Exchange of contracts
Exchange of contracts creates a binding contract; from that point the buyer holds an equitable interest and, under the standard conditions, bears the risk.
What "Exchange of contracts" covers
- Before exchange the two parts must be identical and signed, and the deposit funds must be available.
- Exchange can take place in person, by post, or by telephone using the Law Society Formulae A, B or C.
- Formula A is used where one solicitor already holds both signed parts; Formula B where each holds their own client's part; Formula C is designed for chains of transactions.
- On exchange the contract becomes binding and neither party may withdraw without being in breach.
- The buyer acquires an equitable interest and, under the SCS, risk passes to the buyer, so buildings insurance should be in place from exchange.
- The deposit (usually 10%) is paid on exchange.
- If no completion date is agreed, the SCS default is 20 working days after exchange.
Key cases & statutes
The authorities and provisions most likely to matter for this subtopic:
How it's tested in SQE1
SQE1 uses single best answer questions: a short factual scenario, one precise question, and five options of which only one is the best answer on the law applied to the facts. For exchange of contracts, expect to be asked what the correct legal position is, what a party may or must do, or which outcome follows — with more than one option looking arguable. Reading the facts carefully and eliminating the near-misses is the skill that earns the mark.
Where candidates lose marks
- Exchanging before the mortgage offer and deposit funds are confirmed.
- Failing to insure from exchange when risk has passed to the buyer.
- Using the wrong exchange formula in a chain transaction.
Learn this subtopic in the course
A video lesson, notes and exam-style practice on exchange of contracts.
FAQ
Is exchange of contracts tested on SQE1?
Yes — exchange of contracts is part of the SQE1 Property Practice syllabus (FLK2) and can appear in single best answer questions.
How is exchange of contracts examined in SQE1?
SQE1 tests it by application: you're given a realistic scenario and choose the single best answer from five options. The focus is on using the law correctly, not reciting it — knowing the leading authorities (exchange of contracts, Law Society Formula A / B / C) helps.