In conclusion
It is important to carefully consider the situation before deciding how to act if a buyer does not complete. The seller does not need to serve a Notice to Complete, rescinding the contract and forfeiting the deposit.
Instead, they can apply to the court for an order of specific performance. The buyer is also liable for damages for any delays in completing.
However, in the current economy, it is likely that more deposits will be forfeited than actions for specific performance, as many buyers cannot afford to pay. You could spend a fortune on litigation fees, but the buyer may not be in a financial position to repay. And the only winners will be the solicitors.
Why not sell for cash and become a chain-free cash buyer? In a buyer’s market, you can get a greater discount on your onward purchase.
Sell To Trusted Cash House Buyers
Property Saviour will always complete and provide you with certainty and speed. Here’s what makes us remarkably different:
Property Saviour Price Promise
- The price we’ll offer is the price that you will receive with no hidden deductions.
- Be careful with ‘cash buyers’ who require a valuation needed for a mortgage or bridging loan.
- These valuations or surveys result in delays and price reductions later on.
- We are cash buyers. There are no surveys.
- We always provide proof of funds with every formal offer issued.
We'll Pay £1,500 Towards Your Legal Fees
- No long exclusivity agreement to sign because we are the buyers.
- You are welcome to use your own solicitor.
- If you don’t have one, we can ask our solicitors for recommendations.
- We share our solicitor’s details and issue a Memorandum of Sale.
Sell With Certainty & Speed
- Our approach is transparent and ethical, which is why sellers trust us.
- 100% Discretion guaranteed.
- If you have another buyer, you can put us in a contracts race to see who completes first.
- Complete in 10 days or at a timescale that works for you. You are in control.
