Exchange of Contracts-FS Flashcards
(21 cards)
What does “exchange of contracts” mean in conveyancing practice?
It refers to the moment when the buyer and seller’s solicitors swap signed identical parts of the contract, making the agreement legally binding and preventing withdrawal without civil liability.
How does a binding contract arise in the exchange process?
Each party signs an identical copy of the contract; when these are exchanged by the solicitors, a binding agreement is formed.
How is exchange commonly carried out between solicitors?
: Exchange typically occurs via telephone where both solicitors confirm the contract terms and agree on the time of exchange, which is then recorded.
What are the risks associated with telephone exchange of contracts?
Risks include lack of proof of the conversation, inability to verify the other party’s signed contract, and difficulty in confirming the contract’s form or content.
What is the purpose of the Law Society’s exchange formulae?
To provide a structured and reliable method for solicitors to exchange contracts using formal undertakings to overcome the evidential and practical risks of telephone exchange.
When is Formula A used in contract exchange?
Formula A is ONLY used when the deposit is paid by cheque. The buyer’s solicitor sends the signed contract and cheque to the seller’s solicitor to be held to order, they then arrange a completion date.
exchange occurs via a confirming phone call, The seller solicitor then undertakes to send a copy of the seller contract to the buyer on that day
What characterizes Formula B as the most common exchange method?
Each solicitor holds a signed contract. On a call, they confirm this and exchange orally. Each gives an undertaking to send the contract and the buyer’s solicitor also undertakes to transfer the deposit.
When is Formula C used in contract exchanges?
Formula C is used for chain transactions. It involves an agreement to exchange contracts at a specified time later that day and undertake to send contracts but they also undertake to transfer deposits at an agreed time later RATHER THAN IMMEDIATELY
What is the immediate obligation of solicitors following the exchange of contracts?
Solicitors must promptly inform their clients that exchange has occurred and enter the agreed completion date into their diaries.
What must be done with the signed contract after a telephone exchange has occurred?
Each solicitor must send their client’s signed contract to the other side’s solicitor as soon as possible following the telephone exchange.
What should be done with the deposit after exchange of contracts?
The buyer’s solicitor must immediately pay over the deposit to the seller’s solicitor in accordance with the agreed terms.
What legal status exists between the buyer and seller once contracts are exchanged?
A binding contract exists, and neither party can withdraw from the transaction without incurring civil liability for breach.
Who bears the risk of the property after exchange of contracts, and why?
The buyer bears the risk, as beneficial ownership of the property passes to the buyer at the point of exchange under the common law.
Why is it essential for the buyer to have insurance in place from the moment of exchange?
Because the buyer bears the risk of damage or loss to the property after exchange, insurance must be in place to protect their interest.
When preparing for exchange of contracts using Formula B, what should a seller know about signing the contract?
Each party signs their own copy of the contract, and signatures do not need to be witnessed when using Formula B.
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What is the effect of a seller’s post-exchange bankruptcy on a binding contract for the sale of registered property at market value to an unconnected buyer?
The contract remains valid and is binding on the trustee in bankruptcy, as it predates the bankruptcy. On completion, the buyer should take a transfer of the property from the trustee, as there are no grounds to set the contract aside.
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In a non-chain conveyancing transaction where both solicitors hold signed contracts and the buyer’s solicitor holds cleared deposit funds, which method of exchange should be used?
Exchange should take place by telephone using Formula B, as both solicitors hold their respective clients’ signed contracts and the buyer’s solicitor has cleared deposit funds.
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In a transaction where exchange of contracts will occur using Law Society Formula C, what is the significance of the ‘release’ of the seller’s part contract to the buyer’s solicitor?
The ‘release’ constitutes an undertaking by the seller’s solicitor to exchange contracts if called upon by the buyer’s solicitor within an agreed timescale.
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After a company purchases a registered freehold commercial property with loan funding secured by a legal charge, where must the charge be registered and why?
The charge must be registered at both HM Land Registry and Companies House.
Land Registry registration ensures the charge takes effect at law and binds third parties, while Companies House registration makes it binding on the company’s creditors and any liquidator or administrator.
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After exchange of contracts for a commercial property purchase with delayed completion, what should a buyer do to protect their interest in the registered title?
Apply for an entry of an agreed notice in the register.
This protects the buyer’s priority under the contract against any third-party interests that may arise before completion.
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What should a solicitor do if a company client needs to register a second legal charge over registered land, but there is a restriction in favour of the first chargee requiring consent to registration, and that consent has not yet been obtained?
Delay completion, report the matter to the bank, and seek its instructions.
Until the second charge is substantively registered, it takes effect only in equity, which won’t satisfy the bank. The restriction prevents registration without consent, so the bank must decide how to proceed.
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