Exchange with Delayed Completion

Important Note: If you have exchanged contracts and your Buyer is delaying completion, or refusing to complete, read this now.

 

In a typical property sale, contracts are exchanged to create a legally binding sale, and the Buyer pays a deposit (typically 10% but can be any amount). Completion takes place either simultaneously, or shortly afterwards (e.g. a week or two later).

However, completion can take place at any time. It might suit both the Buyer and Seller to delay the period between exchange and completion for a longer period, say 5 years.

The main benefit to you if you choose this route is that you will receive an amount of money now which could help you to move on with your life, for example if you need to relocate for a new job.

You will however still own the property and be responsible for making the mortgage payments.

Most Exchanges with Delayed Completion will also involve an arrangement for the new Owner-to-be to make these mortgage payments on your behalf, and to let the property to a tenant.

Dangers of Exchange with Delayed Completion

Risks and Problems of Exchange with Delayed Completion include:

  • If the Owner-to-be cannot or will not complete on the sale at the agreed date, you will have to take legal action to force this, or to claim compensation, which could be expensive, and maybe even futile, for example if the other party has become insolvent
  • If a mortgage is required to complete the purchase, the Owner-to-be can’t be sure that a mortgage will be available to him in several years time
  • No guarantee that the Optionee will make the mortgage repayments

As with Lease Options, EDC agreements have become popular with Investors since the onset of the Credit Crunch, as for many of them it is now difficult if not impossible to buy properties using Buy to Let mortgages.

Exchange with Delayed Completion is generally considered a fairer way for the Vendor compared to a Lease Option, as an actual sale has been contractually agreed.

However there is still some risk, as a lot can happen during the several years between exchange and completion. Considerations such as what happens if the Owner-to-be dies or becomes bankrupt need to be considered before entering into these arrangements.

The worst situation for anyone selling their property this way is what will happen if the sale doesn’t complete and the condition of the property has deteriorated significantly, perhaps due to damage by tenants.

Lease Options, EDR Arrangements and staying in the property

These arrangements are sometimes offered to people as an alternative to Sell and Rent Back since such schemes were closed down by the FSA (now the FCA).

However, the FCA state if a contract allows you to remain in your home, it is likely to be a regulated SARB agreement, so the firm or individual needs to be regulated by them. See here.

If you enter into any type of agreement considered by the FSA to be a Rent Back agreement, and subsequently encounter problems, you will not be able to raise a complaint with the Financial Ombudsman Service (FOS) or claim compensation under the Financial Services Compensation Scheme.

Find out more about the ways to sell a house:

1 Using an Estate Agent
Types of Estate Agent
How Estate Agents Market Property
How Much is it Worth?
How Much are Estate Agent’s Fees?
Once the Property is Listed
Once a Sale has been Agreed
Estate Agent Tricks
Selling Without an Estate Agent

2 Selling to a Quick Cash Buyer
Watch out for the Unethical

3 Selling at Auction

4a Equity Release

4b Sell & Rent Back (SARB)

5 Creative Solutions
• Exchanged with Delayed Completion

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By Richard Watters

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