The Charged Deposit and the Chain That Broke
You act for Priya and Tom, buyers of 14 Ashgrove Terrace, a freehold registered title. Exchange is set for Friday. On Wednesday the sellers' solicitor discloses a charge registered against the title in favour of a private lender, securing a £60,000 loan. The sellers say the lender has 'agreed in principle' to release but no undertaking or DS1 has arrived. The buyers' mortgage offer expires in 21 days and requires vacant possession. The sellers want to complete in 10 days but have not yet booked removals. The buyers have already paid you £4,000 on account and their lender has released funds to you for completion. The deposit is 10% of £385,000. The buyers are anxious but want the house.
1. Should you exchange contracts on Friday? Identify the risks and the protections you would insist on before exchange.
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Exchange should not proceed on Friday on the current facts. The registered charge is a subsisting third-party interest; on completion the buyers take subject to it unless it is discharged. A promise that the lender has 'agreed in principle' is not an undertaking and does not bind the lender. The risk is that completion monies are paid but the charge survives, leaving the buyers with a secured debt of £60,000 and a lender in possession of a title it expected unencumbered.
Insist on one of: (a) a written undertaking from the chargee's solicitor to discharge the charge on completion and to deliver a DS1 (or executed discharge) at completion; or (b) a solicitor's undertaking to redeem from completion monies and provide the DS1 within a stated period. Also require an updated official copy and priority search (OS1) to protect the buyers' position. Do not release completion funds to the sellers' solicitor without a clear undertaking to redeem and account. If the chargee will not commit in writing before Friday, exchange should be delayed, even at the cost of the mortgage offer.
2. The mortgage offer expires in 21 days. How does this constraint affect your advice on timing and risk allocation?
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The 21-day expiry is a hard deadline that should drive the timetable, not be traded against title risk. Completion in 10 days is achievable only if the chargee's undertaking and DS1 are secured first; a 10-day completion that leaves the charge undischarged is worse than a 20-day completion that clears it. Advise the clients that the safe sequence is: obtain the undertaking and DS1, exchange with a completion date inside the offer window, and complete with redemption of the charge on the same day. If the sellers cannot commit to that sequence, the buyers should seek an extension of the mortgage offer in writing before exchange. Do not exchange with a long-stop date beyond the offer expiry without a confirmed extension; otherwise the buyers face a funding gap and potential breach of contract.
3. The buyers have paid £4,000 on account and the lender has released funds to you. What is your position on holding and using those funds before exchange?
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Funds held on account and mortgage monies released before exchange must be held to the buyers' order and not applied to the purchase until exchange creates the enforceable contract. Mortgage funds released early are typically subject to the lender's terms; using them before exchange risks breaching those terms and exposing you to a claim if the transaction aborts. Keep the £4,000 and the mortgage advance in the client account, clearly identified, and do not release any part to the sellers' solicitor before exchange. On exchange, apply the 10% deposit (£38,500) from the buyers' funds as contractually required, and hold the balance for completion. If exchange is delayed, notify the lender and confirm the funds can remain held; if not, return them.