Land attachment and suspensive missives

The Conveyancing Committee of the Society has been working with other committees in addressing the Bankruptcy and Diligence (Scotland) Bill. I was asked to produce this article to highlight one cause of concern for conveyancers and other practitioners, relating to land attachment.

Part 4 of the bill introduces this radical new form of diligence. Essentially it allows a creditor holding a decree to “attach” the debtor’s heritable property and if the debt is not paid within six months to apply to the court for a warrant for sale of the property. Any creditor holding a decree for more than £1,500 will have this facility. It is very powerful and its use or threatened use is likely to be widespread.

One practical concern relates to the position of third party purchasers under missives. A bargain entered into by such a purchaser in good faith would be vulnerable to the placing of a land attachment by a debtor and the subsequent obtaining of a warrant for sale of the property out from under the purchaser’s bargain. When this was drawn to the Executive’s attention they pointed out that the six month period before a warrant for sale could be obtained would be sufficient protection to such a purchaser because the vast majority of missives proceed to full settlement of the transaction well within six months. While this may generally be true, it still leaves vulnerable a significant minority of transactions where a longer period for entry than six months was provided, including in particular transactions which are subject to a suspensive condition, such as for planning, the purification of which will commonly be much longer than six months.

The caveat and its effect

To combat this risk, therefore, there is included in the bill at s 80 a “caveat” provision. This provides that where a third party has entered into a contract to purchase land from a debtor but ownership has not been transferred to the third party, that third party may, for the purpose of receiving intimation of any application by the creditor for a warrant for sale, register in the appropriate property register a notice in the form prescribed. In effect what this will mean in practice is that any third party purchaser entering missives, whether suspensively conditional or otherwise, where the settlement date is or may be more than six months away, will be best advised to register a notice of this kind.

What does such a notice achieve for the purchaser? The answer is to be found in s 88 which provides that where the creditor applies for a warrant for sale and a third party purchaser has registered such a notice, the sheriff considering the application may (emphasis added) make an order sisting the application or requiring the purchaser to pay the price under the contract to the creditor. The sheriff is also to be satisfied that the prospective purchaser did not enter into the contract for the purpose of defeating the rights of creditors, and that the purchaser and the debtor undertake to proceed with the purchase under the contract without undue delay.

Discretion to refuse

The foregoing probably oversimplifies the provisions of the bill somewhat, but the important thing to note in this context is the use of the word “may” as I have emphasised it above. From the third party purchaser’s standpoint this word has the effect of giving the sheriff a discretion as to whether or not to make an order to sist or to require payment of the price to the debtor. In turn this leaves open the possibility that the sheriff may choose not to make such an order and it follows, logically enough, that if such an order is not made, then in turn what the sheriff will do is grant the application by the creditor for a warrant for sale. It will therefore be seen that the facility of the caveat notice does not achieve for the third party purchaser the absolute protection which he needs.

This point has been raised with the Executive by the Society on a number of occasions since the bill was published, pointing out that unless the discretion was removed, by the amendment of the word “may” to “shall”, then the protection intended to be granted to the third party purchaser is flawed, and the uncertainty which such protection was designed to eliminate is not in fact eliminated.

Acceptable risk?

The Executive’s position is that a purchaser under conditional missives is already vulnerable to intervening incumbrances such as a sale of the property to another party, or the granting of a standard security, or indeed of insolvency of the seller. The Society’s standpoint is that, while this may be true, these risks are already recognised by the market and, in essence, factored in to any relevant situation. Furthermore these risks are relatively remote so far as the actings of the seller are concerned and in the case of insolvency, the appointed insolvency practitioner would be highly likely to wish to proceed anyway with the relative bargain as being the best means of realising the asset. By contrast, it was submitted, the likely incidence of intervention by an attaching creditor is much higher and much less controllable in the sense that the creditor in question will be motivated only to sell the property for a sum sufficient to realise his debt, which might be relatively small, and will be unconcerned about the overall picture, including in particular the innocent third party purchaser under conditional missives.

Concerns have been expressed that the Society’s views may have too much of a “conveyancing” focus and the Executive has asked for views on the same point from practitioners in the insolvency or debt recovery fields.

Accordingly, if any reader from these particular areas of practice has any comments, he or she is strongly requested to communicate these views to the Society so that in turn these can be reflected in further discussions with the Executive. Similarly, any additional comments from conveyancers would be welcome. Comments both of agreement, or differing from those expressed by the Society, would be welcomed, to assist in the next round of dialogue with the Executive. Any comments can be sent to James Ness at the Society (jamesness@lawscot.org.uk; t: 0131 476 8174).

This article does not offer a comprehensive view of this important piece of proposed legislation and the Society is in dialogue with the Executive regarding other issues, including the legal issues surrounding the automatic reversion of the debtor’s dwellinghouse.

Donald B Reid is chairman of Mitchells Roberton and a member of the Conveyancing Committee