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Property Transactions and Covid-19 - The road to normality

Property Transactions and Covid-19 - The road to normality

John Smart

Published by
John Smart

21st July 2020

In our previous briefings on Covid 19 and its impact on property transactions, we highlighted the various challenges where the lockdown had impacted on the completion of property transactions, particularly house purchases and sales.

A perfect storm of the Registers of Scotland closing for physical applications, social distancing regulations and Scottish Government guidance on house moves during the lockdown inevitably impacted on the number of property transactions which could complete, and there was a resultant slow down – normality was effectively suspended.

Over the last few weeks a number of significant developments have calmed the storm, and at this point in time at least some semblance of normality has been restored. This is welcome news for the property market and in particular for house purchasers and buyers.

And just to prove that every cloud has a silver lining, the Scottish Government has made some concessions on Land and Buildings Transaction Tax, which will benefit purchasers and hopefully give a much needed boost to the residential market.

Registration of Title
Following the lockdown, the Registers of Scotland immediately stopped accepting physical paper applications for title registrations in the Land Register, in order to protect their staff. As most applications were submitted physically, rather than electronically, this affected the vast majority of property transactions in Scotland.

In Scotland, ownership of land and buildings does not transfer until title is registered in the Land Register. A purchaser who has paid a substantial price for a property requires to register title immediately, so that ownership transfers and the benefit of what has been paid for obtained. The closure of the Register to post lockdown applications therefore caused a major headache.

Since March the Registers have, on a phased basis, implemented a number of solutions to allow certain transactions to settle, especially if there is a degree of urgency, by permitting applications for registration in the Land Register to be submitted electronically. By the middle of June most Land Register applications could be submitted electronically, and just last week the Registers started accepting certain applications electronically where there is a requirement for registration in the Register of Sasines, typically when new servitudes or title conditions are being created and the parent title is still registered in the Register of Sasines.

It is hoped that the Registers will be able to accept all applications electronically over the course of the next few weeks, which bodes well for the future.

House purchases and sales and the lockdown regulations
In relation to purchases and sales of buildings, and in particular houses, this all has to be set against the backdrop of the Scottish Government’s Lockdown Guidance and Regulations.

As a house sale and purchase tends to involve people interacting with each other at a practical level, particularly in relation to the removal of furniture, the Government initially strongly discouraged house moves over the lockdown.

A house move was seen as increasing the risks of the virus spreading, so purchasers and sellers who had not yet concluded a legal contract (“Missives”) were encouraged to hold off from doing so until after the lockdown.
If Missives had been concluded prior to lockdown, with an agreed completion date which occurred during the lockdown, then the purchaser and seller were encouraged to postpone any agreed settlement date until after the lockdown, and to agree that between them.

But from 29 June, house moves were permitted to go ahead, provided every aspect of the moving process adheres to the government guidelines on physical distancing and face coverings.

All aspects of the move must be considered, such as individuals packing their own items and even completing the moving process themselves. Removal firms are now permitted to operate, as long as all safeguards in place and adhered to. So it is not business as usual, but at least now there is more of a presumption that a house move can take place, which was not the case previously. The process of effecting the clearance of belongings from a house and cleansing is likely to take much longer than it did previously, due to the requirements of the social distancing and hygiene guidelines applicable to house moves. If you are contemplating a house move, we strongly recommend that you read the detail of the guidelines, which can be found at: https://www.gov.scot/publications/coronavirus-covid-19-guidance-moving-home

Particular care and caution must be exercised if one party to the transaction has to self isolate, and cannot move out of a property as a result. The other party will be expected to accommodate that requirement and agree to a delay in completion. Completion may still be able to proceed if the risks are perceived to be lower, for example if the property has been empty for a period of time, and all travel can take place in their personal transport. This could possibly allow shielding individuals to proceed with their transaction, if there is a pressing need for them to do so.

LBTT
Land and Buildings Transaction Tax (LBTT) is a charge due by a purchaser on a land or building transaction. The consideration for the transaction will determine the amount of LBTT due.

From 15th July 2020, the Scottish Government announced that there would be a temporary increase in the nil rate band for LBTT residential property transactions, increasing it from £145,000 to £250,000. Previously a charge of 2 % applied on the slice of the consideration between £145,000 and £250,000, and this will no longer apply. This change will remain in effect until 31st March 2021, and will save prospective purchasers up to £2,100.

A further change which took effect back in May was the extension of the period for reclaiming Additional Dwelling Supplement (ADS). Previously, if a purchaser was replacing their main residence, but had bought their new home before they sold their previous home then they would need to pay ADS for owning more than one property. If they sold their previous home within 18 months of purchasing their new residence then they would be able to reclaim back the ADS they had paid.

The 18 month period for reclaiming the ADS has been doubled from 18 months to 36 months, if the completion date of the purchase of the new residence was between 24th September 2018 and 24th March 2020. This was a welcome announcement for those who were nearing the end of the 18 month period and hadn’t managed to sell their previous residence yet, or those who had just purchased their new property before the lockdown period without having sold.

The combined effect of the Registers’ acceptance of electronic applications, the easing of restrictions on home moves and the LBTT concessions detailed above should assist in energising Scotland’s property market, in that many transactions which were difficult to complete during lockdown can now proceed. We are hoping that this will assist in the economic recovery as life gradually gets back to normal.

The information contained in this newsletter is for general guidance only and represents our understanding of relevant law and practice as at July 2020. Wright, Johnston & Mackenzie LLP cannot be held responsible for any action taken or not taken in reliance upon the contents. Specific advice should be taken on any individual matter. Transmissions to or from our email system and calls to or from our offices may be monitored and/or recorded for regulatory purposes. Authorised and regulated by the Financial Conduct Authority. Registered office: 302 St Vincent Street, Glasgow, G2 5RZ. A limited liability partnership registered in Scotland, number SO 300336.