TL;DR
Exchange of contracts creates a legally binding obligation to buy or sell the property. Pulling out after exchange means losing the deposit (typically 10%) and potentially facing a claim for damages
Last reviewed: June 2026 | Sources: Property
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Property Key Facts: Exchanging Contracts Legal obligation: binding on both parties at exchangeDeposit: typically 10% — lost if buyer pulls outBuildings insurance: required from exchange dateCompletion date: fixed at exchangeRegulator: SRA / CLC (conveyancers) |
What happens at exchange of contracts
Exchange of contracts is the point at which a property purchase becomes legally binding. Both buyer and seller sign identical copies of the contract and solicitors exchange them, typically by telephone with postal follow-up. The buyer pays a deposit, usually 10 percent of the purchase price. The completion date is fixed at exchange. Neither party can withdraw without significant financial penalty after this point.
The risks most people do not check
Buildings insurance must be in place from exchange. Under standard contract terms, the risk in the property passes to the buyer at exchange, not completion. If the property is damaged between exchange and completion, the buyer bears the loss unless their buildings insurance is in place. Arrange insurance to commence on the exchange date.
Pulling out after exchange has serious financial consequences. If the buyer pulls out after exchange, the deposit is forfeited. The seller can also pursue a claim for additional losses beyond the deposit if they can demonstrate the buyer's breach caused greater loss. If the seller pulls out, the buyer can recover the deposit and may pursue the seller for additional losses.
Leasehold complications should be resolved before exchange. Lease terms, ground rent clauses, service charge history, managing agent information and any outstanding major works should all be confirmed before exchange. Discovering problematic lease terms after exchange leaves you contractually committed to the purchase.
Searches should be completed and reviewed before exchange. Local authority searches, drainage searches, environmental searches and any specialist searches should be completed and reviewed by your solicitor before exchange. Problems identified in searches after exchange may be contractually difficult to resolve.
What to verify before exchanging
Confirm your mortgage offer is formally issued and valid for the completion date. Arrange buildings insurance to commence on exchange. Confirm all searches are complete and reviewed. For leasehold properties, confirm lease length, ground rent terms and service charge budgets. Set a completion date that is achievable for all parties in the chain.
Where to complain
Conveyancer complaints go to the Legal Ombudsman or, for serious misconduct, the Solicitors Regulation Authority (solicitors) or Council for Licensed Conveyancers (licensed conveyancers).
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Disclaimer This article is for information only and does not constitute regulated financial advice. Always verify current terms with relevant providers and seek regulated advice for your specific circumstances. Kael Tripton Ltd is an independent editorial publisher and is not regulated by the FCA. |
Frequently asked questions
What is the difference between exchange and completion?
Exchange is when the contract becomes legally binding. Completion is when ownership transfers, the purchase price is paid and keys are handed over. The gap between exchange and completion is typically one to four weeks but can be longer in complex chains.
Can I negotiate the deposit below 10%?
A reduced deposit can be agreed between buyer and seller. Some sellers accept five percent. However, a lower deposit reduces the financial penalty for the buyer pulling out, which some sellers are reluctant to accept.
What is a simultaneous exchange and completion?
Exchange and completion happening on the same day is common in some circumstances including auction purchases and new-build completions. It eliminates the gap between exchange and completion but requires all funds, searches and arrangements to be ready simultaneously.
What happens if there is a problem with the property between exchange and completion?
Standard contract terms typically require the seller to maintain the property in its pre-exchange state until completion. Significant damage should be reported to the seller's solicitor. The contract may allow the buyer to rescind or require the seller to remedy the issue, depending on the circumstances and the contract terms.
What is a notice to complete?
A notice to complete is a formal notice served on a party that has failed to complete on the contractual completion date. It typically gives 10 working days to complete, after which the serving party can rescind the contract and retain or claim the deposit.
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Sources GOV.UK: Buying a Property |
