Should access be given between exchange and completion?

In conveyancing transactions, it is not uncommon for buyers to request access to a vacant property between exchange and completion. This may be for various reasons such as wishing to start renovations early, wanting to store personal belongings, or there is a need to move in earlier. Whilst accommodating such requests may appear to be an amicable gesture, granting early access to the property has implications for both the seller and the buyer and careful consideration should be taken before proceeding.

From a seller’s perspective

A seller should take note of the following practical points:

1. The buyer may default: If access is given to the buyer to start renovation works after exchange of contracts but the buyer subsequently fails to complete, the seller may be left with a half-finished property.  This may lead to the seller incurring additional time and expense on rectifying the unfinished works before remarketing the property.

2. Property damage: There is a risk that the buyer may damage the property between exchange and completion if access is granted. If the buyer then fails to complete, the seller may be left with a damaged property. Although the seller may be entitled to forfeit the buyer’s deposit as a result of their breach of contract, there is a possibility that the deposit may be insufficient to cover the damage caused.

3. Eviction issues: The standard conditions of sale, which are usually incorporated into residential property transactions, provide that if the buyer is permitted to occupy the property between exchange and completion, it will be a licensee and not a tenant. The buyer will be required to quit the property when the licence ends, which is on the earliest of the following: (a) the completion date, (b) the rescission of the contract or (c) when five working days’ notice is given by one party to the other to terminate the licence. 

However, once the buyer occupies the property it can refuse to leave irrespective of the position under the standard conditions. The buyer may also refuse to complete the purchase whilst occupying the property.  Whilst the seller may pursue the buyer for breach of contract if they fail to complete after exchange, it is illegal for the owner to physically remove anyone from their property. The seller will therefore need to apply for a court order in order to evict the buyer. Litigation is not a quick process and will be an additional expenditure that could have been avoided if occupation was not permitted in the first instance.  This risk similarly applies if the seller lets the property to the buyer between exchange and completion under a tenancy agreement (rather than a simple licence). Additionally, the seller will be subject to obligations of a landlord under a tenancy, which is beyond the scope of this article.

4. Mortgage conditions: If the seller has a mortgage secured on the property, they will need to obtain their lender’s consent before allowing the buyer to occupy the property or carry out works to it before completion. Failure to obtain the lender’s consent would likely put the seller in breach of its mortgage and depending on the terms of the loan, the lender may be able to demand immediate repayment.

5. Insurance: There may be insurance implications. Sellers should consult their buildings insurance provider to clarify whether allowing the buyer access to the property between exchange and completion would affect their existing insurance policy.

6. Utilities: Sellers should consider who is responsible for the cost of the utilities if access is granted to the buyer between exchange and completion. 

Although the likelihood of a buyer failing to complete after exchange of contracts is relatively low given that their deposit may be forfeited by the seller, the risk remains nonetheless. Sellers should therefore treat any requests for access from buyers before completion with caution.

Key undertaking

If the seller is minded to give early access to the buyer to carry out refurbishment works between exchange and completion, they are advised to enter into a formal key undertaking agreement with the buyer. This agreement will be negotiated by the parties’ solicitors and will usually contain a number of conditions including what works can and cannot be done; consequences if the property is damaged; a requirement for the buyer to indemnify the seller; confirmation that access will not confer on the buyer any occupancy or proprietorship rights; insurance requirements; and provisions on the collection and holding of the keys. There is no standard form of key undertaking and each will be specific to the transaction at hand. 

From a buyer’s perspective

Parties may consider that sellers are more at risk in allowing buyers access to their property between exchange and completion. However, there are also risks for buyers:

1. Seller remains the owner: Although a buyer will have an equitable interest in the property between exchange and completion which is capable of some protection, the seller remains the legal owner of the property until completion. If the buyer enters the property and carries out works to it between exchange and completion, it will be at risk of spending money on a property before it is legally theirs. If the seller then defaults and fails to complete the sale of the property, the buyer will have lost the money it incurred in carrying out works to a property which does not belong to them.  Whilst the buyer may endeavour to bring a claim against the seller for damages, litigation can be costly and time-consuming and success is not guaranteed.

2. Stamp Duty Land Tax: Buyers should be careful that if they “take possession” of the property before completion, there will be Stamp Duty Land Tax (“SDLT”) implications. SDLT is generally payable on completion of a land transaction. However, the requirement to pay SDLT (and file a return with HMRC) may be brought forward where a contract is “substantially performed” before completion. Contracts are “substantially performed” on the earlier of the buyer: (a) taking possession of the whole (or substantially the whole) of the property; (b) paying a substantial amount of the consideration (generally accepted to be 90%); or (c) making the first payment of rent.  
In the case, Goldsmith Ltd and another v HMRC [2024] (“Goldsmith”), the parties agreed that the buyer could have early access to the property between exchange and completion to carry out conversion works, subject to several conditions. The First-Tier Tribunal (“FTT”) considered whether early access before completion resulted in the buyer taking “possession” of the property, such that the contract had been substantially performed and therefore SDLT was payable before completion.  The FTT found that the contract was not substantially performed as the buyer did not take possession and one of the key reasons for the judge’s decision was that buyer could only carry out works at certain times on certain days and was required to return the keys to the seller at the end of each day under the terms of the contract.

Although the judgement in Goldsmith was only a First-Tier decision and therefore not binding law, useful guidance was given by the FTT as to what constitutes “taking possession”, leading to substantial performance of the contract and triggering SDLT liability before completion. The FTT judge stated, “not every entry will constitute taking possession… ‘taking possession of the subject matter of the contract’ requires the buyer to go into occupation of the property as if they had become the owner at that point. They may have to comply with conditions or limitations under the contract, lease, licence or other agreement, but there must be an element of freedom to occupy as and when they wish, including all the time, a right to any rents from the property”.  

To avoid inadvertently triggering an SDLT liability through substantial performance of a contract, buyers who are intending to carry out works to the property or occupy it prior to completion are advised to seek advice from a solicitor specialising in SDLT before proceeding.

3. Insurance: Under the standard conditions of sale, the risk of the property passes to buyers on exchange of contracts; therefore buyers are usually advised to put in place buildings insurance on exchange of contracts. Should buyers require access to the property between exchange and completion, they should ensure that the insurance policy provides cover for access to the property and the carrying out of works before completion.

Conclusion

Ultimately whether or not to allow the buyer access to the property between exchange and completion is a commercial decision for the parties to make.  Whilst a number of the above risks for the seller and the buyer can be mitigated somewhat through negotiating additional contract provisions, contract clauses can only provide so much protection. In light of the potential risks and implications involved, both the seller and buyer are advised to consider the position carefully and should seek legal advice early on from an experienced solicitor.  Should the seller wish to allow the buyer early access, it will be important to enter into a formal key undertaking before proceeding.