Tools for today's titles

Judging by Land Register figures, my firm’s Glasgow office is likely to be one of the busiest in Scotland dealing with the implications of the Land Registration (Scotland) Act 2012. So, the first three months’ experience of the Act has been illustrative and, at times, challenging.

Those challenges have arisen because (a) change of this scale always creates both intended and unintended consequences, and (b) aspects of the new regime have been subject to initial problems, some of which are teething troubles and others, more troublingly, structural.

It is difficult to avoid this article straying into a discussion of the merits/demerits of the Act as these impact on the profession, land reform, politics and society. As far as possible, practical matters are the focus, with wider issues limited to the very real consequences for the profession.

Despite the long gestation period, the introduction of the Act was problematic. Systems and protocols were not in place sufficiently early. That created a poor initial experience, and some of the problems remain; there has been insufficient detailed “help” material to inform the profession of policies being followed under the new regime.

Plotting the change

When major change occurs in conveyancing, it takes several years to fully impinge on the thinking of all practitioners. Of course, where bureaucracy changes with new application forms and the rest, there is no alternative but to accommodate the variance from previous practice. However, conceptual thinking, taking into account the repercussions and unintended consequences of such substantial innovations, generally takes much longer.

Rereading the Act now, after practical use, highlights that the “cadastral unit” in practice has been somewhat divergent from the theory. It is this area which is arguably the Achilles’ heel of the new regime and where it is most likely that meaningful change will be necessary.

Before providing practical insights, the first image below outlines which aspects of the new regime are working, and which are less successful:

Four part toolkit

A “2012 Toolkit” helps minimise the issues that arise under the Act.

1: Understanding what information you need

The Act is part of a political directive to “register Scotland”. The issues around the need for plans and conveyancing actions are governed by a matrix based on a number of factors. These are summarised in the second image below.

Plan types B and D (see key below) are cadastral units, but the distinction with plan type C is provided to highlight those situations where the definition of cadastral unit is counterintuitive to those familiar with 1979 rules. Recent communications from Registers perhaps suggest that there is a move to classify all properties comprised of exclusively owned strata as “tenements”, even though this would be outside the normally accepted interpretation of the word.

An examination of the table provides a practical approach to dealing with the multiple circumstances the busy conveyancing office will encounter. It is hoped that sharing this table will assist practitioners who may not encounter a wide variation of cases. But the table is only half the picture.

Claims cruncher 1:

Anticipation of 2012 Act problems demands negotiating missives to ameliorate post-settlement problems. Relying on the registration clause may provide a contractual right but not a practical solution. McVey & Murricane believes that in any transaction where there is a reliance on a plans report, the seller should provide a simple power of attorney in favour of their solicitor together with irrevocable instructions so that any necessary deed or plan can be put in place in the event of rejection of the purchaser’s application for registration. Some solicitors, for whatever reason, dislike this practical solution but it needs to become commonplace.

2: Understanding the plans report

The Land Register touted the plans report as a cure-all for plans-related matters, many of which would previously have been resolved by the Keeper’s Midas touch. The inconsistencies and shortcomings of these reports mean that currently the prudent practitioner should not assume uncritical reliance on plans reports (only use a level 3 report).

The following relates to information provided in a level 3 plans report:

Conformity to the Keeper’s plans standard

The available answers have changed since the outset of the regime from a binary “Yes” or “No” to “Yes”, “Yes, but you might be thinking about a new plan”, and “No”. Reviewing a large volume of these responses suggests “Yes” does not always mean “Yes”. If the Land Register adds a rider about a “new plan” then it is best to obtain a new plan and have this approved. Problematically, currently, the standards being applied by those issuing the level 3 plans reports, and those dealing with the actual application for registration, appear to differ. The existence of these inconsistencies, which no doubt will be ironed out in due course, are best dealt with by the solicitor for the seller having the benefit of a power of attorney from the seller and an environment being set up in the missives to cater for such circumstances.

Consistency with the occupational extent of the property (similar to 1979 P16 report)

The consistency of the plan or description within the current deed when compared with the occupational boundaries is, in theory, no different from the 1979 regime, experience under which indicated that relatively minor discrepancies would generally be resolved by the Land Register. However, there are now additional issues arising from the need to accord with ss 11-13 of the Act on the cadastral unit.

