Autumn '18 Scotland

Autumn 2018 ISSUE

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FIRST COMMENT IN THIS ISSUE: • FAITH IN THE LAND REGISTER • TITLE INSURANCE AND THE 2012 ACT: WHERE ARE WE NOW? • CLAIM CASE STUDY: SERVICES ISSUE

Leading Title Insurance

Welcome to the Autumn edition of our newsletter for 2018.

In this issue we have a contribution from our regular writer. Professor Stewart Brymer looks at the repercussions surrounding the backlog of cases in the land registration process.

Our underwriter contribution for this quarter comes from Nicola McCluskie. Following nearly four years of the Land Registration etc. (Scotland) Act 2012 she looks at how title insurance sits alongside this.

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FIRST COMMENT

Faith in the Land Register

by Professor Stewart Brymer Brymer Legal Ltd

Accuracy, efficiency and professionalism are essential elements of an effective land registration process. This is what gives all those who rely on the Land Register the confidence to transact important business and life decisions based thereon. The recent announcement of a considerable backlog of cases awaiting processing thus leading to delays in registration of title has, it is suggested, knocked confidence in Registers of Scotland. The new Keeper was quick to step forward and admit the extent of the problem and it is to her credit that she faced up to the issue in a positive manner.

That was the correct thing to have done. There are, however, always consequences of any particular state of affairs. This article looks at potential repercussions and their impact on property transactions.

The first step in dealing with any problem is to accept that one exists. As stated above, this has been done. It is understood that a thorough review of working practices in Registers of Scotland has been undertaken and various improvements made, which will see a move away from what could be described as a “silo�

working environment towards a more service delivery organisation. It is hoped that new working methods will see applications for registration being processed in a more linked manner involving plans, legal examination, etc. as connected parts of the same process rather than standalone functions. However, it will take considerable time and effort to overcome the backlog.

This is not the first time that a backlog situation has existed and we ought to take confidence from the way in which such challenges have been addressed in the past where we witnessed a marked improvement in registration times and also with how so-called legacy cases were dealt with. We cannot be complacent, however, and we need to see action and regular reports on how the backlog is being dealt with. It is for the Keeper and her staff to identify the action required and for users of the service to hold her to account during the period it takes to deal with the problem. It will take the allocation of considerable resource over a period of time to process the backlog while at the same time dealing with new applications for registration.

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The announcement of the problem of a backlog has a number of consequences, the principal of which is a detrimental effect on public confidence in Registers of Scotland, which is a great pity. Those of us who have been in practice for a long time are proud of the history of our Property Register since 1617.

However, we recall the delays in registration, which resulted in the Letter of Obligation being of significant importance in the home moving process. The difference now is that the roles of the Keeper and the presenting solicitor have changed. The Keeper is no longer required to carry out a detailed examination of the title being presented for registration. The onus is now firmly on the solicitor presenting the deed for registration. The “tell me, don’t show me” approach introduced under the 2012 Act is now hopefully well understood. It is, therefore, important to recognise that we, as solicitors, have an important role to play in helping deal with this problem. We can do this by seeking to avoid the application of the “rubbish in / rubbish out” analogy.

Another consequence of the backlog is the risk of losing priority of registration during the delay period, should the application be rejected for any reason.

For example, if an SPV Company is created to carry out a development, it may well be wound up after the development has been completed. What though if an error is identified and the deed or deeds is / are returned by the Keeper? In recent times, the registration process has been swift and, as a result, the risk manageable. However, that is no longer the case. It is entirely conceivable that the seller may no longer exist with considerable ramifications to purchasers and lenders alike. Perhaps this is an area where title insurance can be of assistance - even on an interim basis?

Registers of Scotland is currently in the midst of an ambitious Digital Transformation Programme, which has already seen major advances being made e.g. the Digital Discharge Service and ScotLIS. See www. scotlis.ros.gov.uk. These are positive developments, which will greatly assist the drive towards more transparency in the registration process and property law generally. There is obviously a risk of momentum being lost, even if only as a result of users of the service querying why money and resource are being used in this way rather than dealing with the backlog.

