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Essays in Conveyancing and Property Law

 | 
Frankie McCarthy
, 
James Chalmers
, 
Stephen Bogle

Defects in Acquisition and How to Fix Them

8. A New Era in Conveyancing: Advance Notices and the Land Registration etc. (Scotland) Act 2012

Ann Stewart

Texte intégral

1For decades, property lawyers in jurisdictions other than Scotland expressed astonishment that Scottish solicitors effectively underwrote their seller client’s obligation to a purchaser to provide, after settlement, records in the property and personal registers that would be clear of any entry, deed, decree or diligence, which was either prejudicial to the validity of, or was an encumbrance on, the seller’s title to the property. Solicitors did this by granting to the purchaser, by way of formal letter to the purchaser’s solicitor, a firm’s undertaking either that the records would be clear, or to clear them if they were not. The “letter of obligation,” the document by which this apparently reckless practice was effected, was an invariable feature of the Scottish conveyancing landscape.

2But that has all now changed. The Land Registration etc. (Scotland) Act 2012 introduced a new concept to Scottish conveyancing – the advance notice procedure – which has transformed the way in which property transactions are conducted, and in the vast majority of cases has eliminated the requirement for any letter of obligation.

A. Letters of Obligation

(1) Historical background

  • 1 J S Sturrock, Conveyancing According to the Law of Scotland (1900) 935, based on the Lectures of Al (...)
  • 2 Dryburgh v Gordon [1896] 24 R 1.

3The origin of the practice of granting a letter of obligation at settlement may be said to be lost in the mists of time. As early as 1900 James Sturrock,1 in an annotation to a lecture by Professor Allan Menzies on searches in conveyancing transactions, refers to a case in 18962 in which Mr Gordon, the law agent, sold the property “and granted the usual obligation to produce a search showing a clear record.” Although in that case, the law agents themselves had had an interest in the property and signed the disposition as consenters, the fact that, four years later, Sturrock describes the granting of a letter of obligation as “usual” indicates that this was already standard practice. This is in spite of the fact that there is no legal obligation on a seller’s solicitor to give a letter of obligation.

  • 3 J Burns, Conveyancing Practice According to the Law of Scotland, 4th edn (1957) 302.
  • 4 J M Halliday, Conveyancing Law and Practice in Scotland, 2nd edn (1997) 515.

4Is it necessary to delve back further to identify the origins of this practice? Arguably, over a century of practice must be compelling enough evidence that this was firmly embedded in Scottish conveyancing tradition. Later conveyancing manuals allude to this practice as being “general and almost universal”3 and “usual practice.”4

(2) What is the function of a letter of obligation?

  • 5 J H Sinclair and E Sinclair, Handbook of Conveyancing Practice in Scotland, 5th edn (2006) 181.
  • 6 “Settlement” is the term used for the steps that take place on the date of entry when the price is (...)

5Until recently, the letter of obligation was a “little understood, but vital, part of any transaction.”5 There is an intrinsic weakness in the conveyancing process, for which the letter of obligation was the plaster cast. The weakness arises because of a hiatus in the succession of steps in the conveyancing process around settlement.6

The “gap” period

6A seller is required to exhibit clear searches in the property and personal registers before settlement of the purchase takes place. The existence of any adverse deed, or an inhibition against the seller that predates the missives, will be disclosed in such searches, and usually steps have to be taken to discharge such entries before the purchaser will proceed to completion and pay the price. Those searches must be ordered up and exhibited to the purchaser’s solicitors as close as possible to the date of entry, but before settlement takes place. Such searches can only disclose the state of play of the registers at a date that pre-dates settlement. The date to which the searches are certified may also pre-date the date of settlement, perhaps by two or more days. So there is a gap between the date to which the Registers have been searched, and the date on which the purchaser hands over the price.

  • 7 To be replaced in Scotland on 1 April 2015, by land and buildings transaction tax.
  • 8 Law Society of Scotland, Rules and Guidance, Section F, Division C – Letters of obligation and adva (...)

7There is another, consecutive gap that occurs between settlement and the date on which the purchaser registers his title and obtains a real right to the property. While it is possible, immediately following completion of the transaction, to take the delivered deed to the Land Register and present it in person (and this does happen reasonably frequently), in the majority of cases, following completion there is a delay, perhaps only of a day or two, while the post completion formalities are dealt with, any stamp duty land tax7 paid, and registration forms completed, before the disposition in favour of the purchaser arrives at the Registers and is entered onto the records. Professional practice guidance permits a period of up to fourteen days after settlement within which to present the purchaser’s application for registration.8 Solicitors whose offices are not located in Glasgow or Edinburgh usually have no choice but to submit applications by post or through legal document exchange arrangements, or resort to the expense of a courier.

8During this gap, or invisibility period, there are risks. A competing deed could be presented for registration before the purchaser’s disposition is presented. Until comparatively recently, the possibility of the seller being sequestrated or going into liquidation or administration during the gap period also posed a serious risk. To provide protection against the occurrence of these risks – particularly insolvency or the emergence of a rival deed – the letter of obligation historically stepped into the breach.

The guarantee of clear records

9It is unusual for a solicitor to bind himself personally, and thus be liable to incur personal liability, in respect of the obligations of his client. Generally when conducting a transaction, it will be beyond any doubt that the solicitor is acting as the agent for a disclosed principal. Missives are entered into by solicitors “for and on behalf of our client.” The letter of obligation was a clear exception to this general rule.

  • 9 Following the introduction of the 2012 Act on 8 December 2014, all conveyances, whether for valuabl (...)

10The letter of obligation was, in effect, a guarantee that the registers would be clear of any competing deeds or decrees and diligences affecting the seller. Although the styles of wording used varied slightly depending on whether the transaction involved recording in the General Register of Sasines (now unlikely, since all transfers of property9 will induce a first registration in the Land Register, where the seller’s title is in the Sasine Register), or in the Land Register, the effect was the same: if any deed, decree or diligence appeared on the records that would prejudice the purchaser’s title, then provided these had not been created by or against the purchaser, the firm was obliged to remove them. The firm’s exposure under a typical letter of obligation was a maximum of fourteen days, or until the purchaser’s deed was registered, if earlier.

The undertaking

11The undertaking given in a typical letter of obligation (for a sale of registered property) would say:

  • 10 The Keeper of the Registers of Scotland.