Look at the section “Back to the future” and it becomes apparent that the aims of the Act and the available tools of the trade are far apart. The 2012 Act matrix highlights the route through the Act, but there are anomalies particularly with flats and properties which consist of exclusively owned horizontal strata within one structure. Explaining the vicissitudes of tenemental descriptions in Scotland would take another article, but try explaining to a client that a main door flat with a small postage stamp of exclusive ground attached has the whole panoply of conditions relating to the Act applied to the postage stamp ground but not the actual flat, which means that the awful descriptions that hang over from pre-1979 days drift into the post-2012 era. It makes foolish the suggestion that this is a cadastral register where the dimensions of every property are known. “Four in a block” properties, terraced properties and many ex-local authority properties pose many issues.

As an example, in a 1979 registration a typical “four in a block” provides different parts of garden ground, access areas and a delineation of the boundary of the house, be it upstairs or downstairs. Now, one has to define as a cadastral unit, quite counterintuitively, the whole of the ground on which the four in a block is erected, including the two properties next door, even though the latter may have been already registered in the Land Register.

Quite often such properties would have fairly detailed descriptions showing their respective portions of garden together with rights of access etc. However, from a 2012 point of view, the cadastral unit appears to be, in plain English, the whole block of four and the surrounding ground. That painstaking description showing the actual property occupied by the proprietor now becomes at best supplementary data. In these circumstances the best approach is that the other title information is added as supplementary data, and the Keeper should be specifically requested to do this.

Because such circumstances generally relate to properties within the Sasine Register, the sensible approach is to ascertain whether any of the adjoining properties have been registered in the Land Register, and the approach taken by the Keeper on earlier registrations. This has shown inconsistencies in 1979 registrations. It is difficult to see the sense in these definitions of a cadastral unit, as they are only going to create problems for the future rather than some mapping nirvana. More problematically still, they are exposing issues with the 1979 environment, and conveyancing will become impossible if the risk-averse response to all this is to apply the plans reports to all 1979 registered properties.

Subordination to competing titles and shared and other registered information

This is valuable information and assists in isolating any competing titles. This is vital, because save for tenements and other exclusively owned strata described in the matrix, the 2012 Act envisages that cadastral units cannot overlap, and overlapping cadastral units will result in rejection. This information should also highlight the circumstances, possible in a tenement or four in a block type situation, where an earlier 2012 registration has resulted in the creation of a separate common property title for the cadastral unit of which the property under consideration forms part.

Experience so far has shown that many practitioners are resistant to accepting the reality that a title, where one would not have anticipated any issues under the 1979 Act, may require substantial work post-2012. When it comes to ascertaining a solution, the lack of the Midas touch is felt most keenly. Regrettably, the most consistent conclusion of many circumstances faced so far under the Act is that there is no practical solution. It is understood that those who supported the introduction of the Act may have had high ideals about terminating bijuralism, but the reality for the client on the Glasgow omnibus is that the legal cost of resolution in terms of property law is too great, and the provisions contained in the Act in the real world are of limited use.

The effective decision for the client is often to accept what the seller can undoubtedly convey, and live in a property in the knowledge that the piece of ground at the bottom of their garden is not actually theirs and will require to be disclosed when they sell the property themselves. Far from “registering Scotland”, the result will be a mishmash of unregistered occupied areas throughout Scotland.

3: Materiality and the solicitor’s responsibility

Somewhat under-reported prior to the commencement of the Act, the underlying liability for the registration system has become a mutualised responsibility for solicitors in Scotland. The solicitor presenting the document of conveyance or security to the Land Register is now warranting to the Register the examination of title that has been carried out and that all necessary links have been seen. In a single step, the system has mutated from one where the agent of the state (the Register) considered all applications to (a) ensure that standards were being met, and (b) maintain a power to resolve issues to create an effective register; to one which relies entirely on the warranty of the solicitor submitting the document (other than in relation to the plan and execution formalities).

Any errors (even well founded ones) in that process result in the solicitor who submitted the application being liable always in civil terms and perhaps in criminal terms. While there were responsibilities on the submitting solicitor under the 1979 Act, these were far less than under the 2012 Act. Not only does the latter reduce the state guarantee from that of an indemnity to the much lower standard of a warranty: if the Register receives a challenge on a title, the likelihood of a subsequent claim against the solicitor who registered the title must be materially increased.

No one is going to cry for solicitors, but there are two serious corollaries: (a) the aim of the Land Register in accurately registering Scotland will be thwarted, because the Register will only be as good as the lowest standards; and (b) the consumer will be prejudiced and their costs increased. Because of the Master Policy, the cost of mistakes by solicitors, in (a) achieving the input standards of the 2012 Act and (b) arising from lack of the 1979-style Land Register review, are mutualised among all solicitors.

