Tag Archives: Property Law

Tax can be Taxing…

…or an empirical study in the use of tax as a behaviour modifier.

I work in a high street law firm and, like most high street law firms, it does the classic ‘little bit of everything’. Criminal Law, Kids, divorce, executry (dead people), civil law, leases – we do it all. We also do a fair amount of conveyancing. {1}

Conveyancing is the buying and selling of houses. In Scotland, only Solicitors can do that. Estate Agents can market houses, and you can arrange your own private sale, but at some point, a solicitors is involved in the missives, the settlement, the mortgage and the Registration of the new Title. They have to be. it’s the law. In my own experience at the firm, I can do the odd thing, but when it comes to the key points – the solicitor steps in a signs their name on the line.

But, being heavily involved in my firm’s conveyancing department – I’ve developed a strange enjoyment of it and, if I may, I’m pretty good at it. I know what needs to be done during the process. But it doesn’t end for me when it ends for the client. You may get the keys, but there is still work to do behind the scenes.
Your new title needs to be registered to give it effect. Your Mortgage (which is an English Law work we’ve imported into Scotland) needs to be registered for the bank. And, whether you know it or not, you have to pay your tax.
Up until April 2015, when a house was bought in the UK, you had to complete a Stamp Duty Land Tax (SDLT) return. Most people paid no or little tax, but a return had to be done. After April 2015, Land Tax in Scotland was devolved (under the Scotland Act 2012) and the Scottish Government decided to change the regime completely and created the Land & Building Transaction Tax (LBTT) to replace the old Stamp Duty Scheme.

Most people will buy or sell a house. Most people, however, don’t pay this tax. Houses under £145,000 are taxed at 0%. Most people don’t even notice. But a return still has to be done. However, in two weeks’ time, there will be a small but significant change made to the regime – the 3% LBTT Surcharge.
While it has been discussed since the end of last year, the law was only changed last week to bring in this change. Now, if you buy a house and, thanks to that purchase, you own two houses, you have to pay a 3% addition tax on the property. {2}
The thing is though, this only applies to purchases on or after the 1st April 2016…and, as I mentioned, these tax changes have been known about (more or less) since December. So, the savvy buyer spotted, as I’m sure you have, a way round this…buy before the 1st of April. This is the issue.

In the next 2 weeks, my firm has 13 settlements. For a relatively small high street firm – that’s a lot. A lot of reports and mortgages and deeds and letters and phone calls and factors and post. In the mad rush trying to beat the 3% Tax, people who know their way about the system, are getting in quick. Those who maybe have a 2nd house on the side for rental income, but don’t make a living off of it, are most likely to lose out.
This has led to a log-jam of sales happening on the 24th, 29th, 30th and 31st March. because there are so many sales, services conveyancers need ready access to have been busy too. It’s created a more stressful situation (and messier desks) for conveyancers than usual – and the sector is not a stress free one to begin with. You are more likely to complain about your house sale than your prison sentence.
It seems odd, I know, to ask for pity for lawyers, but every conveyancer on the other end of the phone I have spoken to has said similar things. It’s become a “top trumps” kind of thing. {3}

What then, is the solution?

When the Chancellor of the Exchequer gives the UK Budget speech, there are always a few minutes of business before the Leader of the Opposition responds. During this time when (inevitable) Andrew Neil chats to John Curtice about something-or-other, a series of votes are taken on raises on alcohol and tobacco duties that will take effect from 6pm that evening. Most people work 9am until 5pm – so there’s very little chance of stockpiling to avoid the rises and, therefore, fewer long queues at the supermarkets.
Could this work for future LBTT changes? Instead of having a 2/3 month long “you know it’s coming” period, could we change to a “too late! It’s already here, manoeuvre”? I picture it working something like this:

  • During the Scottish Budget, the Finance Secretary announces the LBTT increase.
  • Immediately after the speech, there are votes on that increase, laid before the Scottish Parliament by Scottish Statutory Instrument.
  • Any missives entered into prior to 5pm on that day avoid the increase in tax.
  • Any missives entered into after 5pm that day are subject to the increased tax.
  • You pay the lowest rate of tax that applied during the time while missives were being negotiated. {4}

This means that, at most, the “in between times” last for 5 hours and actually allows more transactions to, potentially, be caught by the increase in tax. Winners all round. There are no last minute rushes to pull everything together and it makes for happy buyers, sellers, and (most of all) lawyers!
Infrastructure-wise, most LBTT returns are made on-line, and the system asks when missives were concluded (for a reason I have still not ascertained). It would not be difficult to amend the data entry (while, hopefully, improving the usability of the system overall) to take account of the reduced cross-over period where the date the offer was submitted is a factor.