With reference to the settlement of this transaction today, we undertake to clear the records of any deed, decree or diligence (other than such as may be created by, or against, the Purchaser) which may be recorded in the Personal Registers or to which effect may be given in the Land Register in the period from [date of certification of Form 12 or 13 Report (search)] to fourteen days after today’s date inclusive (or to the earlier date of registration of the Purchaser’s interest in the Property) and which would cause the Keeper10 to make an entry on, or qualify her indemnity in, [the Title Sheet to be updated] [the Land Certificate to be issued] in respect of that interest.

(3) Minimising risk to the seller’s solicitor

Professional indemnity insurance

12That the solution to the gap period, and the underwriting of these risks, was taken on by the solicitor profession in Scotland (which appears to be the only jurisdiction in which such a mechanism was used) seems, on the face of it, perverse. If there is a risk associated with a process, then the obvious solution is to arrange insurance to protect against that risk. In fact, title indemnity insurance cover was available in situations where no letter of obligation was to be granted, although it was not routinely obtained.

13However, insurance cover was and remains available, albeit indirectly, for the gap period risks. It takes the form of the professional indemnity insurance that all firms of solicitors have to take out to be able to practice. The Master Policy is arranged by the Law Society of Scotland, to provide indemnity for solicitors against a variety of types of professional liability, arising out of business which is customarily carried on or transacted by solicitors in Scotland. This includes claims arising out of letters of obligation. Solicitors make a contribution annually to the Law Society for the cost of this insurance which sets a mandatory limit of indemnity, currently £2 million, for each firm. Individual firms can, and do, arrange their own top-up cover for protection in the case of claims of higher amounts. Since letters of obligation were given in commercial property transactions involving tens or hundreds of millions of pounds, such top-up cover was essential for firms with a commercial property practice.

  • 11 That “benign” treatment continues beyond 8 December 2014, at least for the PI insurance year 2014/2 (...)

14Professional indemnity insurance cover was and remains available for a letter of obligation or other undertaking by the firm in any circumstances. However the letter of obligation was given a benign treatment under Special Conditions that apply to the Master Policy if it is “classic.”11

The classic letter of obligation

15The wording of the classic letter of obligation had to contain the components of the style wording above, including the fourteen day time limit, although there was no mandatory style. Before granting the letter of obligation, the seller’s solicitor had to comply with certain conditions, designed to ensure that any risk of a claim was minimised.

16The conditions were:

  • A search in the property and personal registers must have been obtained immediately before settlement. What was meant by “immediately before” was not always clear, but Law Society Guidance indicated that the searches in both registers could be up to seven days’ old (equivalent to five working days), counting back from the date of settlement to the date to which the search was certified as being correct.12 In residential property transactions there was a requirement under the Council of Mortgage Lenders Scottish Solicitors’ Handbook13 for the search in the personal registers to be no more than three working days old.

  • The client had to be asked to confirm whether or not there were any outstanding securities.

  • The solicitor issuing the letter of obligation had to be unaware of any other security; and

  • Where the undertaking was a firm’s undertaking to deliver a discharge of a standard security, the solicitor granting the obligation had to have sufficient funds to pay off the loan.

  • 14 Known as a “double deductible.”
  • 15 But see n 11

17Provided these conditions were complied with for a letter of obligation, then even in the case of a claim which had to be met from professional indemnity insurance, the excess that the firm in question was required to pay in the event of any claim (the “self-insured amount”) was nil, and there was no adverse impact on any premium loading or discount for that firm. If a letter of obligation was given in classic terms, but the conditions had not been complied with (known as a “failed classic”), then the normal self-insured amount applied. Obligations which fell outside the “classic” obligations to clear the records or deliver an executed discharge (known as “non-classic”) resulted in the application of a double excess if a claim was made and met14 as well being taken into account for any discount or loading to Master Policy premiums for the firm in question.15

An unpopular arrangement

18It probably goes almost without saying that the letter of obligation was extremely unpopular with solicitors in Scotland, but it had for many years been an unavoidable evil, due in large part to the effect of professional custom and tradition, and it is a not an understatement to say that, without the letter of obligation as an integral part of the settlement procedure, the conveyancing process as we knew it would have collapsed.

  • 16 Law Society of Scotland, Rules and Guidance, Section F, Division C – Letters of obligation.

19While, as already noted, a solicitor had no legal obligation to grant a letter of obligation, Law Society guidance had moved from the position held several decades ago that no letter of obligation had to be given unless the missives expressly provide for it, to the recent view of the Conveyancing Committee of the Law Society that “conveyancing transactions should be settled with a letter of obligation being granted by the solicitor personally” and “[w] hile there is no legal obligation to give a letter of obligation where missives are silent, there is a professional duty on a solicitor to grant a letter of obligation unless the solicitor advises to the contrary at the earliest possible opportunity.”16

20In recent years there had been increasing unwillingness on the part of solicitors to grant letters of obligation in certain circumstances. In transactions where the solicitor acted for an insolvency practitioner in a sale, for example, the practice had evolved of flatly refusing to give any letter of obligation. This was in part due to the refusal by insolvency practitioners to accept any personal liability. The letter of obligation was equally unpopular with insurers, and this was exacerbated in the late 1980s and early 1990s by the increased incidence of second standard securities over residential properties which were granted unknowingly by home owners. These securities were usually granted at the time of making home improvements, such as installation of double glazing or replacement kitchens, with the owner being under the impression that they were being asked to sign some credit agreement, unaware that the “agreement” would then be registered against their title. The preponderance of such second standard securities led to the requirement to make proper enquiry of the client as to the granting of other securities, and the prudent conveyancer would include an enquiry about carrying out any home improvements.

  • 17 Introduced by the Titles to Land Consolidation (Scotland) Act 1868, s155.

21Against a background of increasing concern, it was clear that something would need to be done. One only needs to look at the legal systems of other countries and jurisdictions, including our closest neighbour, England, and to certain advance warning systems that were already operating in Scotland – the most obvious being the notice of letters of inhibitions procedure17 – to see the prospects of a solution in some form of priority notification procedure, linked to the registration of deeds and documents in the Registers of Scotland.

