Progressing to exchange of contracts - Law Society Conveyanc...

Learning Outcomes

This article explains the Law Society Conveyancing Protocol for progressing to exchange of contracts in residential conveyancing for SQE1 FLK2, including:

• The function, scope, and practical application of the Protocol in residential transactions, with emphasis on CQS adoption and exam-standard reasoning.
• The legal significance and consequences of exchange of contracts, including when parties become bound and how risk and remedies are triggered.
• The sequence of pre-exchange steps, checks, and documentation—title investigation, searches, enquiries, occupier consents, and lender requirements—and how these support a safe exchange.
• The distinct duties of buyer’s and seller’s solicitors in progressing to exchange, managing chains, and giving undertakings.
• The passing of risk on exchange and appropriate insurance arrangements for freehold and leasehold property, highlighting common SQE1 pitfalls.
• The structure of the contract, combining standard conditions and tailored special conditions, and the impact of these terms at exchange and completion.
• Deposit handling and status, contrasting stakeholder and agent roles, reduced deposits, and passing-on deposits in a chain.
• The Law Society telephone exchange formulae (A, B, and particularly C), and how they coordinate timing and deposits across a chain.
• Remedies for delay and late completion, including contractual compensation and the notice to complete procedure, with focus on time of the essence.
• The use of the Law Society’s Code for Completion by Post to manage completion logistics, undertakings, and risk allocation.

SQE1 Syllabus

For SQE1, you are required to understand the practical application of the Law Society Conveyancing Protocol in residential conveyancing, with a focus on the following syllabus points:

• The function and scope of the Law Society Conveyancing Protocol in residential property transactions, including adoption under the Conveyancing Quality Scheme
• The legal effect and process of exchange of contracts, including the Law Society formulae A, B, and C
• The structure and content of the contract, including the Standard Conditions of Sale (Fifth Edition – 2018 Revision) and special conditions
• Deposit arrangements at exchange, including stakeholder vs agent, reduced deposits, and passing-on deposits in a chain
• The passing of risk and insurance requirements at exchange, and leasehold-specific insurance arrangements
• Roles and duties of buyer’s and seller’s solicitors in progressing to exchange, including lender instructions via the UK Finance Mortgage Lenders’ Handbook
• The documentation and checks required before exchange: title proof and investigation, searches, enquiries, occupier consents, and lender conditions
• Managing chains, communications, professional undertakings, and using the Code for Completion by Post for completion logistics
• Remedies and procedures for delay and late completion, including contractual compensation and service of a notice to complete

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. What is the legal effect of exchanging contracts in a residential conveyancing transaction?
2. When does the risk of damage to the property usually pass from seller to buyer under the Standard Conditions of Sale?
3. Name three key documents that must be checked or provided before exchange of contracts.
4. What is the role of the Law Society Conveyancing Protocol in the context of the SQE1 exam?

Introduction

The Law Society Conveyancing Protocol provides a standardised framework for residential conveyancing in England and Wales. It sets out the recommended steps for solicitors acting for buyers and sellers, aiming to ensure a consistent, transparent, and efficient process. A central feature is the procedure for progressing to exchange of contracts, which is the point at which the transaction becomes legally binding and risk typically passes to the buyer. Understanding the Protocol and the legal implications of exchange is essential for SQE1. The Protocol sits alongside widely-used standard documents and conditions, and emphasises good communication, appropriate use of undertakings, and compliance with lenders’ instructions.

Key Term: Law Society Conveyancing Protocol
The Law Society Conveyancing Protocol is a set of recommended procedures and standard documents for residential conveyancing, aiming to encourage best practice and consistency among solicitors.

The Law Society Conveyancing Protocol: Scope and Purpose

The Protocol is designed for the sale and purchase of residential property by owner-occupiers. It is widely adopted by firms accredited under the Conveyancing Quality Scheme (CQS) and is often used even where not expressly adopted. The Protocol is not intended for new build purchases or commercial transactions. It complements professional obligations (including conflicts, confidentiality, and undertakings), requires solicitors to manage client expectations proactively, and encourages transparency and courtesy when dealing with counterpart solicitors, lenders, and estate agents. Where lenders instruct the same conveyancer to act, UK Finance Mortgage Lenders’ Handbook requirements must be followed alongside client instructions.

Pre-Exchange Preparations

Before exchange, solicitors must ensure that all legal, practical, and financial matters are in order. The Protocol emphasises the importance of thorough preparation to avoid delays or disputes after exchange. In residential practice, preparation often includes synchronising chains and confirming that all parties can meet the agreed completion date.