It is for the Keeper to make clear and unequivocal 4

FIRST COMMENT statements as to why the transformation programme must continue apace. Registries all over the world are embarked on similar programmes with some being considerably further ahead in their thinking than is the case in the UK. Good examples can be found in Estonia, Singapore and Sweden. It is true that the Law Commission has just completed a review of the Land Registration Act 2002 and has published its Report - https://www.lawcom.gov.uk/ project/updating-the-land-registration-act-2002/. Not before time, is the view of many. HMLR’s vision, as embodied in the 2002 Act, was too radical for the time, stakeholders weren’t exactly pushing for it and technology – and more pertinently acceptance of technology as a safe and secure tool to drive and improve business performance – was not what it is now. Let’s see what is made of HMLR’s new plan – Digital Street (once constructed).

Real communication and real action needs to flow from this situation. This should entail wide reaching conversations taking place against the backdrop of a full understanding of the changed environment in which we now operate.

There have been a considerable number of letters to the Editor of the Journal on the subject of the service provided by Registers of Scotland, which demonstrate a groundswell of opinion in the profession that there are serious issues arising from the approach of the Keeper with regard to the implementation of the 2012 Act in particular, and registration practice generally. These opinions may be based on perception rather than reality in some cases but the fact of the matter is that such views exist and one has to question whether there has been effective communication with the profession in recent years. The majority of the legal profession still hold the institution that is Registers of Scotland in considerable esteem and they therefore deserve to be kept abreast of developments.

The old days of the Register of Sasines and the Law Society Table of Scale Fees will not return.

The Keeper was not obliged to carry out full checks of title under the 1979 Act, but they did so regardless. The result was that solicitors became accustomed to that service – a safety net as it were.

Things changed under the 2012 Act. Property lawyers must focus on building a more confident, mature relationship with the Keeper and her staff.

One way in which this could be achieved is the re-introduction of a Pre-Registration Enquiries facility. That worked well and it is a pity that it was withdrawn.

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Title insurance and the 2012 Act: where are we now?

by Nicola McCluskie Commercial Underwriter

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FIRST COMMENT

Introduction Almost four years have passed since the Land Registration etc. (Scotland) Act 2012 (the “2012 Act�) came into force and it is fair to say that, during this period, the legal profession has seen significant changes in terms of dealing with applications for registration and general conveyancing practice.

At First Title, we have also seen changes from a title insurance perspective, which has included changes to the nature of some of the risks which we offer cover for and the underwriting processes associated with these. Having now had the chance to see the 2012 Act in action, we thought it would be helpful to reflect on how title insurance currently sits alongside this.

The main risks we have seen affected by the 2012 Act are as follows:

Consideration can be given to such an application for cover either before or after the prescriptive claimant application is made to the Keeper, although the nature of the parties to be contacted by the insured party (and the Keeper in due course) is relevant in these circumstances.

Dispossession We are often approached with situations where a lawyer’s client is occupying land outwith its legal title extent but which is located within its occupational extent. This is not uncommon where, for example, clients own a large industrial estate and there is a small strip or pocket of land, which is occupied as part of the larger estate, but does not fall within the legal title. In these circumstances, we can offer cover for dispossession of the relevant area of land by the legal title owner. The nature of this cover assumes that there will be no attempt to register an interest in the relevant area of land in the Land Register.

Prescriptive claimant Alternatively, we are finding on some occasions that property owners wish to apply for a registered title to an area of land they have occupied for the prescriptive period on the basis of a prescriptive claimant application (replacing the old a non domino disposition route). Whilst the nature of this process might sit at odds with what some consider to be one of the basic principles of offering title indemnity insurance, i.e. there being no contact with a third party, we can consider cover that sits alongside the prescriptive claimant title.

This cover can provide insureds with additional comfort regarding a third party challenge to the title as a result of the prescriptive claimant nature of the title.

Prescriptive servitude A lack of access rights forms one of our most common enquiries enquiries. However, we have recently seen an increase in proposals to register a formal servitude right founded on prescription and suitable Affidavit evidence exhibited to the Keeper. Although this application to the Keeper may be successful, some professionals consider that there is still a risk that use of the access could be challenged given the prescriptive nature of the rights granted.