B. The New System of Advance Notices

(1) The genesis of the Scottish Advance Notice

  • 18 (Scot Law Com No 176, 2000).
  • 19 Discussion Paper on Land Registration: Void and Voidable Titles (Scot Law Com DP No 125, 2004), Dis (...)
  • 20 DP on LR: Miscellaneous Issues (n 19) part 7.

22The Scottish Law Commission, always innovative in bringing forward new approaches to old problems, had already decided to include the thorny topic of land registration reform in its Sixth Programme of Law Reform,18 at the request of the Keeper of the Registers of Scotland. There then followed a series of Discussion Papers19 on a wide range of aspects of land registration, which had been introduced in Scotland by the Land Registration (Scotland) Act 1979. The third of these Discussion Papers, which dealt with a miscellaneous collection of issues, first flagged the prospect of a priority notice scheme.20

  • 21 DP on LR: Miscellaneous Issues (n 19) para 7.21-7.28.
  • 22 Ibid para 7.22-7.24.
  • 23 Ibid para 7.25-7.27.

23That early consideration of how a priority notice procedure in Scotland could work drew from a number of other jurisdictions for inspiration, both selecting and rejecting elements of other systems to consider how best to tailor the system for Scotland. The DP identified the key advantages of a scheme of advance notices.21 Uppermost is the certainty of success against the threat of a competing title (or the comfort that there are no competing titles) that a priority notice system would bring,22 coupled with the reduction of exposure to risk from letters of obligation that would follow as a consequence.23

  • 24 Ibid para 7.29-7.30.
  • 25 Automated Registration of Title to Land, a system by which the transfer document (disposition) is c (...)
  • 26 DP on LR: Miscellaneous Issues (n 19) para 7.30.

24However the DP also identified disadvantages to such a system, citing arguments that it could be regarded as unnecessary24 – the imminent introduction of ARTL25 would enable the instantaneous signing, payment for and delivery of conveyancing documents, removing the risk from a competing deed. It was, however, recognised in the DP that ARTL would not necessarily be suitable for all types of transaction, and might not therefore be a sufficient solution.26 It has proved to be the case that, although there have been many transactions completed under ARTL, it can only cope with transactions that are a dealing of the whole of an already registered interest, and its application, since introduction, has been largely confined to residential transactions and remortgages.

  • 27 Ibid para 7.31-7.33.
  • 28 Bankruptcy and Diligence etc. (Scotland) Act 2007, s 17.

25Another criticism of a priority notice system identified in the DP was that it would be disproportionate.27 The level of risk from insolvency has in any event decreased, since a trustee in sequestration is no longer able immediately to complete a title to property in the bankrupt’s estate following on appointment, but must wait for a period of28 days to elapse. 28 While there may be risks attendant with the liquidation or administration of a company, the Scottish Law Commission did not consider these to be either considerable or insurmountable.

  • 29 DP on LR: Miscellaneous Issues (n 19) para 7.19-7.20.
  • 30 Titles to Land (Consolidation) (Scotland) Act 1868, s 155.
  • 31 Ibid. The addition of service of the schedule of inhibition on the debtor was amended by the Bankru (...)

26The original proposal for priority notices in the DP suggested backdating the effective date of registration of the protected deed to the date of registration of the notice.29 This would be similar to the way inhibitions work: a notice of letters of inhibition is registered,30 which provides a period of twenty one days in which the inhibition itself can be registered on condition that the schedule of inhibition is served on the debtor after registration of the notice.31 If registration takes place within this period, the effective date of the inhibition is backdated to the date of service of the schedule of inhibition. If registration does not take place, the notice lapses.

  • 32 DP on LR: Miscellaneous Issues (n 19) para 7.34.

27Applying this backdating effect to priority notices would mean that a real right in the property could, retrospectively, be obtained prematurely.32 The priority notice would always be registered before the date of entry, and sometimes could be registered before conclusion of missives. To adopt this model would mean that ownership) would pass to the purchaser before settlement, but so too would liabilities incidental to ownership. It is easy to see why these proposals were not generally supported at the time.

  • 33 Scot Law Com No 222, 2010.
  • 34 Report on Land Registration (n 33) part 14.

28However pressure on, and dislike of, the system of letters of obligation continued to grow. By the time the Scottish Law Commission was preparing its Report on Land Registration33 it had already received representations, including from the Law Society of Scotland, to look again at a priority procedure for land registration. The Report proposed a much more straightforward system of advance notices,34 that this time received a considerable degree of support from the profession.

29The Report also contained a draft Land Registration Bill,35 which was the starting point for the Land Registration etc. (Scotland) Act 2012. The Bill introduced to the Scottish Parliament on 1 December 201136 differed in some material (and minor) respects from the draft Bill prepared by the Scottish Law Commission, but the proposals for a system of advance notice were largely intact.

(2) The statutory system of Advance Notices

The principles of Advance Notices

  • 37 See generally Land Registration etc. (Scotland) Act 2012, Part 4. Specific provisions are discussed (...)

30The statutory structure for advance notices in conveyancing transactions adopts the principles for providing a period of priority protection for deeds that are intended to be granted and intended for registration in the Land Register.37 The key elements of the advance notice procedure are:

  1. An advance notice relates to a specific deed that a granter intends to grant to another person.

    • 38 There is something of a conceptual non sequitur in the way the legislation has been drafted, discus (...)

    An advance notice has to be applied for by the person who intends to grant the deed, and who may validly grant the deed, or by a person who has the consent of the person who may validly grant the deed.38

  2. Once registered, the advance notice provides a period of thirty-five days’ protection to the grantee, from any competing deeds, or other subsequent advance notices, that are registered against the property during that period, or an inhibition registered against the granter during the protected period.

  3. The protected period starts the day after the date of registration of the advance notice.

    • 39 There is nothing in the legislation about multiple consecutive advance notices for the same deed, b (...)

    A second advance notice (and third (and potentially an unlimited number of advance notices))39 can be applied for, but subsequent advance notices provide a separate, not a continuous, period of protection.

The detail of the Advance Notice protection

31The introduction of Advance Notices is a major transformation for conveyancing practice in Scotland, and one that many in the profession would regard as long overdue.

  • 40 The Land Registration Act 2002 and Land Registration Rules 2003.
  • 41 German Civil Code BGB, Articles 883 to 888.

