Lenders should take note of key changes to the Scottish land registration system on 8 December 2014.
Referred to as the 'designated day', the registration process will change significantly as the Land Registration etc (Scotland) Act 2012 (the Act) comes into force on that date.
One shot rule
Applications must be right first time or they risk being rejected without further enquiry. There is 'one shot' to get it right. Under the previous system, the Keeper could raise enquiries and practitioners could make certain adjustments to applications during the registration process. The application then proceeded to completion with the original submission date and, ideally, with a full state guarantee of title. The one shot rule will markedly reduce the instances where enquiries can be made meaning that the application will be rejected and any original submission date lost.
The one shot rule may not affect many straightforward standard security applications. But, where the standard security is granted simultaneously with the borrower taking title to the property, and that underlying application is rejected, this will affect lenders. The risk is that the lender's standard security has nothing to secure.
Following the designated day, extra care should be exercised (by both lender and their legal representative) when signing off on a title where the borrower is not yet registered owner.
The introduction of 'advance notices' will soften the blow of the one shot rule.
In Scotland the gap between completing a deed (gaining a personal right) and registering a deed (to gain a real right) is covered by a letter between solicitors. That letter guarantees that, during the gap period, no competing deed will be registered and the granter will not become insolvent. These letters will, with a small number of exceptions, disappear from 8 December.
From the designated day, Scotland will align more closely with the system south of the border as the gap period will now be covered by an advance notice issued by the Land Register. These notices have a very similar effect to 'priority periods' granted by the Land Registry in England and Wales. The guarantee given by the advance notice is for a specific deed for 35 days from the date the notice is registered in the Land Register. Any application to register that deed during those 35 days will take priority over any competing deed or will be protected from the insolvency of the granter.
If the one shot rule applies, but the application can be remedied and re-submitted during the 35 day advance notice period, it will still have the protection of the advance notice despite the fact that it's not the first time it has been presented.
Acceptance of the application for registration does not necessarily mean everyone can relax. The application may meet the criteria for registration but, where any doubt exists, warranty can either be excluded or limited. Warranty is the state guarantee of title that continues under the Act (previously called indemnity) and which, if breached, results in the Keeper having to pay compensation to the applicant if the inaccuracy is rectified. But, unlike its predecessor, warranty does not provide protection to third parties who may suffer loss if the title sheet is rectified.
There is also no duty on the Keeper to notify the applicant where warranty is being excluded or limited. The first time the applicant might become aware there is an issue is when registration is completed and the title sheet is returned.
It is possible to apply post-registration to upgrade the warranty if the additional or missing piece of information that reduced the warranty in the first place can be produced.
The changes coming into effect on the designated day are welcome. They will align the system more closely to that in England and Wales (benefiting cross-border transactions) and will lead to the completion of the Land Register in Scotland. The land registration system will be realigned with property law but responsibility will shift to practitioners and applicants for any changes they are making to the register away from the Keeper of the Land Register.
These changes, together with the replacement of SDLT with the new Land and Buildings Transaction Tax (LBTT) will have a significant effect on Scottish real estate transactions. To discuss the impact on your business, please contact Sheelagh Cooley, or any other member of our Edinburgh real estate team.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.