When You Exchange Contracts, Is It Legally Binding?
Exchange of contracts is a critical step in any property transaction, and it`s essential to understand the legal implications of this process. In simple terms, exchanging contracts means that both parties have agreed to all the terms of the sale, and the agreement has been signed by both parties.
However, the question that often arises is whether exchanging contracts is legally binding. The answer is yes. Once contracts are exchanged, they are legally binding, and both parties are obligated to complete the sale.
Until contracts are exchanged, either party can back out of the deal without any legal consequences. However, once contracts have been exchanged, both parties are bound by the terms of the agreement, and any breach of the terms can result in legal action.
The exchange of contracts usually takes place after both parties have signed the contract and agreed on the completion date. A completion date is the date on which the seller will vacate the property and hand over the keys to the buyer.
Once the contracts have been exchanged, a deposit is usually paid by the buyer, which is typically 10% of the purchase price. The deposit serves as a guarantee to the seller that the buyer is committed to the sale.
If the buyer fails to complete the sale on the agreed completion date, the seller can retain the deposit and take legal action against the buyer for breach of contract. On the other hand, if the seller fails to complete the sale, the buyer may be able to claim damages and keep the deposit.
It`s important to note that once contracts have been exchanged, it`s almost impossible to make any changes to the terms of the agreement. Any changes would require the consent of both parties and would mean that the contracts would need to be reissued and re-exchanged.
In conclusion, when you exchange contracts, it`s legally binding, and both parties are obligated to complete the sale. It`s crucial to ensure that all terms of the agreement have been agreed upon before exchanging contracts because any breach of the terms could result in legal action.