32The Advance Notice concept is similar to, but not exactly the same as, the priority period which currently exists for registration of documents in the Land Registry of England and Wales. In England and Wales it is tied in with a register search. The system that now applies in Scotland borrows from both the English system40 and the system that applies in Germany.41

33It should be borne in mind that the advance notice procedure is voluntary. There is no compulsion to use it, but the advantages of it over the flawed and precarious letter of obligation alternative are compelling.

  • 42 Land Registration etc. (Scotland) Act 2012, s 56.
  • 43 The Registers of Scotland (Fees) Order 2014, SSI 2014/188, sched 1, para 3 (b).
  • 44 Land Registration etc. (Scotland) Act 2012, s 57.

34Under the provisions of the 2012 Act, it is possible to apply to the Keeper for an advance notice in respect of a deed that a person intends to grant.42 For a fee of £10,43 an advance notice application can be submitted,44 for example when a seller has agreed to sell a piece of his land, and consequently will be granting a disposition in favour of the purchaser.

  • 45 Ibid, s 58.
  • 46 Ibid, ss 59-61.

35The advance notice application is submitted to the relevant register in advance of the completion date for the transaction, and once it is registered, it provides a period of protection of thirty-five days (beginning with the day after the advance notice is registered in the relevant register)45 in which any competing deed, or another advance notice, would not have priority.46

36So, for example, if the seller registers an advance notice for a disposition over his property that he intends to grant in favour of the purchaser, and then some other person presents a competing disposition for registration in respect of the property in question, although the competing disposition would be entered onto the Register initially, the existence of the earlier advance notice would prevent the competing disposition from prevailing, provided always that the purchaser with the benefit of the advance notice submits his disposition for registration within the thirty-five day period of protection.

37However, if the purchaser fails to submit his disposition within the thirty-five day period, in that case, the earlier registered disposition will take effect at the expiry of the thirty-five day period.

  • 47 Note however that it is not currently possible to apply for an advance notice for any bilateral dee (...)
  • 48 Land Registration etc. (Scotland) Act 2012, s 56 (1).

38Advance notices apply to other types of deed, such as a standard security or deed of servitude, and also to a registrable lease or sub-lease, but the deed must be a bilateral one,47 that is, with a granter and a grantee.48 Unilateral deeds, such as a local authority charging order, are not covered, nor actually are they likely to have need of advance notice protection.

  • 49 Ibid, s 57 (1) and (2)(a).
  • 50 Ibid, s 51 (2)(b).
  • 51 Registers of Scotland. Land Registration etc. (Scotland) Act 2012 General Guidance – Advance Notice (...)

39Only a person who intends to grant the deed and may validly grant the deed can apply for an advance notice.49 However, a person with the consent of such a person may also apply.50 The statutory wording is a little problematic in a situation where the purchaser wants to register an advance notice for a deed that the purchaser plans to grant as part of the purchase transaction, for example, a standard security in favour of its heritable creditor. Only the purchaser can intend to grant that deed, but there is an argument that the purchaser may not validly grant the deed until it is the owner, therefore it needs the consent of the seller to apply for the advance notice. But in these circumstances, the seller cannot intend to grant the standard security by the purchaser, so neither of the parties can fulfil the two part statutory requirement: (i) intention to grant and (ii) ability validly to grant, at the time of applying for the advance notice. However, unless the effect of the statutory provision is to permit a purchaser to apply for an advance notice of this type, its inclusion in the 2012 Act is pointless. The Registers are in no doubt that the intention of the legislation was that a purchaser would be able to register an advance notice for a standard security it intends to grant, if it has the consent of the seller, and that they will accept such applications.51

  • 52 Land Registration etc. (Scotland) Act 2012, ss 59 and 60.

40An application for an advance notice can be made for a title that is recorded in the General Register of Sasines, as well as for titles that are registered in the Land Register.52 As all dispositions, whether for valuable consideration or not, induce a first registration under the provisions of the 2012 Act, if the title is still in the Sasine Register, advance notices can be recorded in the Sasine Register in those cases. For a title that is already in the Land Register, the advance notice will be registered in the application record of the Land Register.

41If for any reason settlement of the transaction is delayed, it is possible to apply for another advance notice giving the purchaser (or other grantee as appropriate) another thirty-five day period of protection. However, it is important to note that this is not an extension of the first advance notice period: it is a separate period of protection. So, in the example above, the competing disposition submitted during the first thirty-five day period would remain on the Register and the second priority period will not protect against it. The competing disposition would of course show up on a search of the Register, which it is recommended be obtained up to a date when the advance notice to be relied on by the purchaser is disclosed in that search. That search would also disclose the competing disposition alerting the purchaser to its existence. This would mean that the purchaser ought not to proceed to settlement without requiring the seller to take steps remedy the position, should he still wish to buy the property. In the face of a competing disposition, no purchaser would be expected to proceed.

  • 53 Land Registration etc. (Scotland) Act 2012, s 63.
  • 54 Ibid, s 62. An advance notice recorded in the Sasine Register will always be shown on that Register (...)

42Once an advance notice is on the application record of the Land Register, or in the Sasine Register, it is possible to apply to have it discharged, while it is current (i. e. during the thirty-five day period).53 The circumstances where this will be necessary may occur from time to time, but as a general rule there is no need formally to discharge an advance notice. It will expire automatically at the end of the thirty-five day period, and the Keeper will remove it from the application record in the Land Register, and archive it.54 Most advance notices will therefore simply be allowed to lapse. If an applicant wants to have an advance notice discharged, it must obtain the consent of the person in whose favour the notice has been registered (e. g. the purchaser). This will ensure that the protection given by an advance notice is not cancelled without the knowledge and permission of the person benefitting from the protection.

  • 55 Land Registration etc. (Scotland) Act 2012, s 61.
  • 56 Under the previous law, an inhibition registered before conclusion of missives would prevail agains (...)

43One innovative effect of an advance notice is that, if an inhibition is registered against the granter of the deed during the protected period, provided the protected deed is registered during the protected period, it will not be affected by the inhibition.55 This could mean, in circumstances where an advance notice is submitted before conclusion of missives and the inhibition is also registered before a contract was in place, but after the protected period of the advance notice has begun, that nonetheless the purchaser’s deed would be protected, and he could complete the purchase. This represents a change in the law of inhibitions,56 although it is unlikely that this particular convergence of circumstances will happen very often.

