ARTL - now and then?

To date the majority of queries or concerns with regard to ARTL have tended to focus not on the technical issues of IT, swipe cards, PKI infrastructure or the like but rather on how ARTL will actually operate on a basic, day to day level. Although no-one can determine exactly how practice will develop over the early weeks and months, the following suggestions would, we feel, not be too far from how we perceive the system operating between agents.

Before looking at specific aspects of a typical conveyancing transaction as it operates now and how it may work under ARTL in the future, there is one general comment to make. This is to emphasise that the Society has been keen to ensure that there should be a minimum of new rules and guidelines introduced as a consequence of the introduction of ARTL. The thrust to date has been to ensure that, wherever possible, the paper and electronic practices resemble one another as much as may be practical in all the circumstances of a standard transaction. Obviously, certain practices under ARTL will have to be adapted, but none so dramatically that that there should be any reason for concern on the part of a busy practitioner.

Turning therefore to look at the main aspects of an average transaction (if such a creature currently exists), the main headings are probably as follows:

Terms of business

At present of course, and stating the obvious, a firm’s terms of business or engagement letter need make no specific mention of ARTL. However, with the introduction of ARTL, we would suggest that all firms have to countenance how they will deal with ARTL-compliant transactions, i.e. whether or not they do intend to operate under ARTL. If, for example, a firm decides that ARTL for whatever reason is not for them, we believe this should be mentioned to their clients, explaining if nothing else that their clients may possibly be facing higher than required registration dues as a result. Equally, if a firm will be adopting ARTL, that should also be referred to in a terms of business letter explaining the essential difference for clients that digital signatures will be utilised, thus requiring clients to grant appropriate mandates, and also that the registration dues could be higher if the transaction turns out to be one that is non-ARTL compliant.

Missives

At present, missives are silent on the issue of ARTL. In future, however, offers will have to countenance the use or otherwise of ARTL procedures. The changes, however, to missives, or rather just possibly the offer or qualified acceptance, will be relatively minimal. Appropriate clauses have been posted on the ARTL section of the Society’s website and adjusted by parties responsible for a variety of the standard offers currently in use under the auspices of the Society. The recommended clauses which will be circulated locally in due course are very brief and simply require agents to be “up front” about whether or not they intend to use ARTL, e.g. if an agent submitting an offer does wish to use ARTL (assuming a transaction is ARTL-compatible), this should be stated in the offer. Equally, if the offering firm does not intend to use ARTL, the offer should simply state “we are not registered for the operation of ARTL/this transaction is not ARTL compatible/our client has instructed us that we are not to use ARTL”.
Here we have to remind you that simply because there is a clause in the offer saying that the purchaser’s firm does wish to use ARTL, that is not compulsory and a selling agent is perfectly free to delete that clause. The Society’s practice notes in this regard stipulate that where an offer is otherwise silent, the transaction will not proceed under ARTL. In any event, ARTL will only be available for dealings with whole, although certain types of dealings will not be ARTL compatible – see the compatibility document on the Keeper’s website (www.ros.gov.uk/artl, then click on “Literature”).

Examination of title

There is no change anticipated to practice whether the transaction is or is not ARTL-compliant. ARTL relates simply to the registration of the title and not the title itself. With the gradual introduction of electronic land and charge certificates in place of the traditional paper ones, it is however likely that increasingly conveyancers will access the title sheet via Registers Direct to establish the up-to-date position when examining the title.

Preparation of disposition

At present, upon examination of title the purchaser’s solicitor will in most cases draft a disposition, issue this to the selling agents for revisal, and on return of the revised draft from the selling agent, attend to its engrossment and then return it to the selling agent who will then arrange for its execution. In terms of timing, this can be dealt with in anything from a week to a year prior to settlement. Where the transaction is ARTL-compliant, however, this is where the first of the major changes comes into operation. In this scenario, the purchaser’s agents will log on to ARTL and utilise the electronic system to create a draft disposition online. Once prepared, that deed will then be stored in ARTL. At any point thereafter, the deed can be passed to the seller’s agents within ARTL. As the deed is in a standard form, apart from changes to the consideration or the purchaser’s name or designation, or, in the case of a sale by an executor or trustee, some amendment to the link or midcouple, there will be no revisal or approval so far as those terms are currently understood. The deed will therefore be available at that point for signature by the seller’s agent under the mandate. The seller’s agent will then wait for settlement (see below) before passing it back to the purchaser’s agent.

