What is a Memorandum of Sale? A Quick Guide for Buiyers and Sellers
A Memorandum of Sale is best thought of as a clarification of the terms of a sales agreement before that agreement has been put in place. It is, in effect, a summary of intent, the terms of the seller and the agreed price, and is not, as other types of memorandums can be, a legally binding contract.
However, do not be fooled. While a Memorandum of Sale may not be binding, it is far from insignificant. Both buyers and sellers of property would do well to be well-versed in what this document is all about.
What Exactly Is It?
A Memorandum of Sale is a document that sets down all the details of a property sale. A "Memorandum of Sale" is drawn up once an exchange (a purchase) has been agreed upon (in principle). It is then sent to all the parties involved so that everyone knows exactly what has been agreed upon.
A Memorandum of Sale sets down the information that will be used as the basis of the contract of sale, so it must be accurate. Once completed (and shared with all parties), the sales process or conveyancing can start.
A Memorandum of Sale is sometimes known as a MOS for short. Memorandum is a word taken from Latin – it means a note or message which helps us remember something.
What Should be Included?
A Memorandum of Sale sounds like a complex document. It is simple. Here is what a Memorandum of Sale usually includes:
- The full address of the property that is being sold.
- The agreed purchase price. It may also show any relevant fees and any deposit paid.
- Contact details for the seller or vendor are also known. This should include name, address and phone and email contacts. (The address need not be the same as the property being sold.)
- Contact details for the buyer or purchaser. This should include their name, address and phone and email contacts.
- Details of the seller or vendor’s conveyancing solicitor or conveyancer (contact name, address, phone and email contacts).
- Details of the buyer’s solicitor or conveyancer including a contact name, address, phone and email contacts.
- Whether the buyer is a cash buyer or is buying with a mortgage.
- If you are buying a house with a mortgage, then some details of the mortgage, and contact details for the mortgage company, may also be shown on the memorandum of sale.
- Expected dates for an exchange of contracts and then the completion of the sale. These dates may be set as a target only, such as 28 days ahead, and are not usually binding.
- Whether the property is freehold or leasehold: leasehold property should state the number of years remaining on the lease in the contract.
- There should be a statement as to whether legal ownership of the property has been checked.
- The title number of the property is registered with HM Land Registry.
- Details of any legal issues that are known about that might affect the sale. For example, if the property is subject to probate or is occupied by a tenant.
- Physical items. For example, fixtures and fittings that are included (or excluded) as part of the sale.
- Any special conditions of sale. For example, if the property is being sold through an auction.
- Any other relevant information: for example, the status of the buyer. This could be whether they need to sell another property before they can buy this one (if a chain is involved).
Generally speaking, you don’t need to sign the memorandum of sale.
There is no standard format for a memorandum of sale (and no dedicated form). Documentation may present the information above in any order and may contain additional information.
Who Draws It Up?
It is (usually) the seller that provides the memorandum of sale, although any party to the transaction can do so.
If your property is sold through an estate agent, they usually draw up the memorandum of sale. If selling through an auction, the auction house will do it. If you sell to a house-buying company, they will do it to help speed up the process.
A memorandum of sale can be drawn up immediately: as soon as everything is agreed upon. It should usually be produced in less than a week, but it can take much longer if an agent is slow or if some of the necessary information isn’t available.
The memorandum of sale can be on paper or in a digital format.
Is It Binding?
A memorandum of sale is not a sales contract, as such. It does not mean that the property has sold. Indeed, a memorandum will usually be conditional on a further contract.
However, the information in the memorandum of sale will be used to prepare the legal contract of sale. So all the details in it must be correct. If anything is wrong with the memorandum of sale (or should anything change), you should inform the other parties immediately.
Even after a memorandum of sale has been issued and exchanged, a property sale can still fall through. The parties to the sale can change their minds if they want to without penalty. This might happen if the buyer’s house sale falls through or they decide to offer less money. It might happen if they cannot raise money or the involved parties decide (in the end) not to transact for whatever reason.
What Happens After?
Once the memorandum of sale has been produced and exchanged the conveyancing process or legal sales process can begin.
The seller’s solicitor or conveyancer will prepare a draft legal contract of sale using the information on the memorandum of sale and other sources of information. The buyer’s solicitor or conveyancer will check the contract of sale and make other checks that are needed for the sale to complete.
At the same time, other tasks will be carried out depending on the nature of the sale. For example, a survey may be conducted, legal searches will be carried out and the mortgage will be processed. Again these will rely on the information provided in the memorandum of sale.
The seller will usually need to provide other information about the sale by completing a fittings and contents form (known as a TA10 form) and a property information form (known as a TA6 form) and possibly other forms.
Once both the buyer’s solicitor and seller’s solicitor agree that everything is in order, they will mutually agree on a date to exchange contracts and then to complete the sale. Exchange of contracts is usually when the sale becomes final. Completion is usually when the purchase price is paid and the buyer takes possession of the property.
Be aware of the differences when selling a property at auction. With an auction sale, the sale legally completes on the fall of the hammer. So the memorandum of sale is actually completed after the sale, not before it.
The most common problem with a memorandum of sale is that it is not produced quickly enough. A property sale cannot proceed without a memorandum of sale having been drawn up. If the memorandum of sale is delayed the property sale will be delayed.
A memorandum of sale can be produced immediately that the sale is agreed in principle. That is when an offer is made by a buyer and is accepted by a seller.
Sometimes, however, there can be delays. Reasons can include if either buyer or seller does not provide the necessary information quickly. Or if a buyer makes an offer but then begins to change their mind.
A memorandum of sale can also be delayed where an estate agent is involved – such as if the estate agent has a large backlog of work, this sale is not a priority for them or is simply slow.
You can help to make sure the memorandum of sale process goes as quickly and smoothly as possible by collecting together information about your house sale in advance.
In simple terms the faster the memorandum of sale is produced and exchanged the faster your property will be finally sold and the faster you will receive the money!