Exchange of Contracts
Property Practice > Exchange of Contracts
What is Exchange of Contracts?
Candidates often lose marks on SQE1 by misremembering when risk passes or what happens to the deposit — critical details examiners test in every conveyancing scenario.
Key Principles for SQE1
When tackling Exchange of Contracts as part of Property Practice, remember:
- Know the procedural steps and their correct sequence
- Understand the legal effect and consequences of each stage
- Be familiar with the standard documentation and processes
- Apply the rules to practical client scenarios
Exchange sits between the pre-contract stage and completion, marking a critical legal turning point.
Exam Tip
Pay close attention to the order of steps in conveyancing scenarios. Exam questions often include answer options that describe correct actions at the wrong point in the transaction.
How This Appears in SQE1 Questions
SQE1 questions on this topic use transactional scenarios asking you to:
- Identify the correct next step in the process
- Select the appropriate document or search
- Recognize the legal consequences of events
- Advise on party obligations and timings
This is one of the most commonly tested areas in SQE1 — you must be able to instantly recall the legal effects that flow from exchange.
Key patterns to watch for:
- Questions that test whether you know the correct sequence
- Scenarios involving both buyer and seller (or buyer and lender) obligations
- Time-sensitive requirements and deadlines
- Different procedures for different property types
Common Mistakes Students Make
Students often struggle with:
- Confusing the order of steps in the conveyancing timeline
- Applying rules from different stages to the wrong scenario
- Overlooking procedural requirements
- Forgetting time limits and deadlines
Quick Summary
- Exchange of Contracts requires understanding both the law and the practical steps involved.
- Work systematically through the procedural timeline and practise applying the rules to realistic scenarios.
Want to test this now? Try a few SQE1-style questions below before moving on.
Test Yourself
Test yourself
Quick check questions based on this article.
Question 1
Scenario
A solicitor is acting for a seller in the sale of a freehold commercial property. The agreed purchase price is £450,000. The contract incorporates the Standard Commercial Property Conditions (Third Edition). The buyer's solicitor has confirmed that his client is ready to exchange and has requested that exchange take place by telephone using Law Society Formula B. The seller has instructed the solicitor that he would like to exchange today because he has already found a property he wishes to purchase and is anxious to secure the transaction. The seller's solicitor holds the seller's signed contract. The buyer's solicitor holds the buyer's signed contract and a banker's draft for a 10% deposit. The seller's solicitor has not yet received any deposit. During the telephone conversation to exchange, the buyer's solicitor confirms that he holds his client's signed contract and the deposit, and agrees to send the signed contract and deposit by first-class post that day. The seller's solicitor confirms that she holds her client's signed contract and agrees to send it by first-class post that day. Both solicitors note the agreed completion date of four weeks from today. After the call, the seller's solicitor sends her client's part of the contract by first-class post.
At what point did a binding contract come into existence between the parties?
Question 2
Scenario
A solicitor is acting for a seller of a freehold residential property. The buyer's solicitor has approved the draft contract and the parties have agreed a completion date of 28 days after exchange. The seller's solicitor holds the signed contract and the buyer's solicitor confirms by telephone at 3pm on Monday that exchange should proceed. The buyer's solicitor undertakes to send the signed contract and deposit cheque by first class post that day. The seller's solicitor dates both parts of the contract with Monday's date and sends the seller's signed part to the buyer's solicitor by first class post. The deposit is to be held as stakeholder. On Tuesday morning, the seller receives an offer from another buyer that is significantly higher than the agreed price. The seller instructs the solicitor to withdraw from the transaction. The seller's solicitor has confirmed that the contract incorporates the Standard Conditions of Sale (5th edition). The buyer's solicitor has not yet received the seller's part of the contract. The seller mentions that the buyer had been difficult during negotiations. The buyer's solicitor telephones on Tuesday afternoon to confirm that the deposit cheque has been posted.
Which of the following best describes the position regarding whether the seller can withdraw from the transaction?
Question 3
Scenario
A solicitor acts for a seller of a freehold residential property. The buyer's solicitor has confirmed that all searches are satisfactory and that the buyer's mortgage offer has been received. The parties have agreed a completion date of 28 days after exchange. Both solicitors have agreed to use the Law Society's telephone exchange procedure (Formula B). On Monday morning, the seller's solicitor telephones the buyer's solicitor and they agree to exchange. The seller's solicitor undertakes to send out the seller's part of the contract that day by first-class post. Later that afternoon, the seller tells the solicitor that he has received a higher offer from another buyer and wishes to withdraw from the sale. The seller asks whether he is now bound by the contract. The property has recently been redecorated throughout, though this is not reflected in the asking price. The deposit of 10% has been transferred to the seller's solicitor to be held as stakeholder. The seller's solicitor confirms that the buyer's solicitor gave the undertaking required under the formula during the telephone call.
Is the seller bound by the contract?
Practice with full exam-style questions
Related Topics
- SQE1 Property Practice: Complete Guide
- SQE1 Pre-Contract Stage: Searches, Enquiries and Title Investigation
- SQE1 Completion in Property Transactions: Process and Requirements
Practise Exchange of Contracts Questions for SQE1
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