What is a Memorandum of Sale?
A memorandum of sale is written confirmation of a property sale. It’s used to record the property sale and show it’s been agreed subject to contract by the seller and buyer.
The document is simple without a large amount of legal jargon. This is drawn up by an estate agent, auctioneer or home buying company after the sale is agreed. Once drafted, this is passed onto the conveyancers representing the buyer and seller.
In this article, we review why the memorandum of sale is an important document, what it’s used for and what it includes.
How Important is the Memorandum of Sale?
Every house sale requires a memorandum of sale or “notification of sale”.
Signing this document will act as a precursor before the final contracts are drafted and exchanged. It will act as written evidence that an offer has been accepted on the property.
Whilst a memorandum of sale is not legally binding, it’s still an important step in the buying and selling process. Under UK property law, a sale is only binding after the exchange of contracts or missives in Scotland.
However, the seller’s conveyancer will only draft the contract once the memorandum of sale has been received. It is therefore essential to the legal process and a key part of your official mortgage application.
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Who Provides It and How Long Does It Take?
The document is drawn up by either the seller’s estate agent, auctioneer or home buying company.
The memorandum of sale is usually drafted as soon as possible, typically within a few days, following a verbal agreement of the sale. It’s then sent via email or through the post to the solicitors of both parties.
A memorandum of sale can take longer if the party responsible for drafting the document does not have all the necessary information. To ensure the process moves quickly, it’s recommended that you have all the relevant documents prepared beforehand.
What Does It Contain?
The memorandum of sale document contains essential information about the property sale, the sale agreement and any special conditions. This includes:
- Name and contact details of the buyer
- Name and contact details of the property seller
- Solicitor contact details for both the buyer and the seller
- The full address of the property in question
- Details of the tenure, lease (freehold or leasehold) and any special conditions, such as planning restrictions or specified rights concerning the land.
- The agreed price for the property
- The proposed deposit percentage and amount
- If it is an auction sale or sealed bid, information as to the date of the exchange should also be included.
What Can Cause a Memorandum of Sale to Fail?
There are several issues that could cause the memorandum of sale to fail, thus resulting in the transaction falling through. These include:
- A collapse in the property chain
- The process is too slow
- Delays in documentation
- Lack of funding
- An expired mortgage offer
- Bad survey results
- Gazumping or gazundering
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What Happens After the Memorandum of Sale?
It’s at this point that the conveyancing process gets underway and a property survey can take place. After the memorandum of sale is drawn up and signed, there are a number of steps to take before exchanging contracts and completing the sale:
1. Buyer Checks
As part of the conveyancing process, the buyer’s solicitor will check their financial position. This includes whether the buyer has obtained an agreement in principle (see below) and can also include proof of the deposit funds. The conveyancer will need to make additional checks if the deposit is gifted.
2. Formal Mortgage Application
At this point, you should have had a Mortgage Agreement in Principle from your chosen mortgage provider and can now officially apply for a mortgage.
3. Surveys
A buyer has the option of organising a survey to ensure it is a sound investment. Usually, you’ll be choosing between either an RICS Home Survey Level 2 (homebuyer survey) or an RICS Home Survey Level 3 (building survey).
The survey results will give the buyer an overview of the property’s condition and any work or repairs it may need. If this is the case, the buyer may wish to negotiate the price of the property. It's common for a buyer to try to renegotiate an offer, so be aware of gazundering.
4. Conveyancing Searches
Your conveyancer will organise relevant searches and surveys on your behalf.
Local Land Charges searches are an essential part of the conveyancing process. The results of these searches can inform buyers of essential information about the property and surrounding area. This includes ensuring the property is not in a flood risk area, near contaminated land or at risk of subsidence.
5. Exchange of Contracts
As the final step before completion, contracts are signed and exchanged. It’s at this point that the sale becomes legally binding and any party which backs out of the sale will likely face penalties.
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How Long From the Memorandum of Sale to Completion?
From the point where the sale is agreed, the house buying process takes on average 2 - 3 months in the UK.
However, this can vary greatly, especially if you’re part of a property chain where a line of transactions depends on each other. Any delay will then impact the parties within the chain.