Seller’s drafts

ARTL will also produce the draft discharge of any outstanding security, but it will still be necessary to prepare a letter of obligation and form 12 application. Clearly, if a transaction requires a form 10 application it would not be ARTL-compliant, being a first registration. A form 12 will still be required and there is no change to any procedure in that regard.
As far as the draft discharge is concerned, when the purchaser’s agent completes the ARTL wizard (the onscreen form), they will confirm the details of the seller’s agent as being responsible for the preparation of the discharge. ARTL will automatically advise the seller’s agent that the discharge requires his/her attention and will appear in their “in tray” for that purpose. If the lender is to sign it, it will be passed by the seller’s agent to the lender for that purpose, or it will be available at that point for the seller’s agent to sign under mandate. It can then be kept in the control of the selling agent, whether signed or not, until settlement. Again, as it is in standard form, and considering the fact that all the information for its preparation is drawn directly by ARTL from the title sheet, there will be no revisal or approval by the purchaser’s agent.
As for the letter of obligation, the Society has agreed that there should be no substantive change to this at present, i.e. the 21 day time limit in particular should remain in place notwithstanding the fact that ARTL may result in a title sheet being updated within 24 hours. This may well change once ARTL becomes established in practice. One technical change however may be where there is reference to exhibition or delivery of a land certificate. In that case, the phrase “(paper or electronic)” should be inserted into the letter, bearing in mind that either will be available under ARTL. Otherwise the letter of obligation will have to be adjusted between buying and selling agent in the same manner as at present.

Lender’s security

Under ARTL the security will be created by the system. The majority of main lenders have fully endorsed and accepted the benefits of ARTL and accordingly have provided the Keeper with their current style securities. Obviously there will be some lenders, or possibly unusual loan products, which may not be covered by the styles currently held by the Keeper, but it is anticipated that those cases will be relatively few.
If the style is not on the system, the security element will not be ARTL-compliant, unless the lender is happy to use the form A or form B security from the 1970 Act, which will be available for use within ARTL, as a default option. So far as the issue of loan instructions by lenders is concerned, there should be no change in practice in that regard, although obviously more and more lenders are seeking to issue instructions electronically rather than by paper in any event and it is likely that they will indicate in their loan instructions their requirements if ARTL is used. One should also note that part 1 of the CML Handbook has been adapted to cover ARTL: see clause 18 of the Handbook. Individual lenders will update their section of part 2 of the Handbook as appropriate.

Dealing with outstanding issues

No change. These will have to be dealt with between the agents in accordance with current practice.

Mandates

These are a new creature, currently unknown for most purposes to present conveyancing practice. Under ARTL however they will become an essential part of the system for the foreseeable future. In essence, agents will require formal authority in terms of a Society-approved mandate from clients permitting them to execute dispositions, securities or discharges digitally on behalf of their clients.

The style of mandates (form A and form B) will be available for downloading, or for completion and printing off, from the ARTL section of the Society’s website. Here we refer you to the new rule introduced by the Society, the Solicitors (Scotland) (ARTL Mandates) Rules 2006. All agents must acquaint themselves with this new rule, for if one ignores the technological impact of ARTL this is possibly the major change to current practice. The style of the mandates however is very straightforward and self-explanatory, although obviously an explanation will have to be given as to the rationale and purpose of them when issuing them to clients for signature.

Solicitors dealing with other agents will be entitled to assume that the other has client’s authority to execute deeds and will have no obligation to look behind a document executed under mandate by another agent.

The seller’s agent will be obliged to submit the signed mandate relating to the disposition (and discharge) to the Keeper for scanning and electronic storage (as will the purchaser’s agent in respect of the security), the principal mandate being returned to the agent for safekeeping in accordance with the Society’s rule. This is not a formal register held by the Keeper, but it has been agreed between the Society and the Keeper that for the purposes of public confidence all executed mandates should be scanned and stored electronically in this way.

The mandate styles have been devised to incorporate a matrimonial homes/civil partnership declaration, but some lenders may wish such a declaration to be lodged with them to avoid difficulties in the event of a sale by them. In such cases, it is anticipated that the lenders will include such a requirement in their instructions to solicitors and a separate declaration should be obtained.

Digital execution

Again this is presently an unknown concept. Under ARTL however it will become a daily occurrence. In essence what this simply means is that on the return of the signed mandate from clients, an agent can log on to ARTL and, using the appropriate chip and PIN/smartcard technology, add their digital signatures to the relevant disposition, security or discharge. The Society’s guideline in this regard will be that only solicitors should have authority so to execute documents and that this should not be delegated down to non-qualified staff. However, like the execution of any other paper document, the execution itself will have no direct impact and the documents will remain in ARTL under the control of the signing solicitor until such time as settlement takes place and they are passed to the purchaser’s agent.

