Buying and selling in linked transactions
By John Atangba LLB, GCILEx
Residential Conveyancing Executive
Spencer Lockwood Conveyancing
There are many difficulties if you are intending to link your sale and your purchase – particularly if you intend to vacate your existing flat or house and move into your new property on the same day.
Agreeing the Completion date: Exchange of Contracts
The completion date is not agreed until we exchanged contracts. Any moving dates discussed before then are first provisional and you should not rely on them for the purpose of booking your removals or making any other arrangements that depend on a firm moving date.
We cannot exchange contracts on your purchase until we have acceptable replies to all enquiries and searches. We also need to ensure that all necessary conditions and any legal requirements imposed by your lender have been complied with, and a completion date has been agreed with your seller.
Likewise, we cannot exchange contracts on your sale until your buyer’s Solicitors are happy with their own enquiries and searches and that their own mortgage requirements are satisfactory, and we have agreed a completion date.
When you are a party in a linked transaction, we are unable to exchange contracts until all other buyers and sellers have completed their enquiries and are able to complete on the same day.
Delay and communication
The longer the link the more problematic it is possible to bring about an early exchange of contracts and agree a completion date.
If just one party in the link experiences a delay, it delays the whole linked transactions. The trouble for us is that we are only dealing with your own seller’s Solicitor and have to pass on important information.
Breaking the link
Where there is a long link and there is possibly to be a delay on one of the sales, one option is to move out of their existing flat or house first and to go to into temporary accommodation until they can move into their new flat or house.
If you accept to break the link in this way, we advise that we at least exchange contracts at the same time on your sale and purchase in order to reduce the risk that something unpredicted happens on the purchase and the seller delays further or even pull out completely.
If there is a constraint to complete a purchase but the dependent sale is delayed, usually someone will advise that you get a bridging loan so that you can buy the new flat or house first and pay off the sale. Bridging loans are mightily costly and banks can be unwilling to lend.
In some situations, we would highly advise against obtaining a bridging loan. Surely, you should not embark upon a commitment of this kind unless you have already exchanged contracts and have a fixed completion date for your sale. So that you can unquestionably ascertain how low long the bridging loan will run and what its final cost will be.
Where you are linking in your sale with your purchase, we require the money to complete your sale to be transferred to us from your buyer’s solicitor on the day of completion before we can send the money to complete your purchase to your seller’s solicitor.
Notwithstanding in practice you are making one move, your sale and purchase are two separate legal transactions. If the buyer’s solicitor in turn is depending on funds from their own sale, they will be in a similar position. The longer the link, the greater the possibility of delay.
Normally, the solicitors, mortgage lenders, and banks are aware of the need to transfer funds relating to the flat or house purchase, swiftly. Regrettably, there are circumstances where transfers of funds to us is delayed for grounds beyond our power.
Penalties for later completion
If the money is not received in the seller’s solicitor’s bank account until after 2:00pm, it is treated as being received the following day. If we fail to get the purchase money to the seller’s solicitor’s bank account until after the completion date, then interest is payable at a very high rate.
In practice, examples of failure to complete on the legal completion date are very rare. However, the likelihood of it happening is greater the longer the link. Until the seller’s solicitors receive the purchase money from the buyer’s solicitor, they are obliged to decline to let the buyer have the keys to move in. So, if the money cannot be transferred until the following day, the buyer will sustain overnight accommodation and storage costs together with the interest penalty.
Failure to complete altogether
It is possible that a sale and purchase fails to complete until after the date legally fixed for completion. It is rare for the transaction never to complete if contracts have been exchanged. If a buyer has failed to complete their purchase on time, then provided the seller was “ready, willing, and able” to complete on time, the seller’s solicitor has the power to serve a formal notice stating that a breach of contract has occurred and require the buyer to complete within a further period usually 10 working days by payment of the purchase price and relevant interest.
If the buyer should then fail to complete in that further period, the seller is obliged to keep the deposit that the buyer paid on exchange of contracts and put the flat or house back in the market. They can also claim wasted legal expenses. If the seller then sells at a reduce price than that which the defaulting buyer was due to pay, they can claim the difference.
Is the risk necessary?
If it is possible, it is far less dicey to complete the sale if you own the flat or house first and then move somewhere temporarily before buying another flat or house.
It is knowingly less pleasing to do so, as you have to move twice and on the face of it more exorbitant as you may have to pay rent for a while and the flat or house price could appreciate in value between the time of the sale and the purchase.
However, if you have already completed your sale when you are searching for your next flat or house you will find yourself in a far better negotiating position and the
opportunities of suffering inconvenience and financial loss by something going wrong at completion through no fault of yours are decreased.
1) Try to avoid a fixed completion date in the sale contract and provide a notice proviso likewise to that in the new property purchase contract, instead.
2) The notice period in the sale contract must be one day less than the notice period in the purchase.
3) If your client’s purchaser insists on a fixed completion date, advise client of implications of not synchronising completion.
4) If the sale is to be completed before purchase, your client will need to arrange temporary accommodation as well as furniture storage.
5) If purchase is to be completed before sale, then, bridging finance will need to be arranged in order to complete the purchase; and
6) Finally, come what may, always synchronise exchange of contracts.