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EXCHANGE
OF CONTRACTS
One of the most critical
stages in the long process of house buying and selling is the point
at which the buyer's
solicitor or conveyancer sends the seller's solicitor or conveyancer an
agreed deposit (usually about 10 percent of the purchase price) and a
copy of the contract signed by the buyer.
When the seller's
representative receives these, he sends the buyer's representative the
copy of the contract signed by the seller. This is the exchange. Sale
conditions frequently provide that it takes place when the copy signed
by the seller is put in the post.
When both contracts
have been exchanged, the deal between buyer and seller is legally
binding. Until that moment, either side can decide to withdraw from the
transaction, no matter what oral or, even written promises, had been
given.
A written promise
to exchange contracts, might, however, give a claim for damages if
broken.
A recent
development with the problem of dealing with buyers and sellers engaged
in a chain of deals, is for each representative to agree by telephone to
hold the contract signed by his client to the order of the other. This
is then treated as equivalent to actual exchange, but actual exchange
should follow. There are dangers in the procedure which should only be
used if essential.
GAZUMPING
(When
the seller of a property raises the agreed price)
In times
of property shortage, when prices are rapidly rising, a house buyer may
commit himself in principle to buying a property at an agreed price and
then find the seller refuses to go ahead with the sale unless the price is
increased. He may threaten to sell elsewhere.
Such a
breach of their agreement -- popularly known as gazumping - is morally
wrong but not illegal. A legal obligation to sell is made only when
signed contracts have been exchanged.
The
buyer can do little to prevent gazumping, even though he may have spent
money on initial legal costs. If he cannot agree with the seller on a
price he must drop the transaction.
The best
protection against being gazumped is to try an ensure that when an offer
is made, there is no unnecessary delay before contracts are exchanged and
the seller is bound to sell at the agreed price.
When
property for sale is plentiful and there is a shortage of buyers, the
seller may be gazumped by a prospective buyer.
After an
initial agreement has been reached, but before a binding contract has been
made, the buyer may demand a reduction in price before proceeding with the
purchase. |