  • 57 Tenements (Scotland) Act 2004, s 12 (3).
  • 58 Title Conditions (Scotland) Act 2003, s 10 (2A).
  • 59 Land Registration etc. (Scotland) Act 2012, s 61 (3).
  • 60 Ibid, s 61 (3)(b).

44There are some entries in the Registers that an advance notice does not affect. Notices of potential liability for costs under the Tenements (Scotland) Act 200457 or the Title Conditions (Scotland) Act 200358 are specifically carved out from the effect of the advance notice protection.59 Scottish Ministers have the power to specify other deeds that should prevail despite the existence of an advance notice on the Register.60

(3) Conveyancing procedures for Advance Notices

45The statutory provisions relating to advance notices provide what advance notices are, who may apply for them and what their effect will be. But they are voluntary, and therefore there is nothing in the 2012 Act that sets out how they are to be used in a transactional context. So it has been up to the conveyancing profession to work out how to use the advance notice procedure in practice.

  • 61 A group of four commercial property lawyers, including the writer, from four of the major Scottish (...)
  • 62 PSG Offers to Sell incorporating 2012 Act wording are available to download at http://www.psglegal. (...)
  • 63 The Scottish Standard Clauses for residential property transactions. For examples see http://www.la (...)

46The (PSG)61 took on the task of considering how this would work in practice, and it produced a recommended form of wording for offers62 that sets out the steps for parties to a typical sale and purchase transaction to take to implement the advance notice procedure. In doing so, the PSG wanted to ensure that the new process, that is now becoming an integral part of conveyancing procedure, would be clear, and also as straightforward as possible. Although PSG styles are produced from the perspective of the commercial property lawyer, the PSG form of words, and general approach, has also been adopted (with some minor modifications) in standard form residential missives.63

47Practical issues that the PSG had to consider in formulating the new wording included:

  1. What is the optimum time in the transaction to submit the advance notice application?

  2. Should the provision of an advance notice be compulsory or optional?

  3. How should the requirements for consent be addressed?

  4. How should the possible need for a second advance notice be tackled? and

  5. Who pays the cost of the advance notice application?

The optimum time to obtain an advance notice

48The purchaser (or other grantee) will want advance notice protection to subsist until the application to register the deed in question has actually been submitted to the registers and has entered the application record. So the protection needs to extend beyond the settlement date, even if the purchaser’s solicitor is going to personally present the deed for registration, and potentially for up to fourteen days after – or whatever reasonable period of time is appropriate. In reality it may be a lot closer to settlement before the advance notice application is lodged, to make sure that the maximum period of protection is available after settlement.

49The PSG wording provides for submission of the advance notice application not earlier than five working days before settlement. This allows as much of the protected period as possible to cover the period after settlement, in case of delays, or rejection of the application first time around.

50It is however a bit of a balancing act, and the parties to the transaction should be prepared to be flexible to suit the circumstances of the transaction. The Scottish standard clauses set out a longer period of ten days before the date of entry in residential offers. The PSG approach proceeds on the basis that the more of the protected period that continues after settlement will mean that if the application for registration were to be rejected for some reason, there would be a good chance that the presenting solicitor could correct whatever was wrong with the application and re-submit it, all still within the protected period of the advance notice.

Compulsory or optional?

51The approach recommended by the PSG is that the seller should be bound to apply for an advance notice. The advantages to a purchaser of the advance notice protection are obvious, but some sellers might question why they should have to make this application, which they may not consider to be of any benefit to them. However, while the protection is principally for the purchaser against any competing deeds, it also brings certainty for the seller, since, once a search has been obtained disclosing the advance notice, the seller can relax for the rest of the protected period too, and the protection provides greater certainty around settlement, compared to the step into the unknown that the gap period presented.

52The form of the advance notice should be adjusted with the purchaser, since the advance notice will only protect the specific deed to be granted by that seller to that purchaser. The purchaser will want to be sure that the purchaser’s details on the application are correct. Practitioners will need to bear this in mind, in case of a last minute substitution of a nominee to take title to the property. An advance notice that does not refer to that nominee will not protect a deed in its favour.

The requirement for consent

  • 64 Land Registration etc. (Scotland) Act 2012, s 57 (1).

53Only the seller can apply for an advance notice for the disposition to the purchaser, because of the requirement in the 2012 Act that only a person who intends to grant, and may validly grant the deed can make the application.64 So, if there is a requirement for an advance notice for a standard security that the purchaser intends to grant, or for any other deeds that the purchaser intends to grant – for example, where the purchaser is planning a back-to-back sub-sale – the consent of the seller will be needed to make that application. To avoid the requirement in each transaction for specific consent to be sought each time (with the possibility that it is then withheld by the seller) the PSG wording builds in automatic consent of the seller to any application for an advance notice that the purchaser wants to submit. This allows these applications to go ahead at a time to suit the purchaser, without further reference to the seller.

54One aspect of the procedure that a purchaser intending a back-to-back (i. e. simultaneous) sub-sale needs to consider is the approach to take where the purchaser does not want the seller to know about the sub-sale. Care would need to be taken in relation to applying for an advance notice for the proposed sub-sale disposition, because that advance notice will show up in any search obtained by the seller after the advance notice has been registered, alerting the seller to its existence. The alternative would have to be either that that no advance notice application can be made, or that the timing of the application for the sub-sale deed advance notice will need to be later than the period covered by the search, meaning that it would need to be a last minute application.

55The automatic consent of the purchaser to the discharge of the advance notice, should this ever be required, has also been built in to the PSG offer. If the advance notice has to be discharged, this is likely to be because the original purchaser has withdrawn or failed to complete the transaction, so obtaining consent at that time could be problematic, although there may be a need to discharge an advance notice if it transpires that the purchaser’s name is incorrectly stated, or, as anticipated above, a last minute substitution of a nominee is made. A discharge in the case of a failed purchase may only be necessary if there is an immediate requirement to apply for another advance notice in favour of a new purchaser, with an imminent settlement date. The second purchaser will want to have the first advance notice removed, as otherwise it would have priority over any advance notice registered for the second purchaser. In most cases, however, it will simply be a case of allowing the first advance notice to expire at the end of its thirty-five day period.

