Offers, exchange of contracts and completion
If you are buying and you make an offer for a particular house or flat, you should make sure the offer is ‘subject to contract’. This means that you can pull out of the deal if, for example, a survey shows up a defect – though you can pull out for any reason. The estate agent may ask you for a small deposit at the offer stage. As there is little advantage to the seller in getting a deposit, you should agree to pay only a small sum. You should get confirmation in writing that you will get back the full deposit if the sale doesn’t go through, for any reason (but see ‘Dealing with gazumping and gazundering’ below).
Once the contracts for the sale have been signed and exchanged, the buyer and the seller are legally committed to the sale and cannot pull out. Contracts are exchanged by their solicitors or conveyancers (conveyancers deal with the transfer of ownership of a property). At this point, the buyer will usually pay 10 per cent of the price they have agreed with the seller. If the buyer fails to ‘complete’, they can lose this money.
The sale is complete when the buyer pays the rest (the balance). The seller must then move out. If either of these things does not happen, a solicitor may serve a ‘notice to complete’ and take legal steps to make sure the sale goes through without further delay.
Dealing with gazumping and gazundering
Gazumping is when a seller, after agreeing to sell to one buyer but before exchange of contracts, accepts a better offer from another person. This can cause a lot of inconvenience and misery. Gazundering is when a buyer reduces their offer before the contracts are exchanged. The seller can do nothing to get a higher price if they still want to go ahead with the sale to that buyer.
If your offer to buy has been accepted, you might be able to prevent gazumping if you can persuade the seller to sign a ‘lockout agreement’. This means they will not sell to anyone else as long as the contracts are exchanged within a set time. This agreement may be in exchange for a sum of money, which is taken off the purchase price if the sale goes through. Another possibility is a ‘pre-contract deposit agreement’. This means that each side pays a deposit that they will lose if they pull out without a good reason. You should use a solicitor to draw up agreements like these.
The Home Information Pack (HIP)
The Government recently introduced a law which means that the seller (or their agent) must prepare an HIP before putting their property on the market. A HIP must include:
- evidence of title (proof of who owns the property);
- a ‘sale statement’, with basic information about the property;
- standard searches from the land register and the local authority, which include information such as relevant planning decisions and road-building proposals;
- an energy performance certificate; and
- if the property is leasehold or commonhold, information about this.
A HIP may also contain other information, such as a home condition report (a report on the property’s condition), but this is not compulsory.
The scheme is meant to make the buying and selling process more straightforward, but the law does not make the seller any more responsible for telling potential buyers about defects.
The government has set up a website with more about HIPs – see ‘Further help’ for the address.
This content is subject to Crown Copyright
- Community Legal Advice