Title Investigation and Deductions

The seller’s solicitor must prove the seller’s right to sell the property by providing up-to-date official copies of the register (for registered land) or an epitome of title (for unregistered land). Any defects, restrictions, or encumbrances must be identified and disclosed. For registered land, official copies of the register and title plan should be obtained and scrutinised for mortgages/charges, notices, restrictions, easements, covenants, and cautions. If a registered charge remains, the seller’s solicitor will typically give a professional undertaking to redeem it on completion and to provide evidence (e.g., a DS1 discharge).

Where land is unregistered, the seller must deduce title by producing a root of title (a good conveyance at least 15 years old, free from defects) and an epitome tracing ownership from root to present. The buyer’s solicitor will also conduct Land Charges searches against all relevant names and bankruptcy searches for individuals or company searches for corporate sellers.

Particular care is needed with:

• Trusts and co-ownership: ensure there are at least two trustees (or a trust corporation) to receive purchase monies so that beneficial interests are overreached on completion.
• Personal representatives: confirm authority (grant of probate/letters of administration) and that the correct parties are executing the contract and transfer.
• Occupation rights: check for any non-owning adult occupiers whose rights could affect vacant possession and ensure appropriate consents/waivers are signed.

Key Term: deduction of title
The process by which the seller’s solicitor provides evidence of the seller’s ownership and right to sell, typically through official copies or an epitome of title.

Searches and Enquiries

The buyer’s solicitor is responsible for conducting all necessary searches and raising pre-contract enquiries. These include:

• Local authority search (LLC1 and CON29) for local land charges, planning, highways, and other local matters
• Water and drainage search to confirm mains connections and responsibilities
• Environmental and flood searches (where relevant), and any specialist searches (e.g., coal mining, HS2, or other infrastructure)
• Bankruptcy searches (K16) against individual sellers and buyers; company searches for corporate parties
• If title is unregistered, Land Charges searches (K15) against the names of past owners in the chain
• Pre-contract enquiries of the seller via standard forms (Property Information Form TA6, Fittings and Contents Form TA10, and Leasehold Information Form TA7 if applicable)
• For leasehold, additional enquiries such as the LPE1/2 pack for service charge, building insurance, and management information

Replies to enquiries should be complete and accurate. The buyer will rely on them and, while caveat emptor applies, false or misleading replies can found a claim for misrepresentation.

Key Term: Property Information Form (TA6)
The standard TransAction form whereby the seller provides information about the property (e.g., boundaries, disputes, notices, alterations, guarantees), used to inform the buyer’s due diligence.

Key Term: Fittings and Contents Form (TA10)
The standard TransAction form listing items included or excluded from the sale to avoid disputes about fixtures and fittings.

Key Term: Leasehold Information Form (TA7)
The standard TransAction form for leasehold property, capturing landlord/management details, ground rent, service charge, consents, and insurance arrangements.

Contract Preparation

The seller’s solicitor drafts the contract, incorporating the Standard Conditions of Sale (Fifth Edition – 2018 Revision) and any special conditions required for the transaction. The buyer’s solicitor reviews the draft, requests amendments if needed, and ensures the contract reflects the parties’ agreement. The completion date is agreed and inserted. The contract should state whether sale is with vacant possession or subject to tenancies, identify any deposit variations, and deal with occupier waivers where relevant.

Key Term: Standard Conditions of Sale
A set of pre-drafted terms commonly incorporated into residential property contracts, covering matters such as deposit, title, completion, and risk.

Special conditions are common where issues need tailoring. Examples include reduced deposit (e.g., 5% instead of 10%), passing-on deposit terms for chains, requiring adult occupiers to execute a waiver and agree to vacate on completion, resolving known title defects, or clarifying responsibility for works or compliance matters.

Key Term: special conditions
Additional terms in the contract tailored to the specific transaction, which override or supplement the standard conditions.

Contract Particulars and Core Provisions

The contract typically consists of:

• Particulars of sale (property address, price, parties, title number, capacity of sellers such as PRs/trustees)
• Standard Conditions of Sale (SCS)
• Special conditions (to address specific issues, e.g., reduced deposit, title defects, chain deposit passing, or agreed variations)
• List of fixtures, fittings, and contents via TA10

Completion mechanics (date, time, place), deposit provisions, vacant possession wording, and any rent/service charge apportionments (for leasehold) should be clear. A stakeholder clause for the deposit is standard and preferable.