This proposal suggests a small improvement. A slight one  – but one that would make a real difference to the Legal profession and to buyers and sellers of property in Scotland too. It would need a legal framework to allow the changes to be passed quickly, and also changes to the on-line LBTT system, but there is no reason why with careful planning, this mad rush at the end of the month couldn’t be avoided, and we could have a better system in place.

{1} It continues to come as a surprise to me, and this may be the effect of 5 years studying Law, the number of people I have to say, “I do a lot of conveyancing…[blank face]…buying and selling houses”. Is the term not widely known outside the legal profession?

{2} This is a very potted version of the tax. There are  number of other consideration, but in most circumstances, this rule can be applied and the outcome is correct. If you’re really interested, you can read the Revenue Scotland Guidance to get the full picture.

{3} One solicitor told me he has 21 transactions settling on the 30th and 31st March!

{4} This rule needs to apply for a technical reason. Say you put an offer in the day before Scottish Budget Day and the rate of tax was decreased as opposed to increased. There would be an incentive to withdraw from the sale/purchase, then resubmit the offer again to benefit from the lower rate of tax. At the start of the transaction this isn’t such a big problem – but if it was the week, or even the day, before the transaction (and the tax gain was large enough) there are a whole new bunch of problems this could create, particularly for those getting mortgages.


Highland (lack of) Titles…

…or an examination of the ALMIGHTY KEEPER.

So imagine A wants to sell B their magazine. They’d form a contract. A would agree to give B the magazine and, in return, B would agree to pay A money for them. There are two rights created here, along with two obligations:

  • A has a right to payment and an obligation to deliver the magazine.
  • B has a “right to ownership” the magazine and an obligation to pay.

It’s important to note that B only has the ‘right to ownership’ and not a ‘right of ownership’. Even more importantly, A and B only have these rights in relation to each other.  A can’t use the contract to get C to pay and B can’t use the contract to get D’s magazine. This kind of right is called a “personal right”. It is only enforceable against a particular person or group of people.

Illustrating the above
A diagram of the above situation with A, B, C & D

But how can this ‘right to ownership’ become the ‘right of ownership’? B paying the money isn’t enough – A has to physically deliver the magazine B. This is called ‘the publicity principle’. If A refuses to deliver, B can rely on his personal right to sue him and enforce delivery. But A could decide to break the contract, sell the magazine to E instead and B cannot stop this. This is because until there is delivery, A remains the owner and he can do what he wants with what he owns. Assuming E was didn’t know about A’s contract with B, all B can do is sue A for the price. It seems unfair, but it’s the law.
But imagine A isn’t a conman and delivers the magazine to B. Upon delivery A loses all his rights to it and B become the new owner. She now has the ‘right of ownership’. This is a special right because it is enforceable against everyone else in the entire world. This is a called a “real right”. If anyone tries to steal B’s magazine, she can get (theoretically) get it back. If A now tries to sell it to E, B can now stop it, because she is the owner. Ownership is the supreme right.

So there are two steps involved in transferring ownership:

  • Contract (creates a right to ownership).
  • Delivery (creates a right of ownership).

Now pretend that, instead of a magazine, A wants to sell B his house. The process is practically different, but the steps are the same. Firstly they would make a contract to sell the house – known in Scotland as ‘missives’ – and this gives B their right to ownership. but delivery has still got to take place for ownership to be transferred. But how do we make delivery? The ground is odd in that respect – it tends to want to stay where it is. In the past, people would physically hand over a small piece of the ground in a symbolic way. But this can be very impractical, so since the 1600’s we’ve had a different way to solve this problem.
Firstly, we created the Register of Sasines where all the deeds related to land were registered. This register can be checked and we can see who owns the land – so the ‘publicity principle’ is met. It also saved people lugging bits of land around to “deliver” them, so it was definitely an improvement. But there was one problem: it wasn’t always reliable. What was needed was something much more definitive so we created the Land Register.
The Land register is a much more powerful beast. The golden rule is that whoever the Land Register says owns the land, owns the land. Even if the register is ‘incorrect’ it is right. Going back to the example, if A sells the house to B and send off the deed (or ‘disposition’) to be registered but there’s a terrible mistake and the Land register says that it was sold to D instead…D would own the land. That’s it. Of course, B can ask for the register to be changed (and under the Land Registration (Scotland) Act 2012, or ‘2012 Act’, this process has become a lot easier), but as long as the Land Register says D is the owner D is the owner. The Land Register is never wrong!
One final thing – the only way to get ownership of land in Scotland, whether house, field or forest, is to be registered in the Land Register (or, if the land was last sold before 1979, the Register of Sasines). There are no other ways to own land in Scotland. [2012 Act s.50]