From a practical point of view, this raises the issue of the standard required from the solicitor in completing the application form. Especially in areas where conveyancing is often far from perfect, such as repossessions or distress acquisitions, thorny issues are raised. There is no official indication at the moment of a materiality test when completing the application form. This places the solicitor in a difficult position. Declaration of issues is likely to result in an exclusion of warranty. Non-declaration of issues may result in a claim at a future date (or worse).

This leaves two realistic courses. The first is to endeavour to resolve the conveyancing issue which creates the materiality concern. In repossession cases this has often centred on some minor failure in the process. One methodology that has been tested is to obtain external opinion on the conveyancing issue. If that opinion supports the belief that the conveyancing issue is satisfactory, then reasonably the submitting solicitor does not need to make a declaration under the Act. Alternatively, obtain an insurance policy. This is commonplace in England, but other than at the periphery has never been terrifically popular amongst practitioners in Scotland, and does not have the effect of making title marketable. Realistically this has to change, but the environment needs to become more accepting and insurance policies more 2012 Act-friendly.

Where these issues arise, the veteran conveyancer knows that the chance of any loss actually accruing at any point in the future is probably zero. However, in a risk-averse environment, all prudent solicitors will take great care in answering the application form.

4: The advance notice controversy

Before the Act we had “the race to the register”. The anachronistic letter of obligation was relied on and its demise was welcome. In an extraordinary snatching of defeat from the jaws of victory, the suggestion by eminent persons that advance notices for a security are not necessary where a solicitor is acting for purchaser and lender defies the reality of a modern legal office. First of all the advance notice concept stands by itself; no statutory relationship with letters of obligation is offered. Secondly, referencing a situation which was so endemically flawed seems an odd way to consider the toolkit available within the Act. A simple example shows the folly of not utilising the insurance that the lender advance notice offers in every situation.

Claims cruncher 2:

Mr and Mrs Smith buy a property with mortgage assistance. Their solicitor has obtained an advance notice for the conveyance in favour of Mr and Mrs Smith but not for the mortgage. Had the solicitor obtained an advance notice for the mortgage he/she would have had priority for around four weeks in which to register the separate documents and forms relating to the conveyance and the mortgage. However, without the mortgage advance notice, speed has a priority and the solicitor sends the registration applications within five days of the purchase.

So far, so good, but the solicitor makes, in relation to the application for the mortgage, one of the small errors that solicitors often make. Accordingly while Registers accept the application for the purchase, they reject the application for the mortgage. Meantime, unknown to the solicitor, Mr and Mrs Smith have applied to a finance company for a loan to fit new windows. The finance company is likely to take a security and place an advance notice immediately to protect its upcoming charge. Mr and Mrs Smith’s solicitor promptly returns the mortgage registration application to Registers, remedying the earlier administrative defect. However, because that solicitor did not obtain an advance notice for the mortgage, the finance company now has priority and the solicitor will face a claim from the mortgage lender for whom they are acting because that lender only has a second charge.

The administrative error is pretty common, and for £10 the dire consequences of not obtaining the advance notice could have been avoided.

There are limits to the material that can be included in an article such as this. The Act makes conveyancing more difficult and more uncertain for what appears to be little practical return. It is a difficult one to explain to the average client.

Back to the future

There is a historical irony here. The origin of the OS Map can be traced to the mid-18th century as a direct result of the Jacobite rebellion in Scotland.

Now in the 21st century, those with nationalist sympathies have a political ambition to find out who owns the great swathes of Scotland which remain within the Sasine Register. Dressed in the clothes of a technocratic advance in mapping, the Cadastral Map is not essentially different from the mapping utilised under the 1979 Act, just made more complicated.

The OS Map series utilised, struggles to deliver the necessary level of detail; thus the term “Cadastral Map” is a misnomer and not the vision of the European directive. Much of Scotland remains mapped under a 1/2500 scale where the red boundary line on title plans is more than 2 metres on the ground. Much of the 1979 Act registration was shoehorned into the OS Map, with varied results.

All of this may not matter a great deal in the great landed estates which understandably attract political gaze, but exposing an ex-local authority house with slightly wayward boundaries to the harsh light of 2012 mapping concepts and no Midas touch is already causing distress (often to those who are least equipped to deal with it).