Key Term: stakeholder (deposit)
A stakeholder holds the exchange deposit neutrally, releasing it only on completion or as the contract permits. Contrast with holding as agent for the seller, which allows earlier release and is generally avoided in standard residential practice.

Duties of the Solicitors

Seller’s Solicitor

• Drafts and issues the contract and supporting documents (title, TA6/TA10/TA7, EPC)
• Deduces title and discloses all relevant matters, including restrictions and consents needed
• Responds to pre-contract enquiries fully and accurately
• Arranges for the contract to be signed by the seller (and any adult occupier, if required)
• Negotiates and agrees the completion date, deposit arrangements, and any special conditions
• Provides undertakings (e.g., to redeem existing mortgages on completion)
• Manages communications in chains and ensures capacity/authority of all executing parties

Buyer’s Solicitor

• Reviews the contract and supporting documents and investigates title comprehensively
• Conducts all relevant searches and raises enquiries; evaluates planning/building regulations and potential enforcement risks
• Advises the buyer on risks, title burdens/benefits, and contractual terms (including co-ownership and Declaration of Trust where there are joint buyers)
• Ensures mortgage offer and conditions are satisfied; complies with lender instructions via the UK Finance Mortgage Lenders’ Handbook
• Arranges for the contract to be signed by the buyer and the deposit to be available
• Reports to the buyer pre-exchange on title, searches, fixtures, risks, and funding, and obtains authority to exchange (including authority to use telephone formulae where appropriate)

Exchange of Contracts

Exchange is the point at which the contract becomes legally binding. It is usually effected by the solicitors, often by telephone using one of the Law Society’s formulae (A, B, or C), followed by the physical exchange of signed contracts. It is critical that both parts of the contract are identical when exchanged.

Key Term: exchange of contracts
The formal process by which buyer and seller become legally bound to complete the transaction on the agreed terms and date.

The Law Society formulae standardise telephone exchange:

• Formula A: one solicitor holds both signed parts
• Formula B: each solicitor holds their own client’s signed part
• Formula C: used for chains, allowing a final time for exchange and the passing-on of deposits via stakeholder undertakings

Key Term: Formula C (telephone exchange)
A two-part exchange process used for chains, setting a final time for exchange and ensuring the deposit is held as stakeholder and can be passed to the next link on formula C terms via solicitors’ undertakings.

Legal Effect of Exchange

• Both parties are contractually committed to complete on the agreed date
• The buyer pays the deposit (usually 10% of the purchase price) to be held as stakeholder unless otherwise agreed
• The risk of damage to the property passes to the buyer (unless otherwise agreed)
• The completion date is fixed, and time provisions apply (usually 2pm under standard conditions)
• Remedies for delay are engaged, including contractual compensation and, if necessary, service of a notice to complete making time of the essence

Key Term: notice to complete
A contractual notice served after the contractual completion time, making time of the essence and giving the defaulting party 10 working days to complete. If the buyer fails, the seller may rescind and forfeit the deposit; if the seller fails, the buyer may rescind and recover the deposit, plus damages.

Contractual damages based on standard principles may also be available for losses caused by delay, in addition to any contractual compensation.

Passing of Risk and Insurance

Under the Standard Conditions of Sale, the buyer becomes responsible for insuring the property from the moment of exchange. The seller is under no obligation to insure unless the contract or a lease requires it. In practice:

• Freehold houses: the buyer arranges buildings and contents insurance from exchange
• Leasehold flats: the building is usually insured by the landlord or managing company under the lease; the buyer should arrange contents insurance and be advised that, after exchange but before completion, they carry risk but may need to rely on the landlord’s building insurance in the interim unless a special condition provides otherwise

Key Term: risk
Under the Standard Conditions of Sale, the risk of loss or damage to the property passes from seller to buyer at exchange of contracts.

Exam Warning

If the buyer fails to arrange insurance from exchange, they may be unable to recover losses if the property is damaged before completion. Always advise clients to have insurance in place immediately on exchange. For leasehold, check the landlord’s building policy and consider special conditions if risk allocation needs adjusting.

