Can a seller pull out after exchange of contracts?

Exchange of contracts is the point in a property sale where everything becomes legally binding. Until then, either side can walk away with no legal penalty. After it, a seller who tries to back out is usually in breach of contract, and the buyer has real remedies.

This guide explains what exchange means, why sellers sometimes try to withdraw, and what usually happens next. It covers England and Wales; the position in Scotland is different and is touched on below.

What exchange of contracts actually does

When the buyer's and seller's conveyancers exchange, two signed copies of the contract are swapped (in practice usually by phone, following an agreed procedure) and the buyer's deposit is paid. From that moment both parties are committed to completing on the agreed completion date.

Most residential contracts incorporate a set of standard conditions that deal with what happens if one side fails to complete. Your conveyancer will explain the exact terms of your contract, because special conditions can change the standard position.

Why a seller might try to pull out after exchange

It is rare, but it does happen. Common reasons include:

• the seller's own onward purchase has fallen through and they have nowhere to go;
• a relationship breakdown or bereavement in the seller's household;
• the seller has received, or hopes to receive, a higher offer;
• the seller cannot repay their mortgage from the sale price (negative equity) or has other financial problems.

None of these is usually a legal excuse. The contract does not depend on the seller's circumstances staying the same, which is exactly why conveyancers work hard to line up a chain before exchanging.

What happens if the seller does not complete on time

If completion day arrives and the seller does not complete, the buyer's conveyancer will normally take a series of formal steps rather than reacting immediately.

Notice to complete

The usual first step is to serve a notice to complete. Under the standard conditions used in most residential contracts, this gives the defaulting party a further ten working days to complete. During that period, time becomes "of the essence", meaning the deadline is strictly enforceable.

Compensation for delay

Standard contracts usually provide for compensation for late completion, calculated as interest on the purchase price at the contract rate for each day of delay. Your conveyancer will check whether this applies and whether you have suffered further losses, such as extra removal or storage costs, that could be claimed.

If the seller still refuses

If the notice expires and the seller still has not completed, the buyer normally has a choice of remedies:

• Rescind the contract, recover the deposit with any accrued interest, and claim damages for losses such as wasted costs.
• Apply for specific performance, which is a court order requiring the seller to complete the sale. Because every property is treated as unique, courts are generally willing to grant this in property cases, although it takes time and money.
• Claim damages where the buyer's losses go beyond the deposit, for example if they have to buy a more expensive property elsewhere.

Which route is best depends on whether you still want the property, how quickly you need to move and the cost of litigation. This is a point for tailored legal advice from your conveyancer or a litigation solicitor.

Can a buyer pull out after exchange?

The same principle applies in reverse. A buyer who fails to complete is in breach, and the seller can serve a notice to complete. If the buyer still does not complete, the seller can usually keep the deposit (commonly 10% of the price, unless a lower deposit was agreed), resell the property and claim any additional losses.

This is one reason a buyer's conveyancer will make sure the mortgage offer, deposit funds and any related sale are firmly in place before exchanging.

Are there any situations where a seller can lawfully withdraw?

There are a few, but they are limited and depend on the contract:

• if the buyer has failed to complete and the seller has served a valid notice to complete that has expired;
• if the contract contains a specific condition allowing withdrawal (for example, a conditional contract that depends on planning permission being granted);
• in some cases of serious misrepresentation by the buyer, or where the property is destroyed and the contract allows termination.

If a seller claims they are entitled to withdraw, your conveyancer will review the contract and the facts before you accept that position.

How to reduce the risk of a failed completion

You cannot remove the risk entirely, but you can reduce it. Practical steps include:

• allowing a sensible gap between exchange and completion where there is a chain, so problems can be resolved before completion day;
• asking your conveyancer to confirm that every link in the chain is ready before exchanging;
• avoiding pressure to exchange before searches, enquiries and your mortgage offer are complete;
• keeping in close contact with your conveyancer in the days before completion.

The Law Society's code for signing and exchanging property contracts sets out how conveyancers should handle exchange, which helps make the process more orderly. The government's How to Buy guide also explains where exchange fits in the overall process.

For a broader look at things that can go wrong mid-transaction, see our guide to common conveyancing problems. If you are on the other side of the deal, our page on conveyancing when you sell explains the seller's obligations.

What about Scotland and Northern Ireland?

In Scotland the sale becomes binding when the "missives" are concluded, which is often earlier in the process than exchange in England. Northern Ireland has its own procedures. If your property is outside England and Wales, ask a local solicitor about the rules that apply.

How we can help

A well-run transaction with a regulated conveyancer is the best protection against last-minute surprises. If you are buying a home, you can request a free, fixed-fee conveyancing quote with no obligation.

This guide is general information about the law in England and Wales as at the date shown above. It is not legal advice. Every property is different, so ask your conveyancer about your own situation. More in Conveyancing problems and how they're solved.