Memorandum of sale
After viewing a property, the buyer may make the seller an offer. The offer can either be for the advertised price or lower. If the seller accepts the offer, then both buyer and seller move to the next stage of the transaction where each informally agrees with the terms of the other.
The memorandum of sale – sometimes called the notification of sale – records the fact that both the buyer and the seller of a property have come to an agreement about price (and possibly other terms) that would allow the exchange to go ahead.
It’s important to note that the memorandum of sale is not a legally-binding document. All the memorandum of sale does is record the terms under which both parties initially agree to complete the transaction. It does not demand that the sale must go ahead – new information about the property could come to light in the interim.
Memorandum of sale documents, for instance, can including information about the timing of the transaction or additional conditions the buyer might attach to the property. The document, for example, could stipulate that for the buyer to agree to the sale of a property valued at £300,000, the seller must vacate the property before June 1st. If the seller cannot leave the property by that date, then the terms of the transaction are liable to change.
Similarly, the buyer might agree to buy a house for £300,000, but only if the seller includes fixtures and fittings. The buyer, for instance, might insist that the blinds, shower units, and kitchen cabinets remain. If they don’t, then the transaction is void.
The Exchange Of Contracts And The Memorandum Of Sale
The memorandum, as discussed, is not a legally binding document. It’s a sort of informal agreement – a notice that each party can agree on before the sale completes. The exchange of contracts is the legally binding stage – the part where both parties submit to the sale and can’t have a change of heart. Once the exchange of contracts takes place, the seller must sell, and the buyer must buy.
Between the memorandum of sale and the signing of contracts, several things can happen.
First, the buyer may decide that they want a house survey. The survey could throw up additional issues – such as problems with the foundations – and provoke the buyer to ask for better terms, like a lower price.
Second, the buyer may get a mortgage valuation to determine that the property is worth what they’re paying for it. If the valuation professional thinks the house is worth less than the person wants to pay, then they will refuse the grant the mortgage, and the buyer will need to renegotiate the price with the seller.
Only once both parties sign the contract on the advice of their solicitors does the sale become binding.