After contracts have been exchanged both the buyer and the seller have entered into a legally binding agreement which means that they will proceed to completion and that the titles deeds will be transferred from one party to another on this agreed date. Due to the legally binding nature of this exchange of contracts, pulling out from it does come with serious financial consequences.
Although it is uncommon for anyone to pull out after exchange due to the consequences it carries with it, it is not unprecedented. Due to a range of circumstances a buyer/seller may need to pull out and these are the losses they risk incurring if they decide to do so.
What does a buyer lose?
Generally, it is more common for a buyer to pull out after exchange. This could be due to a range of personal and/or financial circumstances that leave them with no other choice. Despite this, there are inevitable consequences that come with a legal contract being breached. Due to this, a buyer who pulls out is liable to be sued by the seller for any losses they have made due to the sale falling through. These losses can cover anything from legal to surveying costs and can therefore cost the buyer a huge amount. The seller is also able to retain the deposit so this will be another main loss of money for the buyer.
What does a seller lose?
If a seller pulls out, they are legally obliged to return the buyer’s deposit to them. Alternatively, the buyer can serve them a Notice to Complete which means the seller has 10 days (approximately) to follow through and complete the sale. During this period, the seller will also have to pay any interest accrued to the buyer on the funds being transferred. Other possible financial losses that the seller could face would come from the buyer taking them to Court and claiming their personal losses. They are perfectly within their right to do this as the seller has breached a legal contract. The losses which the buyer may claim can be extensive. For example, they can claim conveyancing fees and even any cost incurred at having to renew a lease due to the sale falling through.
Therefore, it is quite clear that if either party pulls out after exchange of contracts, they will have no choice but to face up to making significant losses. The process of buying and selling a home can be stressful and complex enough without someone pulling out at one of the final stages. For this reason, it is important and highly advisable to have all funds readily available and your mind completely made up when entering into such an important and possibly life-defining contract.
However, if you are on the receiving end of someone pulling out of a property transaction, you can rest assured that despite this being legally permissible, the offending party will have to make some losses and you have the right to make sure this happens through the courts.