So this brings us to Highland Titles. Highland Titles is a business which purports to sell a square foot of land to customers for £29.99. This would suggest that they will enter into a contract with the customer and then give them a deed they can register in the Land Register so they can become owners. But they don’t.
The 2012 Act specifically says that some kinds of deeds cannot be registered. One kind is a deed relating to a “souvenir plot” which is defined as being “of inconsiderable size and no practical utility” [s.22(2)(a)]. As we’ve established, if a deed cannot be registered, ownership can’t pass, since the only way you can get ownership if to have your name on the Land Register.
So then, how can Highland Titles claim to give their customers “ownership” over the land they ‘sell’ them? What they say is that their customers get a “personal right to the land” or “personal right of ownership” by virtue of the contract. But is this true? Highland Titles seems to think so – this was an FAQ on their website until recently (screenshoted by @loveandgarbage):

 “This inability to register the land does not prevent us transferring personal ownership of the plot to you, which you can in turn sell on to another party, or gift to your heirs in due course.

Unlike in England, Scotland still permits the sale of souvenir plots of land under contract law without the requirement for registration.  Although a right of ownership in land (in the sense of a right that is enforceable against third parties) can traditionally only be obtained by registration in the Land Register or by recording a deed in the Register of Sasines as appropriate, under Scottish law these small plots of land can be sold without the expense of registration which would otherwise make this uneconomical.”

While this claim has been removed from their website, the concept of a transfer of ownership under contract only is one they have since restated.

Applying what we’ve discussed, this is clearly not the case. As we’ve said, the right of ownership is a real right. A contract can only give the right to ownership – a personal right of ownership does not exist under Scots Law. This has been confirmed in court [Burnett’s Trustees v Grainger being the leading authority on the matter]. Even if it did, what good would it do? If a personal right can only be enforced in relation to a certain group of people, how can this really be called ownership?

If I have a personal right of ownership against Highland Titles (which is the most I can possibly have under a contract of sale), what happens if someone else tries to move in on my square foot?  I don’t have any rights in relation to them – I’m not the ‘real’ owner. I’d be screwed.
Also, what if Highland Titles decided to try and resell my square foot to someone else, what could I do? The Land Register still says that they’re the owner, and the Land Register is always right – so I can’t stop them. The very most I could do is enforce my personal right against them and sue them to get my £29.99 back. Conversely, it also means that I wouldn’t be able to sell the land on to someone else, because I’m not the owner. Highland Titles is the owner because I can’t register my title, so the register would still say they’re the owner and The Register is always right!

So what are Highland Titles actually selling? It’s fair to conclude that Highland Titles aren’t selling land. They can’t be selling a “personal right to ownership” in a square foot of Highland ground, because such a right does not exist. There can only be a ‘real right’ of ownership and they’re selling me a title which cannot be registered in the Land Register, and (as I hope is clear by now) what the Land Register says goes – so I can never get the “real right of ownership”. At most, Highland Titles are selling a right to potentially sue them for £30 at some point in the future.

Lots of other (more qualified) have written (more technical) posts on Highland Titles and related gubbins. Please read them too:

A ‘Secure’ Future for Rangers

…or why fans are probably right to worry.

In what seems to be the never-ending Rangers saga – we have a new chapter. Mike Ashley, owner of Newcastle United, has offered the club a £10million loan, which it seems they desperately need. But, like all things, there’s a catch – it would be secured over Ibrox Stadium. What does this mean legally, and why should it matter to football fans?

What’s going on?

After the demise of Rangers v.1, the club and it’s assets (including Ibrox) were bought by Charles Green (who may or may not have been a front-man for Craig Whyte) – and are now owned by the company that owns Rangers. At the moment Ashley owns the naming rights to Ibrox, meaning he could rename the stadium whatever he wanted, but he doesn’t actually own the land.
But Rangers are in desperate need of cash and they have two options before them:

  • a £10 million secured loan from Ashley, over Ibrox and the club’s Murray park training ground.
  • a £5 million loan from the ‘Three Bears’ consortium – led by Douglas Park – secured over Murray park only.

The board have decided that £5 million isn’t enough, so have considered Ashley’s offer. It’s important to note that Ashley isn’t trying to buy the club – the SFA have said he can’t substantially raise his shareholding because of his Newcastle ownership – but is just looking to secure his loan, in case the worst happens. A £10 million loan should tide them over for a while at least. Ashley isn’t offering to buy the ground – most likely because the fans would never support it, and the last thing Rangers needs is a fan boycott. Instead he is wanting a security over Ibrox and the club’s Murray Park training ground. The idea that the Board was willing to to even consider putting the stadium at risk seems to have been the last straw for many…but what’s actually happening here?

