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The Pain of a Chain

Reasons to choose Wilson Browne

One of the hardest things about any sort of transaction is understanding the terminology involved.

Especially with legal jargon, the words themselves may be deceptively simple, but carry far greater connotations. “The chain” is a key example of this. It seems straightforward enough, but when you go into further detail there’s a lot more to be understood. So what exactly is a property chain, and how can this affect your transaction?

What is a property chain?

When used in conveyancing terms, a property chain is a sequence of linked transactions. It is most common in residential property, as many people will use the proceeds of a house sale to fund the purchase of a new one. This is known as having a related sale or purchase. The chain begins with whomever is buying a property but has no sale (for instance, a First Time Buyer), and ends with a seller who is not purchasing a further property. All the parties who may or may not exist in between these two form the links in the chain.

The whole concept of a property chain is based on the premise that a sale must always precede a purchase. A chain should therefore be understood as moving vertically. If you are buying and selling a property, your buyers will be “below” you in the chain, and your sellers are “above” you. The bottom is where the chain begins (as mentioned above), and it ends at the top.

What issues can chains cause?

Many of the issues which can be caused by a property chain depend on its length. Importantly, there is no limit to how long a chain may or may not be. A property transaction could be chain free, meaning that there are only two parties involved and neither have a related sale or purchase. Or, it could be one of many linked together.

Your estate agent should inform you if there is an upward chain (i.e. whether the seller has a related purchase) on any property you are looking to buy. If you are also selling a property, then it might be a good idea to ask your buyers if they have a related sale too. But even still, the full length of a chain might not always be clear from the outset.

It is generally agreed upon that the longer the chain, the more difficult things might be since there are more parties involved. A delay on one matter could affect the entire chain, and lead to further complications. Consequently, there is nothing more important than clear communication when dealing with a property chain, regardless of its length. Making sure that all parties are at similar stages of progression will help ensure that everything runs smoothly. However, this might not always be as easy as it sounds.

A key mistake made by many is assuming that their solicitors can contact all parties involved. Due to conflict of interest, however, your conveyancer may only correspond with those involved directly with your transactions. So for example, if you are link number three in a chain, your conveyancer will only deal with the solicitors acting for links number two and four. They are not strictly prohibited from contacting those further down or above you, but there is no legal obligation for the other solicitors to speak with them (and many may refuse to do so).

The purpose of this arrangement is to protect the interests of the client – a.k.a. you – from undue influence or pressure.

How can I (the client) help?

Entering into a property chain when buying and selling is often inevitable. Unless you are in a position to be picky and have multiple offers on the table, it is unlikely you will be able to avoid it. That being said, property chains are not the conveyancing equivalent of Armageddon (if they were, nobody would ever move house!). Here are just some of things that you as a client can do to keep things progressing smoothly:-

  • Get your finances in place early: reaching the point of exchange only to find that your buyers’ buyers still don’t have a mortgage offer is frustratingly common. It is advisable to have a mortgage agreed in principle before you make an offer on a house. This will avoid any “nasty surprises” later on. Similarly, if you are a cash buyer, then make sure you have all of your paperwork in order to make it easier for your conveyancer to check your source of funds.
  • Return all signed paperwork on time: this is another common factor when it comes to delays in property chains. If you are sent something to sign by your solicitor, then don’t leave it lying around on the kitchen table until the very last minute. Here at Wilson Browne, as soon as the Contract and Transfer are approved we will send them to you for signing to avoid any delays, and we won’t exchange contracts if we haven’t received them back.
  • Stay up to date: if you aren’t sure what needs to happen next on your sale or purchase, then ask. Likewise, if you can’t remember whether you were meant to sign and return something, or think you may have mislaid a document, let your conveyancer know so they can send you a new copy.

Impact on Completion and Breaking the Chain

Without doubt, the hardest thing concerning long chains is getting all parties to agree a completion date. Every link in the chain must complete on the same day, and the longer the chain, the greater the risk of delay regarding transfer of funds. If purchase monies are not received on the agreed completion date, this will constitute a breach of contract. The buyers will be charged interest at the Contract Rate until the funds are received by the sellers and, more importantly, the keys to the property will not be released until the funds are received.

If the matter then fails to complete at all, the sellers will be entitled to retain the deposit paid by the buyers (this is usually 10% of the purchase price). This only happens, however, if contracts were exchanged first. Henceforth, exchange can only take place once the whole chain agrees on a completion date. This is another reason why communication is so important.

If you are part of a big chain, and know from the beginning of a particular date that you need to complete by then you must make your conveyancer aware of this. Likewise, it is inadvisable to verbally agree a completion date with either your buyers or sellers until you have spoken to your solicitor first.

The good news is that transactions failing to complete because of chain complications is very rare. The worry of them doing so, however, is understandably more present. This can sometimes pressure people into making hasty decisions without prior consultation, such as offering to break the chain. This is a term that is frequently misunderstood by clients. In short, breaking the chain means that you are agreeing to separate your purchase and sale. In other words, they will not complete on the same day.  Most commonly, chain breakers will sell their current property in sync with the rest of the chain, and then purchase their new home at a later date.

What is most important to understand, however, is that by breaking the chain you are effectively making yourself homeless. Furthermore, there is no way to set a time limit on how long you break the chain for. Once broken, the chain is broken. Your purchase then becomes an entirely separate transaction, not a continuation. Accordingly, it is likely that during this interim period you will find yourself paying not only for temporary accommodation, but also the storage of all your furniture.

Do not forget – selling with “vacant possession” includes items as well as people. And if complications arise, you could find yourself in this situation indefinitely. The same applies even if you decide to purchase a property via a bridging loan before selling your current one. Interest rates and upfront fees are likely to be payable, and could increase before completion takes place. It is therefore vital that you consult your conveyancer before making any offer to break the chain so they may advise you accordingly.

Conclusion

Overall, chains are an inevitable aspect of conveyancing, especially in residential property. And whereas they can sometimes complicate things, it is important to note that they are not the be-all and end-all. As conveyancers, we deal with chains every single day.

We know what issues might arise, and so we do our best to avoid them by ensuring that everyone works together and is on the same page. This includes other solicitors, estate agents, and of course the clients themselves. So if ever you have any queries or concerns about property chains, the best thing you can do is raise this with your conveyancer.

If you would like more information on property chains, or are thinking of buying or selling a residential property, then please do not hesitate to get in touch with one of our conveyancers.