Due to the emergency legislation in the Scottish Parliament this week, this blog post looks at the sale and purchase of property in Scotland.
Here we focus on one aspect of the conveyancing system – land registration, which features in the Coronavirus (Scotland) Bill. We describe the key role of the Registers of Scotland (RoS), a little-known public body.
Tempted to click away now? Bear with us. For land registration law is law as important as it is inconspicuous. As the Scottish Law Commission once said:
to nonlawyers it is so inconspicuous as to be invisible: few even realise that it exists.
…Much law is like plumbing: useful but unexciting and seldom thought about except when it goes wrong.
In practice, land registration enables not just the sale and purchase of people’s homes but every shop unit, factory, office building and farm in Scotland. It is not only important to individuals but, in ordinary times, to the wider economy.
Furthermore, the system has, in one key respect, “gone wrong”, due to the Coronavirus (COVID-19). And in parliamentary terms this is significant. As RoS is a non-ministerial government department, it is directly accountable to the Scottish Parliament, not Scottish Ministers, for its operations.
The Scottish conveyancing system and the importance of registration
First, some conveyancing basics. To buy property in Scotland, there is a three-stage process:
- the conclusion of the missives, the contract between the buyer and seller;
- settlement, where the purchase price is paid and the keys to the property are handed over; and
- registration of the transfer of ownership.
A little-known fact is that property only legally changes hands at the third stage, i.e. at the point of registration. Similarly, no mortgage can be taken out over a property without registration of a document known as a standard security.
These days registration usually takes place in RoS’s Land Register. In normal times, the relevant applications are submitted by the purchaser’s solicitor to RoS with little fanfare. This typically happens the day of settlement or, at the latest, the day after. Significantly, the solicitor is also acting on behalf of the purchaser’s lender here.
Coronavirus (COVID-19) – the doors close at Registers of Scotland
On 24 March, due to the Government’s Coronavirus (COVID-19) guidance on the protection of employees, the doors of the buildings in Edinburgh and Glasgow which house RoS closed and the staff were sent home.
This is hugely significant for the Scottish land registration system. For RoS can only accept paper-based applications for registering changes of ownership and standard securities.
The Law Society’s advice to solicitors – “do not proceed”
On the morning of 26 March, the Law Society of Scotland responded to the closure by advising its solicitors not to ‘settle’ pending transactions on behalf of their clients. This left those aiming to move house (in already stressful times) unsure what would happen next.
Why was the Law Society worried?
The Law Society was particularly worried about the reaction of mortgage lenders.
For registration does not just transfer ownership – it protects a purchaser and his or her lender from the future insolvency of the seller. After registration, the property cannot be claimed by the seller’s creditors.
On the other hand, without registration, the purchaser ultimately might end up with no property – and the purchaser’s lender with no asset to cover the cost of the loan.
While there are some relevant government measures to ease the situation in the pipeline, the risk is that insolvencies become more common in the weeks and months ahead. More than ever perhaps, the risk registration protects against is not a theoretical one.
RoS’s digital agenda
An organisation unable to perform a key function without paper is becoming increasingly unusual in the 21st Century. Moving away from paper – ‘going digital’ as an organisation – is one of four strategic objectives in the current Corporate Plan for RoS.
Furthermore, in 2018, the Scottish Parliament passed secondary legislation enabling online registration. However, implementation of this ‘on the ground’ has stalled in relation to transfers of ownership and standard securities. RoS’s latest Annual Report suggests that RoS’s business customers (i.e. solicitors and lenders) were not ready for this move.
How history will judge RoS on this issue is likely to depend, in part, on how successfully it now reacts to its current predicament, both in the short-term and the longer term.
RoS has the advantage of a little time to regroup, in that its closure is far from the only issue currently facing the conveyancing system. For example, surveyors have said that, for various reasons, accurately valuing property at present could be challenging.
Last week the UK Government issued guidance strongly discouraging the sale and purchase of property during the Coronavirus (COVID-19) crisis, leading some commentators to suggest the property market was being put into ‘deep freeze’. Equivalent guidance, tailored for Scotland, has just been published.
Since RoS has closed to new applications for registration, it has been working “round the clock” to agree a way forward with the Law Society of Scotland and UK Finance, the trade association for the UK’s financial and banking sector.
An early milestone was the interim guidance issued mid-afternoon on 26 March. This aims to enable some urgent transactions to ‘settle’ in the next week or so and remove some would-be property buyers from limbo.
In the interim guidance and the emergency legislation there is a key role for an existing feature of the conveyancing system, the system of advance notices, so it is worth explaining what these are.
Registration of an advance notice (possible by online application) provides protection for the purchaser and his or her lender during that period after the purchase price is paid but before registration occurs. In practice, advance notices act as a legal ‘place marker’, indicating to creditors (and others) the purchaser’s prior claim over the property and that an application for registration will follow.
As discussed above, the existing ‘gap period’ between settlement and registration is usually only a day or so. However, under the current law, advance notices can last for up to 35 days. RoS says they can also be renewed by the seller – assuming he or she has not become insolvent.
The interim approach seems to be anticipating renewal of existing advance notices where possible, buying RoS 35 days breathing space to resolve issues with ongoing transactions.
Where there is no existing advance notice on the system, RoS says it may be able to add a new one to the register in “extreme circumstances.” This is where people will face “serious personal or financial hardship” if they do not complete their transaction.
The Bill proposes an extension of the protective period of advance notices to 10 days beyond the date when RoS again opens its doors to new registration applications.
Assuming the Bill is passed, the more fundamental policy issue is how long we will have to wait before online registration is possible, particularly on a large scale. In other words, how quickly can RoS now build its digital capacity? RoS hopes to provide a further update on that this week.
RoS has faced crises before, notably the property downturn in 2007, affecting its financial position. However, this chapter in its history is likely to prompt a period of reflection about how ready RoS and its customers were for a pandemic. In particular, whether sufficient priority was given to RoS’s digital strategy, compared to other competing objectives.
Sarah Harvie-Clark, Senior Researcher, SPICe