Completion Date and Practical Steps

The completion date is agreed before exchange and inserted into the contract. Both solicitors must ensure that all pre-completion steps (e.g., mortgage funds, final searches, signed transfer deed) can be completed in time. Pre-completion searches (e.g., OS1 to secure Land Registry priority and K16 bankruptcy for individuals) should be made close to completion to confirm nothing adverse has arisen since exchange. The transfer (TR1) and any mortgage deed must be executed and engrossed, and the Law Society’s Code for Completion by Post is commonly adopted for logistical completion.

Key Term: Law Society’s Code for Completion by Post
A standardised procedure under which the seller’s solicitor acts as the buyer’s solicitor’s agent on completion and undertakes to despatch the completion documents the same day. It governs the timing, undertakings, and risk allocation for document delivery.

Worked Example 1.1

Scenario:
A buyer exchanges contracts on a house purchase. Two days later, a fire damages the property. Who bears the loss?

Answer:
Under the Standard Conditions of Sale, risk passes to the buyer at exchange. The buyer must claim on their own insurance, not the seller’s.

Worked Example 1.2

Scenario:
The buyer’s solicitor discovers a restrictive covenant affecting the property that prevents business use, but the buyer intends to run a business from home. What should the solicitor do before exchange?

Answer:
The solicitor should raise the issue with the seller’s solicitor, advise the buyer of the restriction, and consider negotiating a special condition, seeking a release, or obtaining indemnity insurance if appropriate.

Worked Example 1.3

Scenario:
You act for a buyer of a leasehold flat. The lease requires the landlord to insure the building. Exchange is imminent. How should you advise on insurance and risk?

Answer:
Confirm the landlord’s building insurance is in place and adequate, advise the buyer that risk passes to them on exchange under SCS, and recommend contents insurance from exchange. If there is any doubt about insurance coverage immediately post-exchange, consider a special condition allocating risk or requiring the seller to maintain cover until completion.

Worked Example 1.4

Scenario:
Your client is in a chain. The parties propose Formula C for exchange. What key points must you ensure and record?

Answer:
Confirm identical counterparts, obtain the client’s authority to use Formula C, agree the final exchange time and completion date, and ensure deposit arrangements provide for stakeholder holding and pass-on on Formula C terms. Record the agreed details in a contemporaneous memorandum and perform undertakings precisely.

Worked Example 1.5

Scenario:
Funds are delayed on completion, and 2pm passes without receipt. What are the immediate and next-step remedies?

Answer:
Under standard conditions, completion is treated as occurring the next working day, and contractual compensation for delay accrues. If the delay persists, serve a notice to complete (once you are ready, willing, and able to complete), making time of the essence and allowing 10 working days before rescission and deposit forfeiture/recovery rights arise.

Summary Table: Key Stages in Progressing to Exchange

Key Point Checklist

This article has covered the following key knowledge points:

• The Law Society Conveyancing Protocol sets out best practice for residential conveyancing in England and Wales and is adopted under CQS
• Exchange of contracts is the point at which the transaction becomes legally binding and risk passes to the buyer under the Standard Conditions of Sale
• The seller’s solicitor must deduce title, disclose all relevant matters, draft the contract, and provide undertakings to redeem existing charges
• The buyer’s solicitor must conduct searches, raise enquiries, advise on title and risk, ensure funding and lender conditions are satisfied, and obtain authority to exchange
• The contract consists of particulars, standard conditions, and any special conditions; TA6, TA10, and TA7 are key supporting forms
• The deposit is usually 10% and is paid at exchange; it is typically held by the seller’s solicitor as stakeholder. Reduced deposits and pass-on deposit arrangements in chains should be managed expressly
• Telephone exchange commonly uses Law Society formulae A, B, or C; in chains, Formula C coordinates pass-on deposits and timings via undertakings
• Insurance must be arranged by the buyer from exchange, as risk passes at that point; leasehold building insurance is usually the landlord’s responsibility under the lease, but buyer’s risk and contents cover should still be addressed
• Pre-completion steps include executing the transfer and mortgage deed and carrying out OS1/K16 searches; completion logistics generally follow the Code for Completion by Post
• If completion is delayed, contractual compensation applies; if necessary, a notice to complete may be served, giving 10 working days and making time of the essence

Key Terms and Concepts

• Law Society Conveyancing Protocol
• deduction of title
• Standard Conditions of Sale
• special conditions
• exchange of contracts
• Formula C (telephone exchange)
• stakeholder (deposit)
• notice to complete
• Law Society’s Code for Completion by Post
• risk
• Property Information Form (TA6)
• Fittings and Contents Form (TA10)
• Leasehold Information Form (TA7)