When a Purchaser has an offer on a house accepted by the Auctioneer on behalf of the Vendor the first step is that he pays what is known as a “booking deposit.”
This booking deposit does not impose any obligation on either the Vendor or the Purchaser and is “subject to contract” and fully refundable (until a binding contract is in place) if the Purchaser or the Vendor declines to progress with the sale.
Contracts are drafted by the Vendor’s Solicitors and typically (unless the contract provides otherwise) do not become binding until signed by both the Vendor and the Purchaser, the contract deposit (10% of the purchase price including the booking deposit) paid to the Vendor’s Solicitor and contracts exchanged by the parties.
Until contracts are signed and exchanged either party can withdraw from the sale at any point. Any deposit paid will be refunded in this event. The parties may have incurred legal and engineering fees which will of course require to be paid.
Once contracts are signed and exchanged both parties are bound to complete the purchase/sale and can be compelled to do so on foot of a court order for specific performance in default and/or forfeit the deposit paid.
Many purchasers finance their purchase by way of mortgage. In that event the contract should contain the standard Law Society special condition permitting the Purchaser to withdraw from the contract without penalty if they encounter any difficulty drawing down the mortgage. This might arise for example where there is a change in the valuation of the property or the Purchaser cannot satisfy the Lender’s requirements regarding house insurance or life assurance. If that occurs, and such a loan clause is provided within the Contract, the Purchaser is entitled to withdraw and to a full refund of the deposit.
Help to Buy Scheme
For first time buyers of new houses with Help to Buy Scheme approval this allowance is paid directly to the Builder as part of the contract deposit. Therefore, the amount required to be paid by the Purchaser from their own funds is reduced accordingly.
Completion is provided for by the contract and typically is within 2-4 weeks from exchange of contracts. However, a shorter period might be agreed or provided for in the contract especially for example if the property is vacant.
COVID 19 Crisis
Due to potential unavailability of third party services, for example the Property Registration Authority (Land Registry) and Companies Registration Office, normal conveyancing practice may be delayed and it has become common practice to include a special condition in the contract to ensure that neither the Purchaser nor the Vendor will be penalised for any delay outside their control.
In the event of any queries please contact Kim Walley from our Property Team at J.W. O’Donovan by email at email@example.com.