Additional advance notices

56The PSG wording provides for a seller to obtain a second advance notice in a transaction, if the purchaser requests it. This could be necessary, if the first advance notice has been obtained too soon, or if there is a delay in completing the transaction and the protected period is due to expire in only a few days after the postponed settlement date.

Who pays?

57The cost of the advance notice should be met by the seller. The application is made by the seller, so the seller is responsible for paying the fee for the application to the Registers. The cost is only £10, and it would cost much more than that in administrative time to recover that sum from the purchaser and process it. While the advance notice provides the purchaser with protection, it is protection against the possible acts of, and deeds granted by, the seller, or decrees or diligence done against the seller, so it seems a fair arrangement in all the circumstances.

58If the purchaser wants to submit an advance notice application for any deeds it intends to grant, it should meet the cost of those, and of any discharge of such advance notices, if the seller requires it in cases where the transaction does not proceed.

59If a second advance notice is required in the transaction, it should be paid for by whichever of the seller or the purchaser is responsible for the delay. Although there can be disagreement sometimes about the party to which any delay is attributable, this provision will cater for most circumstances, where the position is usually clear.

(4) Timing issues for advance notices

  • 65 The advance notice can also be viewed on Registers Direct (an online system allowing viewing access (...)

60The PSG wording proposes submitting the application for an advance notice not earlier than five working days before completion. In terms of transactional timing, this also really means not later than five working days before completion as well. This timescale pre-supposes that a search (now called a legal report) in the property and personal registers has already been obtained, and the parties have seen and dealt with anything relevant that it discloses. As soon as the advance notice application has been made, a continuation legal report can be ordered, immediately before completion. That continuation report will disclose the advance notice,65 and the purchaser can complete the transaction in the knowledge that protection is in place.

61Timing will also be important if there is a delay in settlement, or if the purchaser’s application for registration is rejected immediately. If the parties have allowed as much of the protected period as possible to be extant after completion, then this may be sufficient to turn around a rejected application and submit it again before the expiry of the protected period. Correctly counting the number of days could become important: the thirty-five day period does not start until the day after the day the notice is entered in the application record, or recorded in the Sasine Register, where applicable.

(5) The application process

Application types

  • 66 Registers of Scotland, Guidance (n 51).

62Applications for an advance notice are created electronically, within a system built by the Registers of Scotland, access to which is by secure login.66

63The online form is simple and easy to complete. It requires details of:

  1. the granter of the deed,

  2. the grantee of the deed,

  3. the type of transaction (first registration, dealing of whole, transfer of part),

  4. the type of deed, and

  5. details of the property (including the title number if it is registered, or an adequate conveyancing description (sufficient to identify the boundaries of the property concerned) if it is not).

64However not all advance notice applications can be submitted electronically – some have to be printed out.

  • 67 Ibid.

65The advance notice system will accept four types of application:67

  1. A first registration – this is where the advance notice is in respect of the grant of a deed that will take the property out of the Sasine Register, and transfer it to the Land Register. However the advance notice has to be recorded in the Sasine Register, as the title to the property is not yet in the Land Register – that will only happen when the intended deed is actually presented for registration.

  2. An intended deed that applies to the whole of a registered interest.

  3. An intended deed that applies to part only of a registered interest, and

  4. Where an extant advance notice requires to be discharged. This will only be necessary if it needs to be removed from the application record, or its discharge needs to be shown in the Sasine Register during the currency of the thirty-five day period.

66It has transpired that the online system for creation of advance notices does not have the ability to save drafts of advance notice applications, meaning that it is not possible for the purchaser to approve the seller’s electronically created draft. As such approval is recommended, so that the purchaser’s solicitor can ensure that his client’s details are correct, Word version drafts of the advance notice forms have been created by the PSG, to allow adjustment of the terms of the application to be made between the parties, then copied and pasted directly into the online form. As an immediate solution to the shortcomings of the online system, these draft forms have helped to maintain transactional momentum in the early days of adjusting to the 2012 Act. However, it would be just as acceptable, as the profession becomes more familiar with the content of advance notice applications, for these details to be adjusted by email.

Submission of advance notice applications

  • 68 Registers of Scotland, Guidance (n 51)
  • 69 Land Registers (Scotland) Act 1868, s14.
  • 70 Registers of Scotland, Guidance (n 51).

67Where an advance notice is sought for a deed relating to a property to which title is still in the Sasine Register, in which case the deed will, when presented for registration, induce a first registration, it is necessary to print the advance notice form, sign and date it and submit it in paper form.68 This is because the advance notice has to be recorded in the Sasine Register, and every writ to be recorded in the Sasine Register has to be “impressed with a stamp or seal,"69 which can only be done in hard copy. Electronic submission would not be competent, since a hard copy print of that submission would not be the original. An application for discharge of an advance notice that is recorded in the Sasine Register must also be printed, signed, dated and submitted in hard copy.70

  • 71 Land Registration etc. (Scotland) Act 2012, s 56 (d)(iii). The cadastral map is the name given to t (...)
  • 72 Development Plan Approval is a service offered by Registers of Scotland to developers (e. g. house (...)
  • 73 Registers of Scotland, Guidance (n 51).

68If the advance notice relates to a deed which will transfer part of a registered interest, then a plan to identify that part has to accompany the application (unless the part is a flat in a flatted building, where it is the whole building that is shown as a single unit on the cadastral map).71 The plan must sufficiently identify the property to allow it to be plotted immediately onto the cadastral map. Submission of a plan can be done by way of uploading an electronic plan, including a plan in pdf format, to the advance notice system, or by providing co-ordinates for the plot, or, if the part to be transferred is a plot in a development that has Development Plan Approval,72 then all that is required is the Development Plan number and the relevant plot number in the development. If the plan is not available in some electronic format, then the advance notice application has to be printed, signed, dated and submitted in hard copy, with a suitable paper plan, signed and docqueted as relative to the advance notice application.73

  • 74 Ibid.
  • 75 Ibid.

