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Advance notices and letters of obligation

14 December 15

A year after the designated day, questions are still arising in relation to advance notices, and when a letter of obligation remains necessary. This month's property briefing attempts to address these

by Frances Rooney, Chris Kerr

In Scotland, a disposition does not transfer ownership until it is registered. This means there is a gap between the transaction settling and the date on which title actually transfers. That remains the case under the Land Registration etc (Scotland) Act 2012 regime. The difference now is that there is a move away from the practice of sellers’ solicitors underwriting the risk of the gap period by letters of obligation, to the new statutory advance notices. In this article we consider the differences between the two, when it is still appropriate to use a letter of obligation, and some practice points.

What is the effect of an advance notice?

An advance notice gives notice that there is intention shortly to apply for registration of a particular deed. The notice is shown either on the Land Register application record or on the relevant sasine search sheet. It gives a priority period of 35 days within which to register the relevant deed. Provided the application for registration of the deed is received by RoS within that time, that deed will rank ahead of or defeat any competing deed registered within the same priority period. There is also protection against inhibitions and other entries in the personal register in the gap period. These protections are not financial in the sense of claims against RoS – they actually protect the real right by ranking the protected deed ahead of the competing one.

There are some exceptions, though. Advance notices do not protect against anything non-registrable, e.g. short leases, or notices under s 10(2A) of the Title Conditions (Scotland) Act 2003 or s 12(3) of the Tenements (Scotland) Act 2004.

Can advance notices protect all deeds?

No. Advance notices relate solely to deeds which will be land registered. Therefore, advance notices cannot protect deeds that will only be recorded in the Sasine Register.

Unilateral deeds cannot be protected either, though as the granter remains in control of the property, there is no risk for these anyway.

A joint professorial statement was issued in December 2014 which stated that where a solicitor acts for both lender and borrower, there is no need for an advance notice. The Property Law Committee as well as RoS have supported this view. Professors Gretton and Reid expand on the reasoning for this statement in Conveyancing 2014.

What happens if a competing deed is registered?

A competing deed in this sense is simply another deed affecting the same plot of ground. The mere fact that two deeds affect the same land within the same period will not necessarily mean that either is rejected outright. In simple terms, advance notices work like a ranking system.

For example, if deed A is protected and deed B is unprotected, deed A is registered as though deed B does not exist. Afterwards, RoS consider whether deed B can still be registered, ranking behind deed A. In some cases deed B would have to be removed from the register, usually because the granter would then no longer own the land, making deed B invalid.

To take the scenario where the two deeds are a disposition and a deed of servitude:

  • A grants the disposition to B and the deed of servitude to C. The disposition is protected by an advance notice but the deed of servitude is not (or its advance notice is second chronologically). The disposition will have priority, so the deed of servitude to C cannot be given effect (as B would be owner, not A who granted it). The deed of servitude will be rejected or removed from the register.
  • Same scenario, but the deed of servitude has an advance notice and the disposition has none (or a later advance notice). Here the deed is registered first, and the transfer second. The sale will be registered but with the servitude shown on the title sheet.
  • A grants the disposition to B, and B grants the deed of servitude to C. Both have advance notices (regardless of which order). Both deeds can be accepted, with B being named as owner on the title sheet and C’s servitude noted.

How does the priority period affect timescales?

The 35 days begins on the day after the advance notice application is entered in the application record or, as the case may be, recorded in Sasines.

This has an effect on timescales for conclusion of missives and completion of a transaction, since it is much less often now that completion can occur the next day.

There is no set timeframe as it will depend on the transaction, but generally parties will wait until missives are concluded before submitting an advance notice application. It is advisable to leave around a week for simple deals, especially for first registrations or transfers of part as these need hard copy submission of advance notice applications.

For example:
1. Dealing with whole of registered title. Missives concluded on Monday; online submission of advance notice on Tuesday; normally processed same day if received before 4pm; it takes effect the following day, i.e. Wednesday.
2. Transfer of part or first registration. Missives concluded on Monday; advance notice application sent out by DX to RoS (hard copy) on Tuesday; it arrives at RoS on Wednesday; processing times vary but suppose it is registered on Thursday; it takes effect on Friday.

In considering timing, it should be remembered that legal reports will normally be brought down to a day or two before they are actually issued. It may well be that an advance notice has just been registered and is effective but a legal report cannot yet show it. Progress of a particular application can be checked by calling RoS if need be. Normally both solicitors will be content to rely on RoS’s confirmation that an advance notice has been fully registered, though of course this would only be a fallback where timescales are tight – legal reports remain the preference where possible.

