So what has changed?

The Act allows the Registers of Scotland to accept the electronic submission of deeds for registration. It contains certain other technical fixes which are probably of more interest to conveyancers than clients, so we won’t dwell on the detail in this note. Although the legislation permits the electronic submission of deeds, the Registers are not yet geared up to implement this.

We know that major stakeholders (the Registers, the Law Society and UK Finance) are liaising with a cross section of law firms to try to develop a workable system. We don't expect that system to be up and running for at least another couple of weeks.

What can we do in the meantime?

Due to the technical fixes already in place, it is Morton Fraser's view that clients can now safely complete commercial purchases and sales under the current regime, provided certain key tests are met:

1. it is essential, in our view, that the buyer's lawyer holds all necessary completion items, including the original signed disposition, or that both lawyers are comfortable that suitable alternative arrangements have been made. If the seller has granted a floating charge, then the usual letter of non-crystallisation must also be obtained and it is important that the letter includes confirmation from the lender that the property is released from the ambit of the charge;
2. clear searches must be obtained prior to completion, which show a "first ranking" Advance Notice protecting the buyer's disposition;
3. the disposition must include a clause in which the seller undertakes to hold the property on trust for the buyer until the buyer can get the disposition registered in the Land Register;
4. no standard security is required for the transaction; and
5. the seller is a UK entity.

Point 4 is going to be key in many deals. For technical reasons, a lender cannot enforce a standard security unless and until it has been registered at the Land Register, so although the current regime allows deals without a fixed security to complete, it does not afford the lender the same levels of protection which existed before the Register was closed to paper applications. All the signs are that the Register will be re-opened to accept new deeds within a matter of weeks, but there are no guarantees with this timeline, and without that certainty each lender will need to assess the risks associated with proceeding under the current regime on a case by case basis.

Although this note deals specifically with commercial transactions, it is important to note that UK Finance has come to a separate agreement with the main high street mortgage lenders which adopts a different approach for residential transactions.

There remains a nervousness about the impact of overseas insolvency law on the current regime, which is why we urge caution before agreeing to complete where the seller is an overseas entity. Likewise, the impact of trust law on this approach is as yet untested, so where the seller is a trustee, the buyer will need to be satisfied that the trustee can itself competently hold the property on trust for the buyer until the Register re-opens and buyer's title can be registered.

Market Consensus

This is a fast changing area and like many other sectors, we are in uncharted territory.  Morton Fraser is liaising with other major law firms to try to develop a market consensus in line with the views outlined above. For any deal to complete, there needs to be a degree of co-operation between both sides, so it is important for the market to come to an agreement quickly on where the risks lie and what can be achieved in the current circumstances.

And finally … be careful

It is worth reiterating that we are in wholly new territory with all of this. There are lots of potential pitfalls which might arise, so until the Register fully re-opens, tread carefully and assess each transaction on its own merits before making a final decision on when and how to complete your deal.

We will provide further updates as this point develops.