Long, and often hard, experience has taught the grizzled practitioner that the initial experience with a brand-new major system is not the best time to provide a review of its merits and demerits.
Certainly, the first week dealing with the new system of Land Registration in one of the busiest property and lending practices in Scotland has been far from pleasant. Nostradamus like qualities were not required to correctly foresee the conveyancing system in Scotland buckling as the new system was implemented, and this it duly did in many respects, on Friday 12th December 2014 just five days into the new environment. Unemptied removal vans and stressed people were scattered over the country as a result.
It is certain that these initial problems will gradually resolve themselves but, what is absolutely clear from the experience so far and the intelligence that was gained prior to the new arrangements going live, was that the impact upon day-to-day conveyancing would be greater than anticipated, and that the “handholding” that the conveyancing profession has received for 35 years from the Land Register has been consigned to history.
John Grisham eat your heart out!
Before looking at some insights for the lending community, it is worth providing a little background. Behind the quite astonishingly dry text of the new Land Registration Etc. (Scotland) Act 2012 lies a story that would be worthy of John Grisham himself. An ambitious government seeking self-determination for Scotland either in the then upcoming referendum or over a longer period focused on land reform as a key pillar in the delivery of greater social justice, a government Department seeking to reduce its liabilities and, almost certainly, its costs base and an academic fraternity upset at the debasement of Scottish Property Law by the creation by the Land Register of Scotland of a parallel property law.
Add in some European directives, a sleepy profession pummelled by the financial crash of 2008 and its aftermath together with an uninterested public and press and the result is a really substantial technical change with the facility for considerable further technical change in the future.
Missed Opportunity
Sadly, it also represents an incredible missed opportunity. The Scottish conveyancing system is not in good shape. There is a desperate need to create real common standards properly using modern electronic communication. The conveyancing system remains essentially a cottage industry and the attempts by those such as McVey and Murricane to create modernised processes often receive a less than rapturous reception by both the profession and regulators. Without the volume and size of the market south of the border together with a completely fallacious and superficial maintenance of the “formal offer” at the outset of the conveyancing process, Scottish conveyancing is a model of nonconformity and pursuance the lowest common denominator.
The new Act does nothing for the consumer, who, after all, pays the bills. In fact, it makes the life of the consumer more difficult in many circumstances. For all its failings, the previous system under the 1979 Land Registration Act had evolved where there was an active resolution system operated by the Land Register that solicitors could tap into prior to the conclusion of a transaction. It meant that interpretation issues on property law, whether that decision was ultimately academically correct or otherwise, could be dealt with in conjunction with the Land Register to elicit certainty of outcome. That has all disappeared and we are down to solicitors requiring to vouch many aspects under penalty of being sued by the Land Register if they have got it wrong and, criminal exposure, if they have recklessly got it wrong.
It does not require somebody to be medically expert in dealing with cranial material to calculate that solicitors will just become risk averse with the result that issues inconsequential in reality will attract attention and concern that is not really merited.
All of this is accentuated by the fact that other than checking their website the practitioner is not able to obtain any information from the Land Register who will no longer give an opinion. Regrettably, the website operated by the Land Register is relatively Spartan on interpretive information and, at the time of preparing this note on 14th December 2014, rejection material from the Land Register makes reference to information on their website some of which currently does not exist. As can be imagined, this, at the current time, is creating a rather chaotic environment though, as stated at the outset, this will surely improve over time.
Bright spots for Lenders (But see our Stop press material)
There are a couple of progressive elements within the Act and, strangely enough, these will benefit lenders.
The first is the use of Advance Notices which are similar but not the same as English priority notices. These do away with the absurd Letters of Obligation between solicitors and the exposed “Blind period” between a lender making available the mortgage advance and the registration of the mortgage (Standard Security) in favour of that lender. However, even here, there appears to be an attempt to “snatch defeat from the jaws of victory” in that the Law Society of Scotland appears to be suggesting that it will not be necessary in normal practice to obtain an Advance Notice to protect the lender in respect of that lender’s Standard Security.
This is not the view of this firm. With several practitioners each having over 35 years detailed experience in the area of conveyancing and lending, it would seem to be ridiculous not to take the opportunity of providing the lender with a priority which covers the period from when the loan funds are utilised to the registration of their mortgage. The sensible advice would appear to be to amend the relevant Part 2 of the CML Handbook to insist that the solicitor acting for the lender obtains an Advance Notice in respect of the security to be granted in favour of the lender.
