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The top legal issues that happen before exchange

Exchange doesn't always happen when it's supposed to. There are lots of legal issues that can hold up a chain. Some are easy to rectify, others require patience and luck.

The top legal issues that happen before exchange
 

One of the critical stages of moving home is to secure exchange of contracts. In England, up until this point either side can pull out of the purchase or sale, with little cost to themselves, even though the move would be planned for just a few weeks time. Once you've exchanged, your move is 99% assured.

One of the frustrating things about getting to exchange is, unlike completion, it can take several ‘goes’ to actually exchange contracts. So when you get the call to say you are exchanging on Thursday, you might assume that's set in stone, but it can change last minute.

There are lots of reasons why exchange might not be able to take place, but here are the main ones. It’s worth keeping in touch with the estate agent and your conveyancing company about these issues to try and make sure there are no nasty surprises.

Deposits not in the conveyancer's bank account

When contracts are exchanged, there will be an agreed deposit level, typically 5-10% or more of the purchase value. Deposits can be agreed and in most cases they will already need to be in the legal firm's bank account for exchange to take place.

People forget that there are sometimes limitations on accessing savings accounts. The deposit money may need 30 days to access, for example. Other times, something seemingly silly, like a buyer in the chain going on holiday, can hold everything up. If they didn't transfer the money before they went, everyone in the chain has to wait for them to return.

Don't forget - if you're using a Help to Buy ISA or Lifetime ISA, this money won’t be released until completion day. But don't worry, as conveyancers can agree to a 5-10% deposit being available if anything does go wrong between exchange and completion. As long as both parties agree, the full amount doesn’t have to be in the bank account for exchange. Check with your conveyancer if you're concerned.

Something missing from the files

A good conveyancing company shouldn’t let this happen, but if you're in a chain it could be someone else's legal team who forget to check something in the paperwork until the last minute.

This could be anything from a missing warranty or guarantee through to something more serious, like fully checking a covenant, which could mean the property sale falls through.

Another issue tends to be with buyers' questions. These should always be asked and answered, but as above, some of the answers can be missed. If the conveyancing company is finalising everything before exchange, and realise more work has to be done, exchange may be delayed.

It might be worth speaking to your conveyancing company early in the week when exchange is expected and making sure they have ticked everything off or are chasing anything they are missing before exchange is due.

Negotiating a reduction in offer

Unfortunately some unscrupulous people and some ‘quick sale’ companies wait until the day before or the day of exchange to drop a bombshell on sellers that they want a reduction in price. This is called gazundering.

Occasionally it’s legitimate, the buyer may have found something out at the last minute and wants to reduce the price to cover unexpected costs.

All you can really do as a seller in this circumstance is be aware it could happen and make sure that if your buyer tries this tactic, you have discussed what you will do. For example, you might agree to reduce the price or negotiate something in between, or just refuse.  

It’s worth having a word with your conveyancing company to see if there is anything they can do to reassure you this isn’t going to happen.

Delays with mortgage offers

Mortgage offers can be delayed for many reasons, including missing paperwork, problems with securing a valuation if surveyors are booked up, or even computer glitches.

If you are working with a mortgage broker, they should be in a position to help you and make sure that anything that’s needed to secure the mortgage offer is dealt with quickly.

Latest information causes a problem with the purchase/sale

Up until exchange, buyers may still be gathering information about the move. For example, if a surveyor has suggested work needs to be done on the property, their estimate may not come through until the day before. This new information may make the buyer realise they can't afford the price they have offered, and need to renegotiate.

Or they may need to do more checks on the property, like electrical safety or inspecting the chimney.

All you can do is ask the agent and conveyancing company to do as many checks as they can up and down the chain to make sure everyone has everything they need to exchange.

Slow buyers and sellers

It might just be that the buyer or seller doesn’t get the paperwork back in time. There have even been cases where they contracts have been ‘lost in the post’ or sent second class and taken ages to get back to the conveyancing company.

There isn’t much you can do about this, apart from make sure you drop off your own contracts to your conveyancer as quickly as you can, or send them via recorded delivery.

Life gets in the way

Unfortunately during the buying and selling process people in the chain can get sick, lose their job or deal with bereavement. This doesn’t always stop the exchange from taking place, but it can mean there is a delay.

The key thing to remember is it’s not unusual for exchange to be delayed just because life happens. Try to be sympathetic, and whilst it can be frustrating in a long chain where multiple people are affected, trust that you will get there in the end.

 Anti-Money Laundering checks

Throughout the process the property lawyer has to review the transaction for any signs of money laundering or fraud. This is done through checking the ID of the client and also looking for signs of the transaction being dodgy. You will have to have provided POD (Proof of Deposit) before your mortgage application is accepted for this reason.

If something comes up at the last minute that causes concern that there is money laundering or fraud occurring, they will have to investigate it without tipping off their client.

The other lawyer is not available

The Law Society formulas for exchange of contracts are telephone based so the lawyers have to get hold of each other on the phone to confirm the terms of the contract, the deposit and the completion date and then confirm that they have exchanged contracts. 

If there is a chain of transactions the buyer’s conveyancer at the bottom of the chain will release their contract to the lawyer above until an agreed time that day and the seller’s conveyancer will then have to get hold of the lawyer above them to release their contract and so on until the top of the chain is reached. The buyer's conveyancer then rings their buyer’s conveyancer to finalise the exchange and so forth until they reach the bottom of the chain again. 

If a lawyer is not available whilst they are trying to release the contract then exchange will not happen. All you can do here is stay in contact with your own conveyancing solicitors and try and make sure they will be available on the day exchange is supposed to take place.

 

The important thing to understand is that whilst exchange can, and often is, delayed, it's doesn't mean there's a reason to panic. Your property purchase should still go through, and whilst it's an inconvenience, many of these delays ensure that the process is correct and that the property you're buying is exactly as you expect.

 

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Mark Serj on 04/02/2021

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