Completion means turning the contract into reality.
Exchange of contracts merely imposes an obligation on the parties to buy and sell the property at a stated date in the future – the completion date.
Traditionally, that used to be one month after exchange of contracts to allow time for the legal work to be done.
Now that we no longer rely on the post for everything, that time can be cut back to two weeks relatively comfortably, or even to a matter of days if necessary.
Legal steps for completion of a sale and purchase
Your solicitor needs to arrange for your lender to provide the mortgage finance for completion. He has to make sure that all the paperwork is in place to comply with the lender’s requirements.
You will have to sign a mortgage document and provide any life insurance cover which is required. You also have to comply with any conditions or requirements set out in the mortgage offer.
Your solicitor will prepare the ‘transfer’ and submit it for approval to the seller’s solicitor. The transfer is the document which actually effects the transfer of ownership to you. It is sent to the Land Registry after completion, who then record the change of ownership. (The Land Registry is the public register of property ownership.)
Your solicitors also have to carry out some final legal checks. They need to make sure that any existing mortgages on the property for loans taken out by the current owners will be removed at completion (or that undertakings to have them removed will be given by the sellers’ solicitors).
They will also carry out a check at the Land Registry to make sure that no one else has put in a claim on the property which would get in the way of you taking over ownership.
If you are buying a flat, it is possible that a consent is needed from the landlord or the management company, or that there has to be a transfer of the sellers’ share in any management company. These will also be arranged between the two firms of solicitors.
Service charge apportionments on completion of a sale and purchase of a flat
If you are buying a freehold house, then the purchase price is all you pay the seller.
If you buy a flat, where there are rent and service charges, then these have to be split or ‘apportioned’ between you and the seller as at the day of completion. For example, rent and service charge are usually demanded by the landlord or management company in instalments every half-year, or perhaps every three months, depending on the wording of the lease.
If your completion date falls in the middle of one of these periods, then the sellers only have to pay for the part of the period up to the completion date, and you are responsible after that.
If the sellers have already paid for the whole period, they will want a refund for the period after completion, and this must be taken into account in the completion figures.
As a buyer, you may be worried that when the management company does its full accounts for the year, it may find some further amount due from the flat owner. Since some of that responsibility will relate to the sellers’ period of ownership, you may want some assurance that the sellers will meet their bit of the debt.
So, sometimes it is agreed that one of the firms of solicitors will hold back a retention of a few hundred pounds as security for the potential liability. If there is a liability, then the sellers’ share comes out of that retention, and any balance is then released to them.
Money needed for completion of the purchase of a property
Your solicitors will ask your lenders to send the mortgage loan to them by bank transfer on the completion date. They will ask you to send them any balance you are providing.
Even if you are borrowing 100% of the purchase price from the lender, you will still have to supply additional funds because stamp duty land tax, Land Registry fees and legal fees have to be paid. You normally have to give your solicitors the funds for those items before completion.
What happens on the completion date of a property purchase
Your solicitors send the necessary funds to the sellers’ solicitors by bank transfer. Once they get the money, the sellers’ solicitors ‘complete’ the transaction and instruct the seller’s agents to release the keys to you, so you can move in.
The sellers’ solicitors send the title documents to your solicitors so that your ownership is documented. They will use part of the purchase funds to pay off the sellers’ mortgage loans on the property. The sellers only receive the balance.
You can move your furniture into the property on the completion day, but not until legal completion has actually taken place. So, you may find yourself having to sit in the removal van until your solicitors can confirm that the money has been received by the sellers’ solicitors. This can be a frustrating process.
Many mortgage lenders do not provide the mortgage funds until the morning of completion, and there can be delays in the bank transfer system. If you are in the middle of a chain of transactions, your purchase depends on money moving up the chain between solicitors for other buyers and sellers.
You must vacate your existing property, if you are selling as well, because your buyer cannot be required to hand the money owed over to your solicitors until you have given ‘vacant possession’.
You should check that everything has been left which was in the list supplied by the sellers before exchange of contracts. If something has been taken which the sellers had agreed to leave, you usually cannot refuse to complete because of it. You should talk to your solicitors about whether money can be retained.