Simultaneous exchange and completion
By Sarah Dwight
Sarah Dwight warns of the risks of exchanging and completing a house move the same day
Many years ago when I first started in practice, there would often be 28 days between exchange and completion. It was nice and relaxed: everyone knew when they were going to move and could make all their arrangements accordingly. Fast forward 30 years, and during the lockdown it became accepted practice to exchange and complete on the same day. The reasons for doing so are clear: in some cases, someone may have had to self-isolate; but the main reason was that no chains were moving and so the impact of a matter not completing was limited to some extent.
But let’s remember that the reason for exchanging contracts is to provide certainty. Once exchange has taken place, everyone knows when they are completing. Even if we no longer have 28 days, a period of seven to ten days provides certainty, especially to the client who is moving. It also provides certainty to the solicitor who has to request mortgage monies and make sure everything can proceed without difficulty.
And if exchanging contracts is to provide certainty, then the role of the solicitor is to provide that certainty to the client and reassure them that they will move on the day agreed. I often say to clients who ask me if I will exchange and complete on the same day, ‘why would I want to do that?’ and ‘why would I want you to get up on the proposed day of completion not even knowing if you are going to be moving?’ Imagine getting up on your wedding day and not knowing if you were actually going to get married that day. Why put yourself through the stress of ordering your flowers and booking your wedding cars if you don’t know if they are actually needed? In house moving terms, this translates to booking your removals and organising your life without knowing if you are actually going to move on the date.
Some conveyancers will suggest that one of the reasons for working towards a simultaneous exchange or completion (or a SIM as the younger generation call it) is that the mortgage lender could withdraw the offer. That could happen at any time, whether that’s early on in the transaction or the day before completion. That risk is always there in the same way as there are other risks.
And one thing that covid-19 has demonstrated to us so clearly is that anyone can fall ill at any time. So we do need to consider whether there are any benefits of simultaneous exchange and completion. Why would anyone want to exchange and complete on the same day and choose to put themselves in that position? Are the parties concerned that the property market could collapse, or is there a concern that a mortgage offer could be withdrawn, perhaps due to job loss or fraud?
I have thought long and hard as to whether there are any benefits to the client and or to the lawyer in exchanging and completing on the same day. When the property market reopened, the Law Society provided online client guidance (available on its website). This sets out what the Society calls ‘new risks’, which include the following:
— The client or someone in the household cannot move out, either due to illness or the need to self-isolate.
— The client or someone else in the household, or even in the chain, may be in hospital.
— There may be a further lockdown.
However, looking at the local lockdown regulations for Birmingham, for example, one of the exceptions is to enable a house move to take place. And at the time of writing, people are still moving where I practise despite a local lockdown being in place. These are matters which will affect the clients but need to be taken into consideration by the practitioner. The specific risks for conveyancers are that the mortgage offer may be withdrawn, or the lender may not release the mortgage monies.
One of the things I have noticed is that many firms are waiting for confirmation on the release of mortgage funds before exchanging contracts. That does lead to us being close to the proposed completion date before we can exchange as lenders may not consider the release of funds until a few days before completion. So as a lawyer, should you wait until you know that no one in the chain is having to self-isolate and that the mortgage monies have arrived? But this then impacts on the client, especially if there is a chain.
So although the lawyer may be holding back on exchange to be sure about these issues, it is the client who bears the uncertainty of not knowing whether or not they are going to move. They cannot book removals as many removal companies will not accept a booking unless exchange has taken place. I struggle to see any benefits to clients in a simultaneous exchange and completion. In fact, there are plenty of horror stories online about being let down at the last minute and not knowing whether or not completion was going to take place.
Another issue relates to wasted legal costs. One of the biggest concerns for clients is the amount of money they could potentially lose if their house move does not go ahead. The risk they face is to lose the house and waste money in legal costs. There’s also the risk that one party changes their mind at the last minute – perhaps lowers the agreed price or withdraws from the transaction. Neither gazumping nor gazundering are illegal; and the impact of it will be far greater if conveyancers are working towards a simultaneous exchange and completion.
Then there’s the increased risk of fraud. One of the warning signs of fraud in conveyancing is a client who pushes to get a deal through far more quickly than one perhaps would expect. If an unusual amount of pressure is applied for the matter to complete quickly, the lawyer must remember to take proper instructions as to why a quick completion is sought. As conveyancers, we must provide some security to our clients, while always bearing in mind our regulatory obligations, such as protecting the client’s interests. Give them at least five to ten days between exchange and completion – it will provide peace of mind to the client; and gives you extra time to sort out any last-minute issues or unforeseen problems.
Sarah Dwight is a sole practitioner and sits on the Law Society’s Conveyancing and Land Law Committee. She also leads the committee’s residential property working sub-group