The more complex a deal is, the longer may be needed between conclusion and completion. Where there are several deeds involved, there may need to be several different advance notices, some of which may be online submission while others may need to be hard copy. Careful timing may be needed to ensure that advance notices are registered in the correct order, so timescales should be considered in advance of completion to minimise the chance of a contract breach.

Missives normally say now that advance notices will not be submitted any sooner than five or 10 working days before completion. Given the above considerations, it may be worth also specifying that they will not be submitted any later than, say, two to five working days before completion.

How is an application made?

The 2012 Act and subordinate legislation prescribe the exact format of advance notice applications, how they must be submitted and how notifications must be made. The application form is on the usual RoS portal.

If the deed is for a dealing with whole of a registered title, submission is completed online, and is complete when the applicant clicks the submit button. Notification is electronic and usually the same day.

If the deed is for transfer of part of a registered title, the form is completed and submitted online but must be followed up with a hard copy. The form should be printed out, signed with the relevant plan and sent to RoS.

If the deed will induce first registration, the form is completed online but not submitted online at all. It is printed out, signed with the plan, and sent to RoS.

The one exception to the above rules is for a flat, where the building itself is already outlined on the Land Register. In that case, the application can be submitted wholly online even though it is a transfer of part.

Property within two or more titles?

The general rule is one advance notice per deed. Therefore, if the titles are all land registered already, there only needs to be one advance notice. At the moment there is no dropdown option for deeds over land that is partially land registered and partially sasine. In that case, there should be two advance notice applications, one for each register.

Who should apply?

The applicant must be the party intending to grant the deed. They must either have the right to grant the deed at the point of submitting the advance notice, or else have the consent of the person who does have the right. This provision is included to deal with back-to-back deeds such as a purchase with a standard security. There, the advance notice for the disposition is submitted by the seller because the seller will grant the disposition and has the right to do so. The advance notice for the standard security is submitted by the purchaser, but as the purchaser is not yet owner, the purchaser needs the consent of the current owner (being the seller) to submit this second advance notice. Missives usually include a declaration of such consent. If missives are not being used, the relevant consent should be obtained in some other way. Email correspondence between law firms would suffice.

In practice, solicitors, rather than their clients, submit advance notices, and this is perfectly acceptable. It does not appear to be common practice for solicitors to seek specific authority from their clients to submit the notice, as it is simply part of the usual process of advising on the missives and dealing with registration.

How should the property be described?

The property must be described in the application in such a way as to allow RoS to delineate the boundaries on the cadastral map. The requirements are therefore the same as for description in a disposition. So, description by reference to a recorded deed or a new deed plan will suffice. Where the reference is to a new deed plan, that plan should be annexed to the application, docketed and signed along with the form. If there has been deed plan approval by RoS already, that reference can be used, for example:

All and whole that plot [or plots] of ground [colour reference of plot(s) from development plan] and marked plot number [or number] [number of plot or plots] on the Development Plan approved by the Keeper for the development registered under [title number] on [dd/mm/yyyy].

Where the property is a flat and the building of which it forms part has already been mapped onto the Land Register, there is no need to provide any map. If the building has not been mapped before, the deed plan (and therefore the advance notice plan) will need to show the extent of the building.

Where the deed relates to a lease which is not registered in the Land Register, a property address (if there is one) must also be given.

What if the deed will relate to part of a title?

Since the property description will need to be registered or recorded on the application record for the relevant title(s), parent titles should be mentioned in the property description so that RoS know which title(s) to note the advance notice against.

What about pertinents, common areas etc?

Generally no mention is necessary, especially if pertinents are of a general nature and fall within the boundaries of the same plot of land that is being protected anyway.

However the deed being registered is protected against other deeds that relate to the same plot of ground. There are a couple of scenarios in which “together with” type rights should be mentioned in the advance notice to protect those areas of ground too:

(1) Common parts should be referred to with reference to the new deed plan in the usual way. It can be useful to mention the share in the advance notice, but strictly speaking there is no need to do so. If the property itself is a flat and the common areas are within the tenement building, they do not need to be mappable, but if they are outwith the tenement extent, they should be mapped.

(2) New servitudes. As with common parts, simple wording will suffice – there is no need to narrate the type of servitude in detail, as it is the land and deed that matter. In most cases the description will simply refer back to the deed plan again, as new servitudes are usually mapped afresh as part of the registrable deed.

Of course, not all common parts or servitudes can be mapped. Indeed some new servitudes need not be mapped for the title sheet at all, as the 2012 Act specifically has exceptions for, e.g. pipes, cables and enclosed units such as septic tanks; nor do access routes need to be mapped as long as they are ancillary to the non-mappable pipes etc. Similarly, not all common parts will be mapped because it is not always possible to identify them easily.

