Commercial property transactions common standard

Property Standardisation Group promotes use of agreed documents and procedures in commercial property transactions

1st July 2003 | Iain McNiven

There are many useful tasks which lawyers can perform. Reinventing the wheel is not one of them.

It was with that thought in mind that the Property Standardisation Group (“PSG”) was formed. The PSG initially grew out of discussions amongst representatives of Dundas & Wilson, Maclay Murray & Spens, McGrigor Donald and Shepherd + Wedderburn. The firms were concerned that too much time was being spent in property transactions in negotiating forms of documentation and seeking to agree procedures, all of which could and should be regulated by a common standard. The documents and procedures were not contentious, as such, but we all had our own ways of doing things and, ultimately, of achieving the same end. It was a bit like workmen arguing over whose tools were better, when they could be getting on with using the tools to perform the actual job in question.

The immediate benefits of standardising property documents and procedures were seen as:

avoiding wasting time on minutiae, thereby allowing us to concentrate on the things that really mattered in the transaction
speeding up the whole process for the benefit of the clients and also thereby making transactions more profitable, and
managing risk.

The PSG therefore set about agreeing amongst themselves forms of documentation and procedures that were common currency in commercial property transactions: if you want a different analogy, the PSG members were abandoning their francs, deutschmarks etc and signing up to the Euro.

From the outset, the philosophy of the PSG was to agree documents and procedures that each member firm would follow in transactions amongst themselves and to promote the use of them in transactions with other firms. To that end the PSG have enlisted the help of other firms who are also engaged in commercial property work (referred to as “consultants”) to whom the PSG member firms are reporting progress and from whom they invite comment. The consultants for this purpose are Biggart Baillie, Burness, Brodies, DLA, MacRoberts, Paull & Williamsons, Semple Fraser and Thorntons: their input is gratefully acknowledged by the PSG. The clear aim is however to agree forms of documentation and procedure which can be used by all firms engaged in commercial property work, not merely restricted to the firms involved in the PSG to date.

Due Diligence Questionnaire

The first document which the PSG produced went under various names initially but the name “Due Diligence Questionnaire” (“DDQ”) was eventually settled on. Unashamedly, but to good purpose, taking the lead from our English colleagues, the idea was to standardise preliminary or pre-contract enquiries for the purchase of commercial property, whether for occupation or investment. The DDQ thus sets out in logical order a series of such standard enquiries, seeking to be as comprehensive as possible and based on the experience of the PSG member firms. Annexed to the DDQ are separate sections in relation to such non-standard matters as occupational leases, employees, VAT treatment and so forth.

One of the key features of the DDQ is that it is set up in electronic format, so that it can be issued and completed online, with the facility for the seller’s solicitor to answer initial enquiries, the purchaser’s solicitor to respond and so forth until the point in question is exhausted. The respective solicitors then have in a single document a complete set of enquiries and answers, which replaces the current inefficient system of dealing with matters by correspondence which is scattered throughout a paper file and often drafted from scratch, despite the fact that it is, time after time, going over the same old ground.

Putting the non-standard enquiries into annexations to the DDQ enables the seller to send these sections for review/comment to relevant specialists, such as their managing agents in the case of lease enquiries and their accountants in the case of VAT enquiries. Accompanying the DDQ is a Guidance Note, which explains how the DDQ is to be used.

Letters of Obligation

The PSG then moved on to letters of obligation, as being a commodity product in property transactions.

A standard set of ten agreed forms was produced: three for sales (Sasine/first registration/registered interest); three for loan transactions (same format); and four for leases (for use according to whether the respective interests of the parties are registered or registrable). Again, the documents are accompanied by Guidance Notes.

The forms of letter of obligation follow, but elaborate upon, the forms in the Registration of Title Practice Book etc.. The suite of forms for lease transactions fills what the PSG perceived as a gap in the existing styles which are available, and was also designed to avoid fruitless debate that holds up transactions. How often has there been a debate as to whether a letter of obligation is to be granted at all in a lease transaction, and how often is there that debate because one or other party isn’t entirely sure what the letter of obligation should look like?

Both the forms of letter of obligation and Guidance Notes have been reviewed and commented upon by the Law Society and the insurers, Marsh. They comply with the insurers’ requirements for “classic” letters of obligation.

PISCES

The PSG is as committed to speeding processes by the use of technology as it is to agreeing forms of documents. To that end, all four PSG member firms have joined PISCES. PISCES is an electronic data exchange standard enabling the electronic transfer of information directly between different software packages. For example, information from lease reports such as rent payment dates, rent review dates, current rent etc can be transferred directly onto the managing agents’ software without having to reinput any information. This will not only save time and therefore money but it also reduces the risk of errors.

PISCES is endorsed by the Investment Property Forum. Executive members of PISCES include Aberdeen Property Investors, British Land, Legal & General, Morley and Prudential, together with a number of law firms, including Clifford Chance, Linklaters, Nabarro Nathanson and Berwin Leighton Paisner. Aberdeen Property Investors, for one, insist that all software suppliers must be PISCES compliant. One very large UK property company is on record as saying that, in the fairly near future, it will make PISCES compatibility a necessary condition for the engagement of law firms on its panel.

The PSG is working with PISCES in relation to tartanising its processes. The PISCES website is www.pisces.co.uk.

The Way Forward

In addition to its discussion with the Law Society, the PSG has been liaising with the British Property Federation and other property bodies with a view to disseminating information about its activities. As well as looking at the hosting of its documents on suitable internet sites, a PSG website has now been set up.

The PSG will be delighted to hear from other firms who are interested in its aims, with a view to looking at how best to broaden the PSG. If you are interested or wish copies of any of the PSG documentation referred to in this article please go to the PSG website – www.psglegal.co.uk

The PSG documentation will be branded, and accompanying Guidance Notes indicate that deviations from its standard forms are not authorised by the PSG.

It is hoped that the PSG’s work will allow lawyers to do something useful with their time for the benefit of both clients and lawyers – and something which doesn’t involve wheels.

Iain Macniven, Maclay Murray & Spens

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