Recent key changes to Scottish Property Law
Jane Henderson and Rachel Grant of Brodies LLP highlight some of the significant changes for Insolvency Practitioners (IPs) to be aware of when dealing with Scottish property.
Whilst the Bankruptcy and Debt Advice (Scotland) Act 2014 has been headline news for those working in insolvency in Scotland, the reform of personal insolvency law is not the only recent major legislative change which will affect IPs in Scotland.
Land Registration etc. (Scotland) Act 2012
Significantly reforming Scottish property law, the Land Registration etc. (Scotland) Act 2012, came into force on 8 December 2014. Perhaps the most significant change to Scots property law in over 30 years, the 2012 Act seeks to address legal and practical difficulties which were perceived to exist under the previous legislation and its reforms are numerous and wide ranging.
Whilst there has been a Scottish Land Register for many years, it has been operating alongside the General Register of Sasines, a vast and ancient deeds register. Transfer of land into the Land Register has been slow and about 70% of Scotland's land mass remains unregistered. One of the aims of the 2012 Act is for all land in Scotland to be mapped and registered in a single land register within 10 years.
The key changes brought about by the Act are detailed here:
Transfers of land
All transfers of land will now trigger registration, as will the grant of some deeds, such as long leases (those lasting over 20 years). In addition, the Keeper of the Registers of Scotland now has the power to register any title without any application having been made by the owner.
For most transactions, Letters of Obligation are being replaced by Advance Notices. The new system of Advance Notices will protect against competing deeds presented to the Register within a 35-day period. Additional Advance Notices can be applied for at any time to provide further periods of protection. The new system should provide greater comfort to those involved in insolvency sales. Previously, the seller's solicitor would often refuse to grant a Letter of Obligation, to avoid the risk of a competing interest being registered between the date of completion of a sale and registration. Now, an Advance Notice will protect a deed from the subsequent registration of a competing deed and will also alert insolvency practitioners to proposed transactions in respect of a property relevant to them. A Legal Report (search) will disclose any Advance Notices.
Indemnity replaced by warranty
Previously there was provision for the Keeper to indemnify any person who suffered loss as a result of rectification of the Register or a refusal by or omission of the Keeper to make such a rectification. The indemnity has been replaced by a warranty that the title sheet is accurate at the time of registration. Now, the Keeper will generally only compensate the applicant where loss has been incurred as a result of the rectification of an inaccuracy in the title sheet. In broad terms, whilst changes have been introduced that will make it easier to rectify inaccuracies; it will be more difficult to obtain compensation for those adversely affected.
Before the Act came into force, if a deed was registered, the proprietor named on the title sheet was the legal owner of that property and the title sheet could not be changed unless the transfer to the named proprietor was fraudulent or careless. That position has changed. Challenges can now be brought and the Register rectified if there is a "manifest inaccuracy" e.g. the information on the Register does not reflect the true legal position. Provision is made for judicial determination of any disputes or questions relating to the extent of ownership of property. However, once a title has been registered under the 2012 Act, if it is then sold on, even if the seller did not in fact own the property, provided the purchaser acted in good faith and there has been one year's peaceful possession of the property, the purchaser will obtain good title.
New system of caveats
A new system of caveats has been introduced, supplementing Notices of Litigiosity. A caveat appearing on a title sheet is intended to act as a warning that civil court proceedings relating to that property are ongoing. A caveat is obtained by a party to those proceedings applying to the court. The applicant must satisfy the court that he has a prima facie case, that there is a risk of his being prejudiced by the other party dealing with the property and that it is reasonable in all the circumstances to make an order granting a caveat. The caveat must be registered in the Land Register for it to have effect. Caveats will appear on the title sheet and expire after 12 months unless renewed.
New statutory duty of care owed to the Keeper
A new statutory duty of care owed to the Keeper has been introduced. Persons granting deeds, applicants and their agents must take reasonable care to ensure that the deed to be registered and all information and documentation supplied with an application do not induce the Keeper inadvertently to make the Register inaccurate. Should the Keeper suffer loss as a result of a person breaching the duty of care, the Keeper will be entitled to recover that loss from that person. A statutory criminal offence has also been introduced for those who, in relation to an application for registration, either knowingly or recklessly make a materially false or misleading statement or intentionally or recklessly fail to disclose all material information.
Changes to conveyancing practice
There have also been a number of changes made to conveyancing practice. The new "one shot rule" means that incomplete or defective applications will be rejected without further enquiry, making it very important for conveyancers to get it right first time. In the event of an application being rejected, the original date of registration will be lost and a new application will be required. New forms and search reports have been introduced along with the cadastral map (showing all registered geospatial data relating to registered plots of land). Land and Charge Certificates are now in electronic form and notification of registration will (usually) be by email.
Significant tax changes have also been brought into force. The new Land and Buildings Transaction Tax (LBTT) came into effect from 1 April, 2015. Applying to Scotland only, LBTT has replaced Stamp Duty Land Tax (SDLT). LBTT is applied to residential and commercial land and buildings transactions (including commercial purchases and commercial leases) where a chargeable interest is acquired.
Changes still to come
Also of interest are the Scottish Government proposals to implement its commitment to land reform. The Community Empowerment (Scotland) Bill aims to reform existing provisions on the community right to buy. Also, following a consultation, which ended in February 2015, the Scottish Government, has confirmed that a Land Reform Bill will be put before the Scottish Parliament within this parliamentary term. A number of measures have been proposed, including setting up a Scottish Land Reform Commission, improving the transparency of land ownership and the introduction of a Land Rights and Responsibilities Policy.
While the aforementioned tax changes are now in force, we have yet to see the full effect of the Land Registration etc. (Scotland) Act 2012 and how it will work in practice. We also await the outcome of the Scottish Government proposals. In the meantime, this article highlights some of the significant changes to be aware of when dealing with Scottish property.
This article featured in the May 2015 issue of Impecunias.