Covid 19 highlights the benefits of simultaneous exchange and completion


The stark reality is that tens of thousands of home owners have already been or are likely to be made redundant as companies emerge from lockdown and furlough funding ceases. The result is that many transactions will no longer go ahead,  and the continued uncertainty over the trajectory of the pandemic means that even the most committed buyers and sellers will be nervous of exchanging contracts.

One problem with the system of conveyancing has always been that of the “chain” of transactions.  It is not unusual to see chains of five or more transactions, all of which fail if just one buyer or seller drops out before exchange of contracts. Usually, however, once contracts have exchanged the parties can be confident that matters will be successfully completed on the contractually agreed completion date.

The current crisis has introduced a great deal of uncertainty into the process however; there are very real risks that one or more transactions in a chain might be affected by a Covid 19 related problem (for example, a seller having to self-isolate, removers being unavailable, transfers of funds being delayed).  In such circumstances, every transaction will be delayed, with consequent additional costs such as additional legal fees for dealing with the service/receipt of a notice to complete,  payment of penalty interest under the contract, and consequential losses such as removal costs, storage and temporary accommodation.

At its worst, transactions might not complete at all, leading to the risk of losing a 10% deposit due to failing to complete within 10 working days of a notice to complete having been served, and claims for damages for breach of contract.  It is also worth noting that if sale and purchase transactions fail to complete then mortgage advances will need to be returned and brokers will not receive their arrangement fees from the lenders.

Worse still, the current uncertainty over jobs raises another frightening prospect for anyone contemplating entering into a purchase with the help of a mortgage.  It has always been the case that lenders retain the right to withdraw their offers of mortgage finance if, for example, they become aware of the borrower having overstated their earnings, or of a change in the borrower’s circumstances.

In more normal times this is a known and generally acceptable risk for borrowers to take when committing to an exchange of contracts.  The situation looks very different today.  Buyers and Sellers are rightly very nervous of exchanging contracts for completion in a few weeks’ time in circumstances where there is significant risk that they, or anyone in the chain, might have their mortgage offer withdrawn.

Our experience of conveyancing during lockdown showed that by dealing with the transaction through a simultaneous exchange and completion it was possible to get through the process and to do so in a way which minimises the parties’ risks and  leaves none of the uncertainty that the period between exchange and completion can create.

In the future, at least while we are living in uncertain times, we are likely to see behavioural change among both buyers and sellers, with those that want to move having a much firmer commitment to a sale going ahead.

While it is true that if one party in a single transaction or a chain changes their mind at the last minute then the whole arrangement still collapses under simultaneous completion, our experience over recent months is this is less likely to happen.

Both simultaneous and deferred purchasing present shared issues, for example if one party pulls out then unnecessary removal costs and other potential ancillary costs associated with the move could be incurred.

However as we pointed  out earlier the costs associated with a failure of a conventional exchange / completion are often potentially far higher.

Plainly the most appropriate conveyancing process will be dependent on a number of factors and will most likely evolve as the market does. That said, in my opinion, the risks a simultaneous exchange and completion avoid, and the psychological advantages of a transaction that is completed in a single, simultaneous transaction are currently far greater than the disadvantages attached to it.

I would therefore urge brokers and lenders to raise awareness of simultaneous completion rather than leave the decision to the clients lawyer who most likely will opt for the status quo.

Tom Bessant, Partner, Commercial Property Department, Parker Bullen