what does contract rate mean?

arwalder

Hi,
I'm in the process of purchasing my first home I have just received a document from the solicitors headed:

Agreement incorporating the standard Conditions of Sale, one of the titles is:

Contract rate: 4% per annum above the base rate of national Westminster Bank Plc on the completion date.

What does this mean? - Any help is greatly appreciated

Hippychick

It means that if for any reason completion is delayed after exchange the contract rate is the level of interest payable by the party who hasn't completed to the other party. (calculated daily for each day completion is delayed)

The rate is calculated as a percentage of the purchase price so in this contract it is 4.5% (assuming Natwest is same as BoE base rate)

eg. if you are buying for 100k the annual interest payable is £4500 if you divide that by 365 days a year then £12.33 is payable for each day that completion is delayed.

franklee

If after contracts have been exchanged either side fails to complete then that is the rate at which they get charged. See here:

http://freeconveyancingadvice.co.uk/contracts_for_conveyancing.html

"Contract Rate

Once contracts are exchanged, should either party fail to complete on the completion date, then the non-defaulting party is entitled to claim interest from the defaulting party for every day (including non-working days) that completion delayed, at the contract rate. This rate is generally between 4% and 5% above the base lending rate of the seller's solicitors bankers. A rate any higher than this should not be accepted. The daily rate of interest is calculated using the following formula :- ((sale price/100)*contract rate)/365."

arwalder

Fantastic! thats cleared that one up thank you both for your detailed responses.

Richard_Webster

I agree with the explanations given.

Surprised that solicitors didn't explain it when they sent the papers, as it is an obvious question that people would ask. It is a question I routinely pre-empt!