Settlement

At present the recommended procedure for settlements, where there is no meeting between agents (which outside commercial transactions must now be the almost uniform method of settlement), is for the selling agent to issue the evening before the date of entry his settlement package usually consisting of executed disposition, titles (of which there will be none in ARTL transactions), ancillary documentation such as planning consents etc, keys, and letter of obligation. That same evening the purchaser’s agent should issue their settlement cheque in respect of the purchase price. Both agents should of course have agreed prior to this that each package should be held as undelivered pending receipt by the other. The guidelines issued by the Society on postal settlements are already well established in this regard, as is advice by the Conveyancing Committee as to good practice. Assuming all is in order, one would anticipate that on the morning of settlement a telephone call is made and both agents agree that the packages, if satisfactory, are duly delivered and settlement will be achieved.

Under ARTL, there will, in effect, be no substantive or theoretical change to this other than the executed disposition not being included in the seller’s package. Instead under ARTL, when the packages have been exchanged and a phone call has been made between agents that all is well, the seller’s agent will then log on to ARTL and return control of the signed disposition and pass control of the executed discharge to the purchaser’s agent. The latter will then be in a position to approve all elements of the transaction and will be able to submit the application to ARTL, which will, after the necessary ROI search, automatically update the title sheet to reflect what is submitted.

The main concern that has been expressed with regard to this procedure is, how does one ensure that the selling agent issues that online authority to update the title sheet? Put simply, however, the selling agent’s failure to do so will be a clear breach of professional duties and obligations which, without clear good reason, would be construed as professional misconduct. The Society has perceived no need for the introduction of any new rules or guidelines in this regard, as a seller’s agent’s failure to carry out this task is self-evidently grounds for complaint.

If, as can happen at present, the seller’s agent does not have the executed discharge from the lender at settlement, the purchaser’s agent can “splinter” that element from the application and proceed to submit the others. In such a case, ARTL will automatically allocate the discharge to the responsibility of the seller’s agent who, when it comes back to their control from the lender, will submit it to ARTL. ARTL will acknowledge its receipt to the seller’s agent and intimate that it has been received to the purchaser’s agent. In this situation, an undertaking to submit the discharge for registration within a specified period should be added to the letter of obligation. It should also be noted that ARTL has been built to accommodate the situation where separate solicitors are acting for the lender and the borrower in the discharge – the procedure for this will be readily apparent when the system is being used.

Post-settlement

There are a variety of issues here which ARTL will impact upon. These are:

(1) Part of the ARTL procedure is that as registration dues and SDLT will require to be paid under the Keeper’s direct debit system, it will therefore be essential for all purchasers’ agents to ensure that they have appropriate funds for all these costs, as failure to do so (particularly with reference to SDLT payments) could cause substantial difficulties.

(2) SDLT is set up as an inherent part of ARTL and the relevant forms will all be completed and signed as part of the ARTL electronic process. Please note that under the direct debit procedure, the actual charges will be debited to the solicitor’s account three working days after submission to the Keeper, and then only following a report having been emailed from the system to the nominated person within the solicitor’s office confirming the sums to be taken. The Keeper will be acting as an agent for HMRC in the collection of SDLT.

(3) By virtue of ARTL the title sheet will be updated, normally by the end of the next business day following submission to the Keeper. This will be a major step towards paperless (or paperlight) offices, but probably for most agents the immediate practical impact will be the growing demand from lending institutions not to submit any documentation to them (except possibly the declaration as described above). A number of lenders have already indicated they will simply check search sheets directly, or at the most will require the submission of a charge certificate to them in order to ensure that their security has been perfected. It will therefore become a decision for all firms (subject to any relevant directions from lenders) as to how, if at all, they hold all the other papers relating to a property which they have been left with, e.g. alteration documentation, guarantees or the like. This should be discussed with clients to ensure that such important non-title documentation is not lost.

Nothing to fear

For the sake of brevity the above comments have only touched on a number of issues, but the purpose behind this article has been to try and emphasise that there is nothing to fear with the introduction of ARTL. The changes to practice should be straightforward and give no cause for substantive concern. Obviously the introduction of a new technology-based system like ARTL will by virtue of human nature cause a degree of worry, but we believe that this will be overcome in a very short period of time once ARTL is bedded in.

For further information about the new system, conveyancers are referred to the ARTL section of the Society’s website (www.lawscot.org.uk – click on members’ information, then on conveyancing essentials, then ARTL), and to the ARTL pages of the Keeper’s website (www.ros.gov.uk/artl). In particular the FAQs on the Keeper’s website may be found helpful.

Professor Stewart Brymer and Ross McKay.