RoS have already published their policy as regards common parts, so far as the registrable deed and title sheet are concerned. Advance notices are in some respects less flexible for RoS policy to cure, though, as the legislation is rather prescriptive. There could be some small risk where a disposition includes common parts which are not being mapped. The purchaser may have accepted the risk of these areas not being referred to on the title sheet because the real right can eventually be rendered unchallengeable by the 1973 Act, as positive prescription now runs on the registered deed, not just what is shown on the title sheet. However, if a competing deed was registered beforehand, that competing deed could well rank ahead.

In most such cases though, the burdened or relevant property for those ancillary rights will be the whole of the granter’s retained property, meaning that there will be no mapping issue. Instead, the description for the property in the advance notice could read along the lines of:

All and whole [define property] together with a pro indiviso share in [the area shown X on the plan/the retained property] and servitude rights over [define route with reference to plan, or retained property], forming part and portion of [parent title].

While there may be a risk for such unmapped rights, the risk is therefore likely to be very small and should not result in any particular change in practice.

What is the effect of a typo?

There is very little detail in an advance notice, so a typo or a wrong plan could make it harder to verify which deed is protected. Certainly if a party name changes or the plan is amended, it would be safer to apply for a new advance notice. Smaller typos may not be as fatal, but there is of course no case law on this yet. It would be understandable if a grantee wanted the granter to give a fresh advance notice rather than leave it to chance. A reasonable granter would normally comply with such a request, particularly given the obligations they are likely to have in the missives.

Can an advance notice be discharged?

Yes. These are submitted online in all cases other than where the original advance notice is recorded in Sasines.

Discharges can be useful if, for example, the property is going to be sold to a different purchaser than originally envisaged. They are rare even in those circumstances, because a new purchaser would be unlikely to complete the transaction within 35 days, and at the end of a priority period an advance notice automatically ceases to have effect. If the parties are the same there is probably even less need for a discharge, because there can be more than one advance notice at the same time. One would, if incorrect, just be seen as pro non scripto or rank behind the other one.

Are letters of obligation still possible?

Yes. Marsh has confirmed that the Master Policy will cover classic letters of obligation until at least October 2016. Advance notices will be the preference in most cases. However there are still some scenarios in which letters of obligation or undertaking are useful or even necessary:

(1) Certain non-registrable deeds. As advance notices are only possible for deeds being land registered, there will still be a couple of deed types that require letters of obligation. These are short leases (i.e. not over 20 years), and standard securities over sasine land (until 1 April 2016, from which date these trigger land registration). Classic letters of obligation could not be covered by the Master Policy where granted for title conditions even before the 2012 Act, so sasine deeds of servitude and so on will continue to be granted without letter of obligation or advance notices.

(2) Undertakings to deliver discharge of standard security. These will continue to be needed in the usual way. For the moment these will still require to be firm undertakings, though there are ongoing discussions as to whether they can one day be incorporated into missives as clients’ obligations. Discharges might one day be purely electronic, but for now practice continues as normal.

(3) Complex transactions with more than one deed. A chain of deeds can present practical and contractual problems with trying to ensure that the correct advance notices are processed in the correct order, particularly when some need to be submitted online and others by hard copy. In such cases letters of obligation can be particularly useful.

(4) Tight timescales. Advance notices should be the starting point, but it can happen that the application simply is not processed within the timeframe reasonably envisaged by the parties, or a typo in an advance notice means a second one needs to be submitted. Sometimes a letter of obligation can help a transaction to complete instead of waiting another day or two. Such a letter of obligation can be to clear the records to the earlier of (a) 14 days from the date the legal report is brought down to, and (b) the date on which the advance notice takes effect.

What should a letter of obligation say?

To be classic, the usual wording should be used with slight adjustments to refer to legal reports instead of Form 10/12 searches, and to refer to a title sheet instead of a land certificate. Where the letter of obligation is being granted simply to fill the gap between completion and the advance notice being effective, the wording suggested at point (4) above can be used.

The wording relating to the answers in an application form being correct, is generally not used any more. Missives and/or emails between the firms can deal with approval of the relevant form where needed (see Journal, May 2015, 10). SDLT/LBTT wording can be put directly into missives, too.

Frances Rooney, head of land registration, Harper Macleod, and Chris Kerr, head of registration policy, Registers of Scotland

In-House Interview

We regret that the in-house interview planned for this month has been delayed to a later date.

 

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