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 date in the future. It states the day on which the obligation has to be fulfilled – 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 most communications are by email, that time can often be cut back to two weeks relatively comfortably, or even to a matter of days if necessary.
If you have a mortgage your solicitors will ask your lenders for a ‘redemption figure’ – the amount your lenders will require to release the property from the mortgage.
You should check this out at the very start of the selling process. If you have a fixed rate mortgage, or one of the other types of interest arrangement, such as a discount, or a cap on the interest you pay, then the terms of the deal may require you to pay the lender a ‘redemption penalty’ of some sort for ending the arrangement early. The penalty can be several months’ worth of interest.
This can apply even after an interest rate deal has come to an end, if the deal was that you would go onto the lender’s standard variable rate for an agreed number of months and the sale of the property would cut that short.
Legal steps for completion
The buyers’ solicitors will prepare the ‘transfer’ and submit it for approval to your solicitors. This is the document which actually effects the transfer of ownership from you to the buyers. It is handed over at completion in return for the payment of the purchase price.
If you are selling 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 your share in any management company, or in the freehold company if it is the flat owners who own the freehold of the building. These will also be arranged between the two solicitors.
Service charge apportionments
If you are selling a freehold house, then the purchase price is all you will receive from the buyers. If you are selling a flat, where you pay rent and service charges, then these expenses have to be split or ‘apportioned’ between you and the buyers as at the day of completion. For example, rent and service charges are usually demanded by the management company in instalments every half-year or every three months, depending on the wording of the lease.
If your completion date falls in the middle of one of these periods, then you only have to pay for the part of the period up to the completion date, and the buyers are responsible after that. If you have already paid for the whole period you will want a refund for the period after completion, and this can be taken into account in the completion figures. (You always have to pay for the full period in advance and then recover the overpayment from the buyers as part of the money paid on completion.)
The buyers 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 your period of ownership, they may want some assurance that you will meet your 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, which may become clear a year or so later when the accounts are audited, then the relevant proportion comes out of that retention, and the rest is then sent on to you.
What happens on the completion date
You must clear everything of yours out of the property, because your buyers cannot be required to hand the money owed over to your solicitors until you have given ‘vacant possession’. Equally, you don’t have to let the buyers move in with their furniture until your solicitors confirm that their bank has received the purchase money from the buyers’ solicitors.
The buyers’ solicitors send the necessary funds to your solicitors by electronic transfer. Once they get the money, your solicitors should ‘complete’ the transaction and instruct the estate agents to release the keys to the buyers, so they can move in. Your solicitors send the title documents to the buyers’ solicitors so that the buyers’ ownership is documented. They will use part of the funds to pay off your mortgage loans on the property. You only receive the balance.