Whether you’re considering putting your home on the market, looking for a fast property sale, or are already in the process of selling your property, chances are you’ve heard of a memorandum of sale. But what does it actually mean? The term sounds very official and is often thrown around by estate agents who assume that clients know what it means. The majority of people however, don’t. Have no fear! We’ve put together a detailed guide to get you up to speed and help you answer questions like: what is a memorandum of sale? What does a memorandum of sale contain? Is a memorandum of sale legally binding? And more. Read on..
Memorandum of Sale meaning
In very simple terms a memorandum of sale is a document that details the ‘sale agreed’ portion of a property purchase. It is literally a record of the sale and purchase particulars of a property that is yet to take place. A memorandum of sale acts not only as a confirmation of the sale (although not legally binding) but also as a source of information for mortgage advisors and solicitors to start the application and legal processes associated with a sale.
What does a Memorandum of Sale contain?
The memorandum of sale is a written confirmation of the important detail of a property transaction and is typically sent via email or post to solicitors representing the buyer and seller. In the majority of cases the memorandum of sale contains the following critical details:
- The agreed cost of the property
- The property address
- Contact details for both the buyer and seller
- Solicitors’ details for both the buyer and seller
- Whether the property is a leasehold or freehold. If the property is a leasehold, the memorandum should contain some details about the lease
- If the sale is a quick cash property sale
- The deposit amount
- If applicable: the mortgage lender
- The land registration number of the property
- Details of any property chain the buyer and seller might be involved in
- Details of the proposed timescale for contract exchange and completion. These dates are used as an indication, and are not binding.
- A statement as to whether legal ownership of the property has been checked
- Special conditions of sale, which covers things like fixtures and fittings to be included as part of the sale
- Any other special conditions or remarks. For example if the sale is an auction sale, additional details may be required.
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Why is a Memorandum of Sale important?
The memorandum of sale is important because it provides confirmation that the property sale has been agreed upon by the buyer and seller. It is an official document that allows the estate agent or seller to take your property off the market. This is important for the buyer as it reduces the chances of being ‘gazumped’.
The memorandum of sale also gives third parties (such as mortgage lenders and solicitors) the information that they need to put things in motion with regards to mortgage applications, legal proceedings and so on.
Essentially the signing of a memorandum of sale is the first important step of the buying and selling process. It’s a precursor to the final contract and acts as a consolidated source of information to coordinate across various parties.
When is a Memorandum of Sale issued?
A memorandum of sale should be drafted and circulated by the estate agent or cash house buying company as soon as the offer is made and accepted verbally. The memorandum is typically drawn up in less than a week, although there are instances where estate agents can be slow at this stage and cause delays to the sale of a property. The memorandum is not legally binding at this stage and is still subject to negotiation and change.
Who issues the Memorandum of Sale?
Typically the seller of the property, although this is not a formal requirement and any party can draw up the memorandum. It depends on the route to market you’ve taken. If you’re selling using an estate agent then they will normally draft and circulate the memorandum of sale. If you are selling your property to a cash house buyer then the company may complete and circulate the memorandum on your behalf to make the process quicker and easier. Auctioneers will typically draft the memorandum at the auction sale. Memorandums of sale can be sent either digitally or on paper.
Is a Memorandum of Sale legally binding?
The Memorandum of Sale is not a contract of sale and so it does not mean that the property has been sold. They are usually issued ‘subject to contract’ and so acts only as a written confirmation that the sale price has been agreed.
This doesn’t mean that the document is insignificant however. As well as allowing the property to be removed from the market and providing third parties with the information they need to get the house selling process moving forward, the memorandum of sale forms the basis of the legal contract of sale. This is why it’s critically important that all of the details are correct. All parties need to be kept informed if there are any changes to the document which could have an impact on mortgages or contracts.
So, whilst the memorandum isn’t legally binding, and sales can still fall through after it has been issued, it is very important to the rest of the process!
What happens after the Memorandum of Sale?
After the memorandum of sale has been drafted and circulated and all parties are in agreement, the conveyancing process begins! This usually follows the following steps:
- The property will be marked sold subject to contract (SSTC) and removed from the open market.
