Introduction to property transactions - Stages of a property transaction

Learning Outcomes

After studying this article, you will be able to identify and explain each stage of a property transaction in England and Wales. You will understand the legal significance and practical steps involved in the pre-contract, exchange, completion, and post-completion phases for both residential and commercial property. You will be able to apply these principles to SQE1-style questions and advise clients on the process and risks at each stage.

SQE1 Syllabus

For SQE1, you are required to understand the structure and sequence of property transactions, including the legal and practical steps at each stage. As you work through this article, focus your revision on:

• The main stages of a property transaction: pre-contract, exchange, completion, and post-completion
• The purpose and significance of each stage
• The key legal documents and searches required at each stage
• The effect of exchange of contracts and completion
• The solicitor’s duties and client care at each stage

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 exchange of contracts in a property transaction?
2. At what stage does the risk of damage to the property usually pass to the buyer?
3. Name two key searches a buyer’s solicitor must carry out before exchange of contracts.
4. What are the main post-completion steps a buyer’s solicitor must take after completion?

Introduction

A property transaction in England and Wales follows a defined sequence of legal and practical steps. Each stage has its own requirements, risks, and legal consequences. Understanding the stages—from initial instructions to post-completion formalities—is essential for SQE1 and for advising clients in practice.

The Main Stages of a Property Transaction

A typical property transaction is divided into four main stages:

1. Pre-contract stage
2. Exchange of contracts
3. Completion
4. Post-completion

Each stage is outlined below.

Pre-Contract Stage

The pre-contract stage lays the groundwork for the transaction. The parties are not yet legally bound, and either can withdraw without penalty.

Taking Instructions and Client Due Diligence

The solicitor must obtain full instructions from the client at the outset. This includes:

• Verifying the client’s identity (to comply with anti-money laundering rules)
• Understanding the client’s objectives and the property involved
• Checking the source of funds and any mortgage requirements

Key Term: pre-contract stage
The period before exchange of contracts, when the parties negotiate terms, investigate title, and carry out searches and enquiries.

Drafting and Reviewing the Contract

The seller’s solicitor prepares a draft contract, including the agreed terms, property details, and any special conditions. The buyer’s solicitor reviews the contract, checks the title, and negotiates amendments if necessary.

Investigation of Title

The buyer’s solicitor investigates the seller’s title to ensure the seller can sell what is being offered and to identify any problems or incumbrances.

Key Term: investigation of title
The process by which the buyer’s solicitor checks the seller’s legal right to sell and identifies any burdens or defects affecting the property.

Searches and Enquiries

The buyer’s solicitor carries out searches and raises enquiries to uncover issues not apparent from the title documents.

Common searches include:

• Local authority search (planning, building control, highways)
• Water and drainage search
• Environmental search
• Chancel repair liability search (where relevant)
• Mining or other location-specific searches

Enquiries are also raised with the seller to clarify matters such as boundaries, disputes, and fixtures.

Reporting to the Client and Lender

The buyer’s solicitor reports to the client on the results of the title investigation, searches, and enquiries. If the buyer is obtaining a mortgage, the solicitor also reports to the lender and ensures all lender requirements are met.

Exchange of Contracts

Exchange of contracts is the point at which the transaction becomes legally binding. Until exchange, either party can withdraw without liability (except for certain costs).

• Both parties sign identical contracts
• The solicitors formally exchange contracts (often by telephone using a Law Society formula)
• The buyer pays a deposit (usually 10% of the purchase price)
• The completion date is fixed

Key Term: exchange of contracts
The moment when the buyer and seller become legally bound to complete the transaction on the agreed terms and date.

After exchange, the buyer acquires an equitable interest in the property, and the risk of damage usually passes to the buyer.

Completion

Completion is when the legal title passes to the buyer. On the agreed completion date:

• The buyer’s solicitor sends the balance of the purchase price to the seller’s solicitor
• The seller’s solicitor releases the signed transfer deed and (if applicable) the keys
• The buyer takes possession of the property

Key Term: completion
The stage when the purchase price is paid in full, the transfer deed is completed, and the buyer becomes entitled to be registered as the legal owner.

Post-Completion

After completion, both solicitors have further duties.

Seller’s Solicitor

• Discharges any existing mortgage and provides evidence of discharge to the buyer’s solicitor
• Accounts to the client for the sale proceeds
• Pays the estate agent (if authorised)

Buyer’s Solicitor

• Pays Stamp Duty Land Tax (SDLT) or Land Transaction Tax (LTT) within the statutory deadline
• Registers the buyer as the new owner at HM Land Registry
• Registers any new mortgage
• Notifies the lender and client when registration is complete

Key Term: post-completion stage
The period after completion when the solicitors deal with tax, registration, and final administrative matters.

Worked Example 1.1

Scenario:
A buyer is purchasing a freehold house. The buyer’s solicitor has received the draft contract and official copies of the register. What steps must the buyer’s solicitor take before advising the client to exchange contracts?

Answer:
The buyer’s solicitor must investigate title, carry out all relevant searches (e.g., local authority, water and drainage, environmental), raise any necessary enquiries with the seller’s solicitor, review the results, and report to the client and lender. Only when satisfied that the title is good and all issues are resolved should the solicitor advise the client to proceed to exchange.

Worked Example 1.2

Scenario:
After exchange of contracts, a fire damages the property before completion. Who bears the risk?

Answer:
Unless the contract provides otherwise, the risk passes to the buyer on exchange of contracts. The buyer is responsible for insuring the property from exchange.

Exam Warning

In SQE1, questions may test your understanding of the legal effect of exchange and completion. Remember: after exchange, the parties are legally bound, and the buyer usually bears the risk of loss.

Revision Tip

Always know the order and legal significance of each stage. Practice applying the sequence to different scenarios.

Summary

Key Point Checklist

This article has covered the following key knowledge points:

• The four main stages of a property transaction: pre-contract, exchange, completion, and post-completion
• The legal significance and practical steps at each stage
• The effect of exchange of contracts: legal commitment and risk passing to the buyer
• The effect of completion: transfer of legal title and possession
• The solicitor’s duties to the client and lender at each stage
• The importance of searches, enquiries, and reporting before exchange
• The need for prompt post-completion tax payment and registration

Key Terms and Concepts

• pre-contract stage
• investigation of title
• exchange of contracts
• completion
• post-completion stage