The Law

When you buy a house in Scotland, most people have to go to the bank for a loan. In return for the bank giving you this loan, they will ask to for a ‘Standard Security’ against your house. You then use the loan to buy the house and you become the full owner. But by giving the bank the Standard Security, if you fail to pay up on time, the bank could sell the house to get their money back – even though they don’t actually own it.
This is what Ashley is wanting to do. He isn’t offering to buy Ibrox, but just use it to make sure he gets his money back. But the context of this is important. Rangers are in serious financial trouble and need the cash or they might not get through the month. Much like many people in desperate need of credit, they’ll get round to figuring out how they’ll pay it when they need to pay it. It is entirely possible that Rangers might not be able to pay it at all. if this happens, Ashley would be well within his rights to enforce his security and sell the property – possibly to himself. This could mean that:

  • Ashley loans the Club £10 million, secured on Ibrox and Murray Park.
  • The club can’t pay, so the security is enforced.
  • Ashley buys the stadium through the security, paying himself for it.
  • Ashley gets the Stadium for a net loss of c.£10 million, which isn’t a bad deal.

But, just because this isn’t complicated enough situation, all of this may not even come to pass. In order to have a security over land, it has to be registered in the Land Register – which has not yet happened. This should be good news for Rangers fans…but it’s not that great. While The Board haven’t granted the security yet – they have granted an ‘Advance Notice’ to Ashley. Usually things that are registered earlier have priority of those registered later, but the Advance Notice is a brand new invention that means that any security Rangers (may) grant Ashley in the next 35 days will have priority over anything else registered in the meantime. This would suggest that the board are seriously considering Ashley’s offer, and he just wanted to shore up his position in case the club need money from another source as well. At the very least, it means they can’t seriously consider the Park Consortium’s offer for at least a month.

But even the way Ashley’s securing the loan is interesting. He decided to go for a standard security (which is a type of ‘fixed security’) as opposed to a ‘floating charge’, which is perhaps more common in relation to companies. The floating charge would have hovered over all of Rangers’ assets and only become ‘fixed’ if the company entered administration or liquidation. This flexibility is favoured by creditors (because it gives them a range of assets to choose from) and debtors (because they are still able to buy and sell assets – eg. like players – in the mean time). The disadvantage is that, were additional securities granted before administration the floating charge would have ranked behind them – possibly leaving Ashley high-and-dry.
The fact that Ashley was demanding such a solid security at all should be of concern, but the fact that he’s asked for a fixed security (backed in the meantime by an Advance Notice) as opposed to a fixed charge should be terrifying. Ashley is essentially saying to the Rangers Board “I don’t know if you’ll be able to pay this loan back, so to protect me, I’ll be wanting your grounds thanks”.

This (still) Ain’t Over

It’s hard to know what will happen to Rangers this year. It’s clear that they are in desperate need of cash, and if they don’t managed to gain promotion this year it could be their ruin. But this most recent saga has shown as a few things:

  • Mike Ashley is trying his hardest to extend his control over Rangers by alternative means.
  • The fact the club have already granted an Advance Notice mean they are seriously considering the offer – in spite of the fan backlash.
  • If they do grant the Standard Security over Ibrox, the Board will have to be very sure they can pay the loan back, of the stadium could be sold from under them.
  • By asking for a Standard Security, and not the more flexible Floating Charge, Ashley can’t be entirely sure Rangers are going to be able to pay the loan back – and he wanted to protect his rights over any other creditors they have.

All this means that this chapter still has a few more pages to run, and even if Rangers do make it to March – they might have to think about all of this again. This story has a long way to run yet.

The Scottish Difference…

…or “Just Ignore the Spelling Error for a Minute”.

On Saturday I went a walk into town, and I saw this sign:


I thought it was unusual to see this sign in the middle of Glasgow’s Sauchiehall Street. It’s location wasn’t unusual: Club520 was doomed when one of it’s acts threatened an audience member on it’s opening night. But, a leasehold? In the middle of Glasgow? I was intrigued. In Scotland you don’t generally get leaseholds (which is akin to total ownership of a piece of land but for a certain length of time). In a few remoter places they do still exist, but not in the middle of big cities. I wondered if I was wrong and, as a fun little quirk of things, there was one. So I asked:

Being truthful, I was kinda hoping that it was a quirk. I like it when things are just a little bit different, a bit like “There are no ‘streets’ in Drumchapel”. But, alas:

It seems it was just a mistake after all. Although, it is a mistake that demonstrates a common problem. People don’t appreciate the Scottish Difference. The sign should should have read “Lease”, or the more common “To Let”, but “Leasehold” is similar and nobody noticed it’s actually very different. Christie & Co are a International firm based in London, so they are allowed to drop the ball every now and then. But, at least they accepted their mistake and are going to change it – and for this I applaud them:

We need more like them.