We can therefore consider offering cover for this risk in certain circumstances. For example, we would require assurance that any application to the Land Register will not involve contact with any third party (for example if the access area already has a Land Registered title) and that no title sheet / cadastral map for third party land needs to be updated as a result of the application for registration.

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Exclusion of warranty One of the risks previously covered under our “Lack of Title� cover was a challenge to the title where the Keeper has excluded indemnity within the title sheet. As the Keeper will now exclude warranty under the 2012 Act, our policies will cover a challenge to the title where this is the case. We often see various reasons for the warranty exclusion, e.g. a lack of warrandice being granted in a Disposition or a missing link in title. Often the warranty exclusion will also only affect part of the land which helps mitigate the title insurance risk.

Voluntary Registration One of the objectives behind the 2012 Act was facilitating completion of the Land Register. As part of this process, we are aware that solicitors are involved in the voluntary registration process for property owned by the likes of local authorities and large estate clients.

Moving land from the Sasine Register can be a tricky process, particularly given the written descriptions in old deeds and poor quality plans available (if plans are available at all). The requirement to show the Keeper clearly on a plan of the boundaries of the land can be a challenging process as a result of this. We can therefore assist by offering cover which protects the insured party against a challenge to the title to the land by a third party as a result of the inaccurate descriptions in the Sasine title deeds.

Conclusion Although it seems we have now moved past the initial teething stage of the 2012 Act, this is still in its infancy so it is inevitable that conveyancers and title insurers alike will see further changes develop over time. The risks referred to above are of course only a snapshot of some of the risks First Title can offer cover for in conjunction with the 2012 Act, so if you come across something more bespoke, please do let us know and we will be happy to discuss.

Making assumptions when it comes to title insurance?

Unlike some other providers, we: • can help with over 35 known

risks as well as providing bespoke cover • have one of the largest single underwriting capacities in the market • are directly responsible for handling and paying claims

• are regulated by both the Prudential Regulation Authority and the Financial Conduct Authority • have a strong solvency profile as set out in our published Solvency and Financial Condition Report

Call: +44(0)141 413 8800 Email: scotinfo@firsttitle.eu Visit: www.firsttitle.eu First Title Insurance plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. First Title Insurance plc is registered in England under company number 01112603.

Registered office: ECA Court, 24-26 South Park, Sevenoaks, Kent, TN13 1DU.

Leading Title Insurance

FIRST COMMENT

Claim Case Study:

Services issue Background The insured owned a property in a semirural location and given that it was some distance from the main sewer network, the drainage operated by way of a typical septic tank system, which drained onto adjoining land.

When purchasing the property the acting solicitor purchased a title insurance policy to protect the new owner in the event that their land did not have a legal right to drainage and / or water supply over this adjoining land.

Challenge The adjacent landowner subsequently placed a cap on the drainage pipe in order to prevent the septic tank draining onto his land as he believed it was causing pollution. This capping caused the tank to backfill and the insured subsequently raised a claim with First Title under the title insurance policy.

Upon further investigation the owner of the adjoining land had exaggerated the effect the septic tank soakaway was having on his land and in fact wanted it removed to secure his own development of the land.

The Environment Agency wrote to the neighbour advising that the capping of the pipe was illegal, as a result of which, he removed it immediately. A specialist drainage contractor was instructed by First Title to investigate the feasibility of connecting the existing septic tank to a new field for drainage.

Solution First Title examined various options, the costs of which were paid under the terms of the policy. First Title then corresponded with various other neighbours and reached an agreement with one of them to re-route the soakaway pipe to their pipe for a fee of ÂŁ5,000. While these negotiations were taking place First Title made payment under the policy for emptying the septic tank several times to prevent the need to access the existing soakaway. A Deed of Servitude was drafted and agreed by all parties. The fee for the Deed of Servitude and all other associated legal expenses were covered by the policy.

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To find out more about our products and services email scotinfo@firsttitle.eu or call +44 (0)141 413 8800

www.firsttitle.eu

First Title Insurance plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. First Title Insurance plc is registered in England under company number 01112603.

Registered office: First Title Insurance plc, ECA Court, 24-26 South Park, Sevenoaks, Kent TN13 1DU.