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The system is sound, but...

16 March 15

Property briefing: Sheriff Principal Bowen's Report makes recommendations regarding the Guarantee Fund, and solicitors’ duties when acting for new-build purchasers; Keeper accepts Aronson decision

by Peter Nicholson

Problem cases that have arisen do not indicate systemic issues in Scottish conveyancing practice, according to a report commissioned by the Law Society of Scotland from former sheriff principal, Edward Bowen QC.

However, his report makes a number of recommendations, including possible changes to the Guarantee Fund, and clarification of the legal duty of a solicitor acting for the purchaser of a new-build house.

Sheriff Principal Bowen was asked to undertake an independent review of consumer protections for people buying and selling property in Scotland, following the well-publicised cases of Sinclair Brebner’s flat in Aberdeen, and the Happy Valley development in West Lothian.

The two cases, the sheriff principal observes, arose for very different reasons but each involved clients being left without proper title to land for which they had paid, and with no obvious remedy.

In Brebner’s case, “a dishonest act, likely to have been that of a solicitor who did not act for him, appears to be the root cause of the problem”, the report states. Although he might have a claim against the Guarantee Fund – a matter not yet established – before he could make a claim he had to exhaust other possible remedies, a process that had been lengthy, protracted and expensive, “as well as creating the perception of members of the legal profession pointing the finger of blame at each other with no one prepared to take ultimate responsibility”.

The Happy Valley impasse was caused by a builder building on land beyond what he had title to, compounded by the company that purchased the adjoining land making an “exorbitant demand” before the house purchasers could obtain title, in the mistaken belief that its claim would ultimately be met by professional indemnity insurers. There was an unresolved division of expert opinion as to whether the solicitors who originally acted for the house purchasers had been negligent.

Emphasising that it was not his task to resolve the particular cases, Sheriff Principal Bowen concluded that they both arose from highly complex and unusual facts and “are not indicative of a systemic problem in conveyancing practice”; nevertheless they were “very damaging to the image of the legal profession”.

His recommendations (some of which would require legislation) include:

  • consideration of the widening of the scope of the Guarantee Fund, to add a discretionary power to make a payment without having to exhaust legal processes, where there is strong prima facie evidence of dishonesty on the part of a solicitor, leading or likely to lead to pecuniary loss;
  • a possible change of name to “Compensation Fund”, to avoid confusion as to when payments will be made;
  • possible introduction of a new protection for purchasers of new-build houses against the builder’s insolvency – which would have to be actioned by Scottish ministers;
  • clarification of the legal duty of a solicitor acting for the purchaser of such a house.

Responding to the report, the President, Alistair Morris, said the Society took its duty to protect the interests of the consumers of legal services extremely seriously. It was “reassuring for both the legal profession and members of the public” that these cases did not indicate systemic issues.

Some of the recommendations are being considered through the separate review of the Guarantee Fund currently being carried out by KPMG. “We will be taking forward actions in response to the other recommendations, whilst some of the suggestions made, such as the establishment of a possible new fund for homebuyers, would be a matter for Scottish ministers,” the President added.

The Society is continuing to liaise with insurers and others concerned in an attempt to achieve progress towards a settlement in the cases in question.

Click here to view the report.

  • The Society has commissioned research to find out what homebuyers in Scotland think are the key issues involved in buying or selling a property, to help understand issues faced by clients with a view to improving solicitors’ role in the process. Anyone interested in taking part can go to www.snapsurveys.com/wh/s.asp?k=141441299738
Peter Nicholson, Editor


Keeper accepts Aronson decision

The Keeper of the Registers has decided not to appeal an Outer House decision which ruled that she was incorrectly applying s 26 of the Conveyancing and Feudal Reform (Scotland) Act 1970 to certain sales following repossession.

Registers Update no 44, issued in February, confirms that Lord Doherty’s ruling in Aronson v Keeper of the Registers of Scotland [2014] CSOH 176 (19 December 2014) will be allowed to stand.

In Aronson, the purchaser of a flat sold by a repossessing creditor sought rectification of the register by deleting references in the charges section to three further standard securities granted by the previous owner. Repossession was completed before, but the sale to Aronson took place after, the UK Supreme Court’s decision in Royal Bank of Scotland v Wilson, which held that the common practice previously followed in repossessions, including that involving Aronson’s flat, did not comply with the Act.

The Keeper took s 26, which lifts the effect of a security and any postponed or pari passu securities on a sale by the creditor, as applying only to sale in accordance with the Act, and if applicants for subsequent registration were unable to affirm such compliance, the other securities remained in effect. Lord Doherty ruled that “sale” in s 26 was apt to include any case where the subjects had been sold by a creditor in a standard security, whether or not there had been any irregularity in the repossession proceedings.

The Keeper will now rectify titles in all similar cases, estimated to be around 130, though indemnity will continue to be excluded in respect of loss which may arise as a result of the failure to comply with the statutory procedures. This will be done under s 80 of the Land Registration (Scotland) Act 2012 and no application for rectification need be made.

 

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