- Buyer eligibility checks will be conducted to ensure that the buyer is still in a position to be able to complete the purchase. Usually this will be evidence of a mortgage proposal in the last two months (agreement in principle or decision in principle), although sometimes proof of deposit will also be requested.
- Your solicitor will require some details from you. The TA6 form (property information form), the TA10 form (fixtures and fittings form) and, if your property is leasehold, the TA7 form (leasehold information form) will all be requested.
- Next, there will be a number of mandatory searches executed against the property:
- Searches for the title register and title plan: These are usually stored with the Land Registry online and act as proof of ownership.
- Local authority searches: This tells you about upcoming plans or things to watch out for in the local area which may impact the property
- Water, Environmental, Chancel Repair, Mining, Brine or Common Registration: These give you information about the water authority, any environmental factors that you may need to consider, and a range of other information that may need to be taken into account.
- Surveys will then be conducted. There are a number of possible surveys, but the main ones should be done by an expert from the Royal Institute of Chartered Surveyors (RICS). These surveys are:
- RICS General Condition Report: this is a minimum requirement for most mortgage providers. It is a general survey that does not go into minute detail, generally taking around an hour or so. This is sufficient in the majority of cases however isn’t appropriate for a property that is in critical condition or has subsidence.
- RICS Homebuyers Survey: this is a much more detailed survey that reveals structural issues such as damp, japanese knotweed, and so on.
- RICS Structural Survey: this is the most detailed survey that buyers can request. It’s generally more expensive and the surveyor will produce an exhaustive report on the property.
- Finally it’s time to exchange contracts and complete the sale. A Transfer (TR1) form will be sent and you will be required to sign it and send it back. Once contracts on both sides have been signed the sale will become legally binding. This step seems simple but can often take a significant amount of time, which is why many sellers choose to use a cash house buyer like SmoothSale. SmoothSale can commit to giving you cash for your property in as little as 7 days or in a timeframe that suits your onward plans.
What causes a Memorandum of Sale to fail?
Sales can fall through for a number of reasons, some of the most common are:
- Expiration of Mortgage offers
- People changing their minds
- Delays in document completion
- Issues surfaced by property surveys
- Slow instruction of solicitors
- Lack of funding by any involved party
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How can I get a free Memorandum of Sale template?
Look no further! Here at SmoothSale we pride ourselves on removing stress from all aspects of the property sale process, and this is no different. If you’d like to download a free memorandum of sale template to use in the sale of your property, click here.
To wrap up what we’ve covered in this memorandum of sale guide:
- A memorandum of sale is a document that details the sale agreement between the buyer and seller of a property
- It’s typically drafted and circulated by the seller or their estate agent, however this may not be the case if you’re using a cash house buyer like SmoothSale, who will do this on your behalf to save you time and effort
- The memorandum is not legally binding, but is an important document to progress the sale and draw up mortgage applications and contracts for sale
- The memorandum of sale should be drawn up within a week of verbal agreement of price, although estate agents are often slow at this stage and can cause delays
- If you are selling your property yourself, you can download our free memorandum of sale template here!
What is the purpose of a Memorandum of Sale?
The Memorandum of Sale serves as a preliminary agreement outlining the key terms of a property transaction, providing a foundation for the final Sales Agreement.
Is a Memorandum of Sale legally binding?
No, the Memorandum of Sale is not legally binding on its own. It serves as a precursor to the legally binding Sales Agreement.
How does it differ from a Sales Agreement?
While a Memorandum of Sale is a preliminary agreement, a Sales Agreement is the final, legally binding contract that solidifies the property transaction.
Can a Memorandum of Sale be amended?
Yes, a Memorandum of Sale can be amended, but it’s essential to follow legal procedures and ensure mutual consent from both parties.
What happens if there’s no Memorandum of Sale?
Without a Memorandum of Sale, the property transaction may lack clarity, leading to potential disputes and complications.
How to ensure a valid Memorandum of Sale?
To ensure validity, involve legal professionals, double-check details, and ensure mutual understanding and agreement on all terms.