69An advance notice application for a deed that relates to the whole of a registered title, and an application for a discharge of an advance notice in the Land Register, can be submitted electronically.74 An application for a discharge must refer to the allocated advance notice number for the advance notice to be discharged, which will then enable automatic pre-population of the discharge application form with other details from the original advance notice.75 Exceptions to electronic submission of these types of advance notice application are only permitted in certain circumstances: where the online submission system is “down” for a forty eight hour period, or longer; where the person applying for the advance notice is the applicant who is not using a solicitor (it is expected that such applications will be rare); or if the applicant does not have access to a computer (possible in remote areas of Scotland where internet access is unavailable).

  • 76 Ibid.

70Where the property affected by the advance notice application is partly Sasine Registered and partly Land Registered, two advance notice applications are required, one for each register.76 However if the title to the property is in the Land Register and encompasses more than one title number, only one application is required, and can be submitted electronically, referring to each title number affected, unless the transfer relates to part only of one or more of the titles, and a plan showing the extent to be transferred cannot be uploaded electronically (or Development Plan Approval, or co-ordinates are not available).

Acknowledgement of advance notice applications

  • 77 Registers of Scotland, Guidance (n 51).

71Electronic submissions of advance notice applications receive an email acknowledgement confirming that submission has been successful.77 Once the advance notice has been entered on the application record, which should be the same day as submission, provided the application record is still open (meaning usually receipt of the application before 4pm), a second email is sent, confirming that it has been registered.

  • 78 Ibid. The logic of this is unclear. Acknowledgement by letter is stated to be “in accordance with u (...)

72Paper submissions to the Land Register receive an email acknowledgement, whereas submissions to the Sasine Register are acknowledged by letter.78

73Email acknowledgements include a pdf of the completed advance notice form, together with an application number and an advance notice number, and, where the advance notice relates to part of a registered plot, a pdf plan showing the extent that has been delineated on the cadastral map is included with the acknowledgement.

74The thirty-five day period starts the day after registration. The acknowledgement notifies the applicant of the start and finish dates of the protected period.

C. The Future is Here

  • 79 The Community Empowerment (Scotland) Bill.
  • 80 The Legal Writings (Counterparts and Delivery) (Scotland) Bill.

75A new era of conveyancing started on 8 December 2014. But the fun doesn’t stop here. The appetite for land reform at the Scottish Parliament appears to be unabated, with a Bill currently progressing through the Parliament that will see the community right to buy extended to the whole of Scotland, not just rural areas,79 and the passing of a Bill that enables counterpart execution of deeds and effective delivery by electronic means.80

76The Law Society of Scotland has set up a Working Party on the Future of Conveyancing, with a remit to take forward a variety of initiatives to ensure that conveyancing procedures in Scotland keep pace with modern practice, as well as harnessing the benefits of technology. The Working Party will be looking at standards, processes and standardisation, to make the sale and purchase of property a better experience for the consumer and for the practitioner. There is plenty of scope for improvement and, in most quarters, an appetite for change for the better.

  • 81 See n 11.

77With the advent of the advance notice system, will the traditional letter of obligation become a thing of the past? Early experiences of advance notice applications have not been entirely trouble free. Rejection of applications, with greater frequency than the profession anticipated, or delays in processing applications, has produced situations where recourse has had to be made to a hybrid form of letter of obligation – the gap now being the date of last search or settlement and the start of the protected period – admittedly a much shorter gap, usually no more than a day or two. But this, like all new procedures should settle down with time, and the profession cannot count on the benign treatment of letters of obligation under the Master Policy continuing indefinitely.81

78And there will still be circumstances anyway, in which a letter of undertaking will have to be given in conveyancing transactions. The advance notice procedure will not cover the situation where a discharge of the seller’s standard security is not available at settlement (an increasingly common occurrence, in both commercial and residential transactions). While the default position in commercial property transactions is to insist on delivery of a discharge at completion, undertakings to deliver a discharge are routinely given at residential settlements. How long that can continue, and whether the Working Party can find a way to tackle that issue are challenges for the future.

  • 82 The solicitor who gave the undertaking in Dryburgh (n 2).

79It is clear that the ghost of Mr Gordon82 would have considerable difficulty in recognising the post-designated-day conveyancing landscape, but there can be no doubt that more change, and for the better, awaits us all.

Notes

1 J S Sturrock, Conveyancing According to the Law of Scotland (1900) 935, based on the Lectures of Allan Menzies, Professor of Conveyancing at the University of Edinburgh between 1847 and 1856.

2 Dryburgh v Gordon [1896] 24 R 1.

3 J Burns, Conveyancing Practice According to the Law of Scotland, 4th edn (1957) 302.

4 J M Halliday, Conveyancing Law and Practice in Scotland, 2nd edn (1997) 515.

5 J H Sinclair and E Sinclair, Handbook of Conveyancing Practice in Scotland, 5th edn (2006) 181.

6 “Settlement” is the term used for the steps that take place on the date of entry when the price is paid by, and the disposition is delivered to, the purchaser and (usually) entry is taken by him. In commercial property transactions this is often referred to as “completion.”

7 To be replaced in Scotland on 1 April 2015, by land and buildings transaction tax.

8 Law Society of Scotland, Rules and Guidance, Section F, Division C – Letters of obligation and advance notices, para 3, available at http://www.lawscot.org.uk/rules-and-guidance/section-f-guidance-relating-to-particular-types-of-work/division-c-conveyancing/guidance/letters-of-obligation-and-advance-notices/

9 Following the introduction of the 2012 Act on 8 December 2014, all conveyances, whether for valuable consideration or not, induce a first registration in the Land Register, if the title to the property is still in the Sasine Register.

10 The Keeper of the Registers of Scotland.

11 That “benign” treatment continues beyond 8 December 2014, at least for the PI insurance year 2014/2015. Whether it will continue beyond November 2015 is up to the insurers.

12 Law Society of Scotland, Rules and Guidance, Section F, Division C – Letters of obligation, para 4, available at http://www.lawscot.org.uk/rules-and-guidance/sectionf-guidance-relating-to-particular-types-of-work/division-c-conveyancing/guidance/letters-of-obligation-and-advance-notices/

13 Available at http://www.cml.org.uk/cml/handbook/scotland. No changes have been made to the CML Handbook to reflect any changes in practice relating to the coming into force of the provisions of the Land Registration (Scotland) Act 2012, although individual lenders are left to make whatever arrangements they consider are required.

