What Is the Difference Between Exchange and Completion?

Buying or selling a property involves several important legal stages, but two of the most significant are exchange and completion. Although the terms are sometimes used interchangeably, they refer to separate stages of a property transaction.

The key difference is that exchange of contracts makes the transaction legally binding, while completion is the point at which the purchase funds are transferred and the buyer receives the keys.

Key Takeaways

• Exchange of contracts is the point at which the transaction becomes legally binding, neither party can withdraw without financial consequences.

• Completion is when the purchase funds are transferred and the buyer receives the keys.

• The period between exchange and completion is typically between seven and 14 days, though this is agreed by both parties.

• It is possible to exchange and complete on the same day, but this is less common and carries additional risk.

• Failing to complete after exchange can result in serious financial penalties for the party in breach.

What Is Exchange of Contracts?

Exchange of contracts is the point at which a property transaction becomes legally binding. Before contracts are exchanged, either the buyer or seller can usually withdraw from the transaction without being in breach of contract. Although pulling out at this stage may result in wasted costs such as legal fees and disbursments and other costs such as survey expenses, the parties are not yet contractually required to proceed.

The exchange of contracts takes place once all parties have signed their respective contracts and documentation, and necessary arrangements are in place for the funds involved in the transaction. Their conveyancers will take authority from their client and then formally agree the terms with the other parties conveyancer. A completion date (or timescale) will normally be included in the contract, giving both parties certainty about when the transaction is due to conclude.

Before agreeing to exchange, a buyer's conveyancer will usually need to be satisfied that:

• The necessary searches and enquiries have been completed

• The buyer's mortgage offer is in place, where applicable

• The buyer has reviewed the relevant reports and information

• Proof of funding and identity steps have been satisfied

• The deposit is in hand

• Signed documents are held

• A suitable completion date has been agreed

• Any necessary buildings insurance arrangements are ready

What Happens After Exchange of Contracts?

Once exchange of contracts has taken place, both parties are committed to completing the transaction on the date (or timescale) set out in the contract.

During the period between exchange and completion, conveyancers complete the final administrative and financial preparations. This includes arranging for mortgage funds to be released, obtaining the remaining balance from the buyer and preparing the payments that will need to be made on completion day.

Buyers and sellers can use this period to complete the practical preparations for moving:

• Confirming removal arrangements

• Packing belongings

• Redirecting post

• Notifying utility providers

• Preparing to take final meter readings

• Organising the collection or handover of keys

The certainty created by exchange means that both parties can usually make these arrangements knowing that the move is legally due to proceed on the agreed date.

How Long Is the Gap Between Exchange and Completion?

There is no single timeframe between exchange and completion because the period will depend on the date agreed by the parties and written into the contract. In practice, it is often between seven and 14days. A shorter or longer period may be agreed depending on the circumstances, including whether the parties need additional time to access funds or prepare for the move.

When deciding how long between exchange and completion is appropriate, both parties should consider their individual circumstances and the needs of the wider property chain. The agreed date must be practical for everyone involved. Changing it after contracts have been exchanged can be difficult and may not be possible.

What Happens on Completion Day?

On the agreed completion date, the buyer's conveyancer transfers the purchase funds to the seller's conveyancer. If the transaction forms part of a property chain, money will move from one transaction to the next until every linked purchase has completed.

Once the seller's conveyancer has received the required funds, they will confirm that completion has taken place. The estate agent can then normally release the keys to the buyer.

Your conveyancer should keep you updated throughout completion day and let you know as soon as the money has been received and the transaction has formally completed.

Can You Exchange and Complete on the Same Day?

It is possible to exchange contracts and complete on the same day. However, whether this is suitable depends on the circumstances of the transaction.

Same-day exchange and completion provides less certainty in advance. Until contracts have formally been exchanged, there is no guarantee that the transaction will proceed. This can make it difficult to confirm removal arrangements or make other commitments that need to be booked in advance.

Same-day exchange and completion may also be less practical where there is a lengthy property chain or mortgage funds involved. A delay or problem affecting one transaction in the chain could have consequences for everyone else involved.

What Happens if Somebody Fails to Complete After Exchange?

Withdrawing from a transaction after exchange or failing to complete on the agreed date, can amount to a breach of contract and may have serious financial consequences.

If either party fails to complete on the agreed date, the party that is willing and able to proceed may be entitled to serve a notice to complete. Where the Standard Conditions of Sale apply, this generally requires the transaction to complete within 10 working days, excluding the day on which the notice is given.

If the party in breach fails to comply, the innocent party may also be able to claim compensation for losses caused by the breach. Depending on the situation, these could potentially include:

• Legal fees

• Mortgage arrangement fees

• Survey costs

• Removal or storage expenses

• Other costs resulting from the failed transaction

If a seller subsequently sells the property for a lower price, they may attempt to recover the difference from the original buyer (although this is not guaranteed to be awarded). However, compensation is not awarded automatically - any claimed losses would need to be legally recoverable and supported by evidence.

What Can Delay Exchange and Completion?

The time required to reach exchange and completion can be affected by several factors, many of which involve third parties.

Property searches may be returned quickly but delays can occur if a local authority has a backlog, in some cases, search results may take four weeks or longer.

Other common causes of delay include:

• Waiting for a mortgage offer

• Obtaining a leasehold management pack

• Waiting for replies from managing agents or management companies

• Referring an issue to a mortgage lender

• Complicated legal enquiries and defects with title deeds

• A transaction elsewhere in the chain falling through

• A buyer arranging a survey late in the process

• Renegotiations following problems identified by a survey

Buyers should arrange their survey as early as possible. This provides time to identify any defects and decide whether to proceed, as well as renegotiate the price where appropriate. Leaving a survey until shortly before exchange may delay both the individual purchase and the wider chain.

Frequently Asked Questions About Exchange and Completion

What comes first exchange or completion?

Exchange comes before completion. Exchange of contracts is the point at which both parties become legally committed to the transaction. Completion follows on a date agreed at exchange, when the funds are transferred and the buyer receives the keys.

How long does it take from offer to exchange of contracts?

The time between an offer being accepted and contracts being exchanged varies. It depends on the complexity of the transaction, the speed of searches, mortgage arrangements, legal enquiries and the length of any chain. In straightforward cases it may take around 8 to 12 weeks, though this can be longer where there are complications or indeed shorter if it is a straightforward transaction.

What is a notice to complete?

A notice to complete is a formal legal notice served by one party on the other when completion does not take place on the agreed date. Under the Standard Conditions of Sale, it gives the party in default 10 working days to complete the transaction. If they fail to do so, the innocent party may be entitled to rescind the contract and claim damages.

Do you need a solicitor to exchange and complete?

A solicitor or licensed conveyancer will handle the exchange of contracts and completion. They will manage the contract, transfer the funds, deal with the Land Registry and ensure the transaction is completed correctly. Attempting to manage these stages without legal representation carries significant risk and if you are having a mortgage, the lender may insist that you have legal representation and/or they may instruct their own representation.

How We Can Help With Exchange and Completion

Our residential conveyancing solicitors in Stoke can guide you through every stage of buying or selling a property, from reviewing the contract, preparing the sale pack, carrying out searches and handling enquiries, to agreeing dates and transferring funds, and carrying out the Land Registry post completion formalities.

Contact our team in Stoke by telephone on 0178 232 4454, complete our contact form or send us an email via info@smithpartnership.co.uk.

We also have expert residential conveyancing solicitors at our offices across the East Midlands and Staffordshire, in Burton, Derby, Leicester and Swadlincote.