The second benefit for lenders will be a much reduced period in which evidence of Scottish registration will be available. In these days of intense scrutiny over balance sheets such earlier and clear evidence will be welcomed by the lending community. In the past certain types of application to the Land Register have taken years to resolve. Often these would be new house purchasers, rural purchases or development situations. Not only was the passing of time of concern but on occasion whole rafts of sequential applications other would fall down when the initial application was rejected. Such circumstances have resulted in claims and losses on a number of occasions and where liability is not at all clear.
Because the new system does not involve much review by the Land Register except in respect of plans matters, and depends much more substantially on the vouching of the title by the submitting solicitor, the speed of registration should be considerably quicker. Speeds of weeks rather than months are promised though one must accept that at the outset this will not necessarily be achieved. Importantly, especially for lenders, there is total dematerialisation. There is no option to have traditional paper Land or Charge Certificates. These can be downloaded as PDFs but there is also provision for the inclusion of email addresses when registering the charge so that material could go directly to the lender. If lenders do not currently accept Land and Charge Certificates by electronic delivery they should adopt that facility.
Unfortunately, at the moment, there does not seem provision to include a reference number within the email that provides access to the “Landing Page” from where the title can be downloaded. The dematerialisation and the speed of registration raises another issue for lenders when considering the processes which their staff will follow in reviewing the “titles”. With a limited exception Scotland does not have an electronic discharge system where the acknowledgement by the lender of the redemption funds is sufficient to terminate their interest. There is provision for electronic discharges within the Automated Registration of Title to Land system that continues under the new Land Registration environment but, as far as can be ascertained at this stage, the system retains all of the inadequacies that have rather dogged ARTL since the outset.
What this means in practice is that the formal discharge which is required to terminate the interest of the outgoing lender in Scotland, be it on a purchase or a remortgage, will only follow after completion. The period of time varies from just a few days to a few weeks depending upon a number of different circumstances. What this means is that the title of a new purchaser (and consequently the interest of that purchaser’s lender) will often show, when initially registered, the interest of the outgoing lender. However, the new system, being dematerialised, will automatically update itself when the discharge of the outgoing lender’s security is presented to the Land register.
Consequential recalibration of processes within lender’s deeds Departments
Lenders need to recalibrate their processes when dealing with Scottish titles both as to timescales and the content of the dematerialised Land and Charge Certificates when received. All of this is still to settle down but lenders should first of all be aware of the change in timescales and secondly the need to address their processes when the charge of the outgoing lender is still shown. Given the ease of checking the position directly using the electronic access provided by the Land Register of Scotland it is probably simplest to carry out some of this process internally. McVey and Murricane are happy to provide advice in this respect.
Having considered some of the issues which may be beneficial to a lender, it is important to highlight an area where lenders’ underwriting departments may see a considerable increase in volume in Scottish enquiries. As stated above the “comfort blanket” of the imprimatur of the Land Register of Scotland has disappeared and many solicitors will feel concern about decisions that require to be made in respect of property law issues. There have been two generations of solicitors since the advent of the 1979 system and these generations of solicitors have, to a large degree, not required to hone decision-making skills in these areas because they could rely upon the Land Register.
With this lack of experience and given the extremely risk averse nature of the profession at the current time it is likely that solicitors will seek the approval of lenders in “views” that require to be taken. Inevitably, in the vast majority of situations lenders will not have the knowledge or expertise to assist in that respect. On most occasions the lender will require to indicate to the solicitor that the lender is dependent upon the expertise of the instructed legal firm. This is likely to exacerbate the unhappiness of some sections of the Scottish conveyancing fraternity that was such a considerable part of the debate on separate representation in 2013.
There may be some advantage to lenders in adjusting their processes take into account of the likely increased volume of queries in this area and perhaps providing an overall guidance to the enquiring solicitor rather than just a bald “you make a decision”. McVey and Murricane are happy to assist lenders in creating such material that hopefully would substantially reduce time expended by lenders and improve relationships with the profession.
And there is more
In the next few weeks McVey and Murricane will issue Part 2 of the detailed insight into the 2012 Act which will address the early experience of the new system and the more esoteric issues raised by the new legislation.