14 Known as a “double deductible.”

15 But see n 11

16 Law Society of Scotland, Rules and Guidance, Section F, Division C – Letters of obligation.

17 Introduced by the Titles to Land Consolidation (Scotland) Act 1868, s155.

18 (Scot Law Com No 176, 2000).

19 Discussion Paper on Land Registration: Void and Voidable Titles (Scot Law Com DP No 125, 2004), Discussion Paper on Land Registration: Registration, Rectification and Indemnity (Scot Law Com DP No 128, 2005) and Discussion Paper on Land Registration: Miscellaneous Issues (Scot Law Com DP No 130, 2005).

20 DP on LR: Miscellaneous Issues (n 19) part 7.

21 DP on LR: Miscellaneous Issues (n 19) para 7.21-7.28.

22 Ibid para 7.22-7.24.

23 Ibid para 7.25-7.27.

24 Ibid para 7.29-7.30.

25 Automated Registration of Title to Land, a system by which the transfer document (disposition) is created within an electronic system, digitally signed and electronically delivered, thus eliminating the gap period. ARTL was subsequently introduced, but it is (currently) limited in the types of deeds and transactions that it can facilitate.

26 DP on LR: Miscellaneous Issues (n 19) para 7.30.

27 Ibid para 7.31-7.33.

28 Bankruptcy and Diligence etc. (Scotland) Act 2007, s 17.

29 DP on LR: Miscellaneous Issues (n 19) para 7.19-7.20.

30 Titles to Land (Consolidation) (Scotland) Act 1868, s 155.

31 Ibid. The addition of service of the schedule of inhibition on the debtor was amended by the Bankruptcy and Diligence etc. (Scotland) Act 2007, s 149, after the publication of the DP.

32 DP on LR: Miscellaneous Issues (n 19) para 7.34.

33 Scot Law Com No 222, 2010.

34 Report on Land Registration (n 33) part 14.

35 Ibid vol 2.

36 Available at http://www.scottish.parliament.uk/parliamentarybusiness/Bills/44469.aspx

37 See generally Land Registration etc. (Scotland) Act 2012, Part 4. Specific provisions are discussed in detail below.

38 There is something of a conceptual non sequitur in the way the legislation has been drafted, discussed further below.

39 There is nothing in the legislation about multiple consecutive advance notices for the same deed, but in theory this is technically possible although, in practice, unlikely.

40 The Land Registration Act 2002 and Land Registration Rules 2003.

41 German Civil Code BGB, Articles 883 to 888.

42 Land Registration etc. (Scotland) Act 2012, s 56.

43 The Registers of Scotland (Fees) Order 2014, SSI 2014/188, sched 1, para 3 (b).

44 Land Registration etc. (Scotland) Act 2012, s 57.

45 Ibid, s 58.

46 Ibid, ss 59-61.

47 Note however that it is not currently possible to apply for an advance notice for any bilateral deed. Renunciation of leases and section 75 agreements are two obvious examples of deeds that are conspicuous by their absence from the current advance notice application system.

48 Land Registration etc. (Scotland) Act 2012, s 56 (1).

49 Ibid, s 57 (1) and (2)(a).

50 Ibid, s 51 (2)(b).

51 Registers of Scotland. Land Registration etc. (Scotland) Act 2012 General Guidance – Advance Notices, available at https://www.ros.gov.uk/about-us/2012-act/general-guidance/advance-notices

52 Land Registration etc. (Scotland) Act 2012, ss 59 and 60.

53 Land Registration etc. (Scotland) Act 2012, s 63.

54 Ibid, s 62. An advance notice recorded in the Sasine Register will always be shown on that Register. While a formal discharge of such an advance notice can be recorded, it will be evident from the date of recording of the advance notice when its protection will have expired after thirty-five days.

55 Land Registration etc. (Scotland) Act 2012, s 61.

56 Under the previous law, an inhibition registered before conclusion of missives would prevail against the rights of the subsequent purchaser. Only sales completed in implement of missives concluded before the inhibition is registered are currently unaffected in these circumstances.

57 Tenements (Scotland) Act 2004, s 12 (3).

58 Title Conditions (Scotland) Act 2003, s 10 (2A).

59 Land Registration etc. (Scotland) Act 2012, s 61 (3).

60 Ibid, s 61 (3)(b).

61 A group of four commercial property lawyers, including the writer, from four of the major Scottish firms, who have worked together for over a decade to produce agreed form standardised commercial property documents which are available to the profession to access on the PSG website at www.psglegal.co.uk

62 PSG Offers to Sell incorporating 2012 Act wording are available to download at http://www.psglegal.co.uk/offer_to_sell.php

63 The Scottish Standard Clauses for residential property transactions. For examples see http://www.lawscot.org.uk/rules-and-guidance/section-f-guidance-relating-to-particular-types-of-work/division-c-conveyancing/advice-and-information/scottish-standard-clauses/

64 Land Registration etc. (Scotland) Act 2012, s 57 (1).

65 The advance notice can also be viewed on Registers Direct (an online system allowing viewing access to information in the Registers of Scotland).

66 Registers of Scotland, Guidance (n 51).

67 Ibid.

68 Registers of Scotland, Guidance (n 51)

69 Land Registers (Scotland) Act 1868, s14.

70 Registers of Scotland, Guidance (n 51).

71 Land Registration etc. (Scotland) Act 2012, s 56 (d)(iii). The cadastral map is the name given to the map, maintained by the Registers of Scotland showing the extent of all registered titles. See the 2012 Act, s 11.

72 Development Plan Approval is a service offered by Registers of Scotland to developers (e. g. house builders), that will identify and resolve any title extent issues in advance of the sale of individual houses (or plots) from the development. The development is approved and allocated a reference number and the location of each plot in the development is allocated a plot number.

73 Registers of Scotland, Guidance (n 51).

74 Ibid.

75 Ibid.

76 Ibid.

77 Registers of Scotland, Guidance (n 51).

78 Ibid. The logic of this is unclear. Acknowledgement by letter is stated to be “in accordance with usual Sasine practice.” It is to be hoped that in practice email acknowledgement will be adopted, with the letter is sent as an email attachment.

79 The Community Empowerment (Scotland) Bill.

80 The Legal Writings (Counterparts and Delivery) (Scotland) Bill.

81 See n 11.

82 The solicitor who gave the undertaking in Dryburgh (n 2).

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