Property Transactions and Covid-19 (Update)
29th April 2020
The lockdown is causing major challenges across society as we adapt to a new way of life, which we hope will be temporary. Until such time as the restrictions are lifted, normality is suspended and this inevitably impacts on the completion of certain types of legal transactions.
Registration of Title
One area of particular difficulty is the completion of property transactions in Scotland. Following the lock-down, 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 are 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-lock-down applications has therefore caused a major headache.
The Registers have been working on solutions since the lockdown to allow certain transactions to settle, and some of these solutions are now operational.
In the first instance they will, on a very selective basis, make an exception and accept an application for registration, if it can be proved that genuine financial or personal hardship would occur if a property transaction can not settle as planned. The number of cases which will be subject to the exception will be very restricted and considered by the Registers on a case by case basis . If you feel that your case falls within this category then we can make representations to the Registers on your behalf.
A Stop-Gap Solution
Perhaps of more widespread application is a technical change in the law in relation to what are termed Advance Notices. Advance Notices are a routine part of the conveyancing process, and allow purchasers and mortgage providers to register a notice in the Land Register in advance of settlement, notifying that a title or security (mortgage) is about to be registered. If an Advance Notice is registered, then the document in question is protected against any competing document appearing in the Land Register for a 35 day period from registration of the Advance Notice, provided the title or security is registered within that 35 day period. Purchasers and funders can then settle transactions in reliance that their title or security will be protected for 35 days.
As a work-round to the Registers’ closure to new applications, the Scottish Parliament has enacted a legal change to extend the 35 day period, to a date falling 10 days after the Registers re-open for accepting applications, whenever that may be . This will allow transactions which urgently need to complete to settle, in that although the title or security can not be delivered to the Registers and registered, the documents will be protected provided that they are so registered within 10 days of the Registers re-opening. The drawback is that the title/security will not actually be registered until such time as applications re-open at the Registers, so title will not transfer until then, and securities will not be valid until such time as they registered.
From 27 April 2020, the Registers will accept electronic applications for registration, but only on a strictly phased basis, and where an Advance Notice has already been registered in relation to the transaction is question. This gradual roll-out means that an Advance Notice will need to have been registered in advance of a date specified by the Registers before they will accept an application. This date will be brought forward by the Registers on a gradual basis as they catch up. As at 27 April, only applications which have Advance Notices registered up to 19 February will be accepted electronically.
House purchases and sales and the lockdown regulations
So far, so good, but 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 Guidance and Regulations on the lock-down.
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 is strongly discouraging house moves over the lock-down. A house move is seen as increasing the risks of the virus spreading. So purchasers and sellers who have not yet concluded a legal contract (“Missives”) are encouraged to hold off from doing so until after the lock-down. Missives can then be concluded and a settlement date agreed.
If Missives are concluded already, with an agreed completion date which occurs during the lockdown, then the purchaser and seller are encouraged to postpone any agreed settlement date until after the lockdown and to agree that between them. This will be particularly pertinent if one party to the transaction has to self isolate , and can not move out of a property as a result. The other party will be expected to accommodate that requirement.
If parties are keen to proceed with a move notwithstanding the guidance, then they can only do so only if the move is reasonably necessary. or If the property in question is empty or can be safely vacated, and the move can occur without breaching the Government’s social distancing rules. These rules are more than just guidance and can be enforced with criminal sanctions applying if they are breached. The general presumption is that a house move does increase the risks of social distancing being flouted, and many removal companies are cancelling deliveries as a result.
What this means for you
At WJM we aim to do the right thing by doing all we can to ensure that the spirit of these regulations is adhered to. This is in the interests of our clients and the wider public, and has serious implications, particularly for those in the midst of selling or purchasing residential property. For any given house purchase or sale when completion is scheduled within the lockdown, we will be asking you to consider agreeing a postponement, whether or not Missives are concluded. And we will require a reasonable explanation as to why you think a postponement should not occur if you are intent on proceeding.
As criminal sanctions apply to any breach of social distancing, we will also be asking you to consider very carefully whether any decision by you to proceed with a purchase or sale within the lockdown period is necessary, and if the transaction can be delayed without causing you serious hardship, then we will be suggesting that you do so, assuming this can be agreed with the other party to the transaction.
If you are intent on proceeding, we may ask you to confirm that you do not envisage breaching any social distancing rules in relation to the purchase or sale.
Keeping you on the right side of the law
If this all seems draconian and counter-intuitive, in that you should generally expect your legal advisers to follow your instructions to settle a transaction if you wish to, then it is a reflection of the strange times in which we are living just now. And ultimately we are aiming to protect you by ensuring that you and we both stay firmly on the right side of the law when it comes to compliance with the lock-down rules.
The information contained in this newsletter is for general guidance only and represents our understanding of relevant law and practice as at April 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.