Reaching the exchange of contracts in a property transaction is a moment of huge relief. It’s the pivotal point where the deal becomes legally binding, and both buyer and seller are committed to seeing it through. But what happens in the rare and incredibly stressful event that one party pulls out before completion?
A sale collapsing after exchange is one of the most difficult situations in property law. Unlike a sale falling through before exchange, there are serious legal and financial consequences. This guide explains what happens, what your rights are, and the crucial steps you must take.
The Significance of Exchanging Contracts
In England and Wales, the conveyancing process has two key legal stages: exchange and completion.
- Exchange of Contracts: This is when the buyer and seller swap signed, identical contracts. The buyer typically pays a deposit (usually 10% of the purchase price) to the seller’s solicitor. At this moment, the agreement is legally binding. Pulling out after this point means you are in breach of contract.
- Completion: This is the final step where the remaining funds are transferred, ownership is passed to the buyer, and the keys are handed over. The time between exchange and completion is usually one to two weeks but can vary.
The period between these two events is when a collapse can be most damaging, especially due to the devastating ripple effect this can have on property chains.
If the Buyer Pulls Out (Buyer Default)
This is the more common of the two scenarios. A buyer might fail to complete for several reasons, such as a last-minute change in financial circumstances, a job loss, or simply a change of heart. If this happens, they are in breach of contract.
What are the consequences for the buyer?
The seller is legally protected in this situation. The process usually starts with the seller’s solicitor serving a “Notice to Complete” on the buyer’s solicitor. This gives the buyer a final deadline, typically 10 working days, to provide the funds and complete the purchase.
If the buyer still fails to complete:
- Forfeiture of Deposit: The seller is entitled to keep the buyer’s 10% deposit. This is the primary financial penalty and compensates the seller for the breach.
- Claim for Further Damages: The seller can sue the buyer for any additional losses incurred. This can include costs for remarketing the property, legal fees, and crucially, any shortfall if the property eventually sells for a lower price than the buyer had agreed to pay.
- Interest Charges: The contract will likely allow the seller to charge the buyer interest on the outstanding purchase price for every day that completion is delayed past the agreed date.
If the Seller Pulls Out (Seller Default)
While much rarer, a seller can also pull out after exchange. This might be due to a sudden change in their personal circumstances or a decision that they no longer wish to sell. This is also a serious breach of contract.
What are the consequences for the seller?
The buyer is not left empty-handed. If the seller defaults, the buyer has several legal remedies:
- Return of Deposit: The buyer is entitled to have their deposit returned in full, usually with accrued interest.
- Sue for Damages: The buyer can sue the seller for breach of contract to recover any costs they have lost. This includes mortgage arrangement fees, survey costs, legal fees, and potentially even costs for temporary accommodation if they are left without a home.
- Order for “Specific Performance”: The buyer can apply to the court for an order that forces the seller to proceed with the sale. This is a discretionary remedy and is not always granted, as it can be a complex and costly legal process. However, it remains a powerful tool for a wronged buyer.
Your Immediate Steps: A Plan of Action
Regardless of whether you are the buyer or the seller, if your transaction collapses after exchange, you must act quickly. This is one of the most common challenges in residential conveyancing that requires expert handling.
- 1. Contact Your Conveyancing Solicitor Immediately: This is your absolute first priority. Your solicitor will provide urgent legal advice based on the specifics of your contract. This underscores why knowing when to instruct a conveyancing solicitor and choosing the right one is so vital. They will explain your rights, outline the potential costs, and handle all communication with the other party’s legal team.
- 2. Formally Serve Notice: Your solicitor will advise on serving the correct legal notices (like the ‘Notice to Complete’) to formally start the process of resolving the breach.
- 3. Mitigate Your Losses: You have a legal duty to keep your own losses to a minimum. For a seller, this means you should try to re-sell the property as quickly as is reasonably possible. For a buyer, you should not incur unnecessary extra costs. Keep detailed records of all expenses.
- 4. Understand the Next Steps: Dealing with a failure to reach completion day is stressful. Listen carefully to your solicitor’s advice. A key part of what a conveyancing solicitor does for the buyer (or seller) is to manage this process and seek the best possible outcome for you, whether that’s recovering costs or enforcing the contract.
Ultimately, navigating this situation falls into the category of a serious conveyancing dispute. It is not something you can or should handle on your own.
Expert Legal Support is Essential
A property sale falling through after exchange is a homebuyer’s or seller’s worst nightmare. The legal framework is clear: a contract has been broken, and the wronged party is entitled to compensation.
Whether you need a local conveyancer or a remote expert, their role is to protect your interests fiercely. Pursuing legal action can be a lengthy and expensive process, but with the right guidance, you can navigate this difficult period and work towards the best possible resolution.
If you are facing this challenging situation or want to ensure your property transaction is in the safest possible hands, contact our expert residential property team today for clear, professional advice.
