What does 'Draft Contract' mean when buying a property?
Find out what Draft Contract means when you are buying a property. 'What does Draft Contract mean?' plus over 150 other property related terms and jargon in plain English
You've agreed to buy the property, the seller has agreed to sell so surely you just need the contract, why is it only a draft version?
In the final mountain of paperwork that makes up a property transaction the contract is a short document which says little more than I am buying from you and you are selling to me and it will all happen for £X on this date.
All the other stuff like does the seller have the right to sell and what actually is the property (boundaries, leasehold or freehold, etc.) are in the mountain of paperwork. You're only meant to sign on the dotted line of the contract once you've worked through all the other documents and found nothing of concern.
There is one clear reason why all contracts are drafts at the beginning. The contract includes the date of when the transaction will actually take place.
Now there are stacks of reasons why no one knows that. You might need to get a mortgage organized. If you are buying a leasehold property you might want to see the service charge payments for the last few years to check how much it costs to live there. You'll want to be sure the seller actually has the right to sell by seeing the title deeds of the property. You might want to know if any of your neighbours have applied for planning permission to build huge extensions that will block out your sunlight or if there is a plan to build a railway tunnel 20 feet below your future living room. And so on.
Without a date its not a final contract, its a draft.
That STC thing
This is also why you might have noticed that the estate agent has not changed the status of the property to "Sold" on their website but to "Sold Subject to Contract" - sometimes "Sold STC".
Yes, the property is being sold to you but that is only if you and the seller sign a finalized version of the contract.
There are also other reasons why it is a draft.
You might want to add some conditions. Let's say you are buying a leasehold flat and its emerged that the freeholder is planning some major renovations to the building but he hasn't finalized the costs yet. That could be expensive so you might want to add that if the costs are more than £Y the seller will pay a contribution of £Z. That'll need to be added to the contract.
Then there is the price. It's on the draft contract but what if your checks show the property has £5,000 worth of rising damp that wasn't obvious when you looked round the place. You and the seller might agree to split the difference but that means the price needs to be changed.
Solicitors can also get a bit petty. The seller's solicitor sends out a contract but your solicitor might not like the exact wording - or they say they don't as a way of proving that they actually read it. There are industry standards for these documents but solicitors also have their own favourite versions even if they differ only fractionally.
When a draft contract becomes a contract
Only once all the other paperwork is in order, the date of the transaction is agreed and both you and the seller have signed it does it become a "contract" rather than a "draft contract".
However, hold on to your horses, it is still not legally binding. Not until your solicitor has received a copy from the seller's solicitor with the sellers signature on it and the seller's solicitor has received a copy from your solicitor with your signature on it. This is known as "Exchange of Contracts" or more informally 'Exchange'.
In reality, buy the way, it doesn't work strictly like this. Contracts can have been physically exchanged but the final step is usually carried out during a 'phone call between the two solicitors when they agree verbally that the exchange is valid.
So when someone says "We hope to exchange next week" this is what they are referring to ... but it doesn't mean they are moving in just yet!
Exchange is when the contract becomes a legally binding one. Up until this point both you and the seller had the right to walk away so booking removal vans and whatnot might have been a false expense.
Traditionally contracts are exchanged with the actual date of the transaction (known as 'Completion') being 7 days in the future to give people time to pack! However it can be much longer than that, months, or it can be instant (known as "Simultaneous Exchange and Completion")
Even after contracts have exchanged your property is still being listed as "Sold Subject to Contract" - why?
Well 99% of the time its simply because you haven't paid for it yet. At exchange you might have paid a 5 or 10% deposit but the balance is usually paid on the day you move in and the seller moves out - this is defined on the contract.
You haven't paid yet so the property is yours (in a very legally binding way) from a specific date "subject to you paying the balance as defined in the contract" or to shorten it "subject to contract".
Depending on the complexity of the deal the contract may also include some other obligations that fall due between exchange and completion but they're rare.
To get all the ins and outs of the contract and other paperwork involved in a property purchase pick up a copy of my ebook How to Really Buy a Property.