The Scottish Government actually suffer from a similar issue earlier this year. In their Programme For Government 2014-15, they misspelled “moveables” as “movables” every time it appeared in the paper. The latter is the ‘correct’ spelling, but the former is the legal term for most property that is not land or houses. If a government can’t get it right, what can we expect?

Happy Appointed Day…

…or why owning land got a little less complicated today.

Say you wanted to buy my complete collection of Doctor Who DVD’s and I wanted to sell them to you (cause being a tech-geek I’ve got the Blu-Rays now). So we do that, but I accidentally gave you my Torchwood DVD’s as well by accident. You would expect, rightly, that you would have to give me the Torchwood DVD’s back because we didn’t agree to sell/buy them and you never paid for them. That’s sensible.
But then, say I wanted to sell you my Scrap Yard. Not my whole scrap yard, just the back 100mx50m plot. But when the plot was being registered, for some reason, it’s been marked in the register that you not own 100mx100m! DISASTER!
The Land Register is always right. ALWAYS! Even when it’s wrong, it’s right. Even if the deed I wrote sold you 100x50m of land, if the Land Register said you actually owned the 100x100m plot you would own the 100x100m plot!
But I can sort this. I can just ask the keeper to change it – like we would swap back the DVD’s. WRONG! Even if I didn’t mean to sell you a piece of land, as soon as it’s registered in the Land Register and you take possession (which can include simply putting up a fence around the land) I’m screwed. I can’t get it back. I can make you pay for it, but since you are a ‘proprietor in possession’ I can’t have the Land register changed back. At least…until now!

As I write we are mere minutes away from the Land Registration Scotland Act 2012 coming into force (or #LandRegistrationScotlandAct2012Day as I have uniquely taken to calling it). This Act introduces a massive change in the way land registration works – and sorts out the ridiculous situation above.
As of today, if the Land Register doesn’t reflect the proper position under Property Law, then the (majesticly named) ‘Keeper’ can rectify the register without caring whether the interloper has taken possession of the land or not. So long as the error is ‘manifest’ (which, helpfully isn’t defined in the act) it can be fixed. Hoorah! Once more I can park my beautiful 1960’s police box in that 100x50m plot so unfairly stolen from me.

This isn’t the only change the Act makes, but it is by far the biggest. Others are mostly of Academic Interest:

  • Instead of using the OS Map to mark property, we will start using a ‘Cadastral Map‘ (which will be based on the OS Map…so yeah).
  • Advance Notices can now be lodged when a transaction is close to completion to protect a buyer’s potential Real right (stopping the terrible ‘Race to Register’; where A could sell to B and then to C, but if C managed to register his right to the land 1st, B’s deed ain’t work diddly.)
  • Lawyers have more responsibility than ever. The Keeper seems to have run out of filing cabinet space and doesn’t want to be flooded with deeds and whotnot, so now conveyancers have to “tell, not show” the Keeper what the story behind the property is and if they get it wrong they are liable to their clients for the mess they cause.
  • To make it even worse, there’s only one-shot to get it right. If the conveyancer forgets to include even the smallest of details, or doesn’t tick the teeniest of boxes, then the Keeper can now reject the entire application and send it back to be completed properly.

The 2012 Act is not a small fiddle with the rules; it completely rewrites the textbook (seriously, Gretton and Steven better get a shifty). It will also (hopefully) speed up the completion of the Land Register. This may seem inconsequential and unimportant for non-lawyers, but it will speed up land transactions in the future, leading to smaller legal bills for buyers (theoretically) and less stressful moving-days for all. It is a fantastic piece of legislation which will also markedly improve the on-line registration system. In fact, the new form (singular) in designed to be completed on-line! The legal profession may well be dragged into the 21st century, and it makes this future lawyer very happy indeed.

So, in the spirit of the season (and twitter habit for bad commemorative poems), I leave you with this:

She sprang to her twitter, while outside there was drizzle,
And away she typed hard in the land of the thistle,
As the new Act came in, and the sky did turn bright,
“Happy #LandRegistrationScotlandAct2012Day to all, and please get it right!”