Law Society of Scotland - The Journal Online

Journal
Conveyancing
April 2003 Volume 48 No 4 28
Such an obligation in relation to the
Charges Register should only be
given on behalf of the client.
Breach of the obligation
A Letter of Obligation is a contract
between the seller’s solicitor and
the purchaser – not to the
purchaser’s solicitor, and so the
remedy for breach of such a letter is
for the purchaser to sue the selling
solicitor. If the obligation given by
the solicitor mirrors an obligation in
the missives, then the seller and the
solicitor are jointly and severally
bound.
Prescription
If a Letter of Obligation is an
obligation in relation to land, then it
has a twenty year prescriptive
period, but if it is not, then it has only
a five year prescriptive period.
Gretton & Reid in their Book of
Conveyancing are of the view that
the obligation to deliver a clear
search is an obligation in relation to
the land and therefore has a twenty
year prescriptive period (page 145).
However, Johnston in his Books of
Prescription and Limitation (also at
page 145) thinks this is a more
doubtful position and, following his
logic, one could possibly argue a five
year prescriptive period. The
prescriptive period does not begin
to run until the breach. However
that is likely to be quite soon after its
receipt since it covers only the gap
period.
Specific Queries
Occasionally the Law Society of
Scotland is asked for guidance by
practitioners on specific aspects of
Letters of Obligations and recent
queries have included the following:
Period of Obligation
There are often comments on the
length of time taken by Stamp
Office and the Keeper to process
deeds. The Stamp Office undertake
to “turn around” deeds within five
working days. That will not change
in the near future. The Keeper is
bound to issue a title number
“forthwith”. Holiday periods can
delay this. As a result the master
policy insurers have agreed to
extend the period of cover for a
Letter of Obligation from fourteen
to twenty one days.
Although practitioners must still
take all steps to stamp and register
deeds at the earliest possible
opportunity, this additional period
allows a bit of flexibility, for
example, over a Christmas period.
If the “gap” period within a Letter of
Obligation is twenty one days then
the period for the charges search
(which is the client’s obligation)
should probably be extended also.
Matrimonial Transfer and
Adults with Incapacity
Until recently there was a feeling in
some parts of the profession that a
Letter of Obligation in matrimonial
cases was not to be given. On one
argument a conveyance of
matrimonial property on divorce is
in the nature of a gift because,
simply put, the matrimonial
property is being split and therefore
there is no actual price or
consideration being paid. However,
sometimes it is more complicated
than that and one party actually
“buys out” the other party. In such
cases one of the parties will take
out an additional loan or perhaps
even take a fresh loan over the
property.
The Conveyancing Committee of
the Law Society of Scotland, has
recently considered this. Our
conclusion was that a Letter of
Obligation in the classic format
should be given in all situations
where there is a disposal for
onerous, consideration. That
includes transfers of former
matrimonial homes between
divorcing spouses.
Under the Adults with Incapacity
legislation the transaction has to be
effected both by the guardian and
by the adult. Because of the way
the law is structured (the title is
held by the adult but it is the
guardian who conveys) for the
purposes of the Letter of
Obligation both parties should be
treated as client. The Letter of
Obligation should contain both
names and capacities in the heading,
and should refer to “clients”.
High value transactions
Where one has a high value
transaction one should always
consider whether the PI cover of
the firm granting the Letter of
Obligation is adequate to cover that
particular transaction. Although a
classic Letter of Obligation may be
given and the insurers may be
expected to pay out on it, they will
only pay to the extent of cover.
In the event of a claim in excess of
the master policy limit of indemnity
there is a possibility that top up
insurance premiums would be
loaded in the future.
Time limits in the practice
book
The practice book in the style of
Letter of Obligation being granted
by borrower to lender contains an
obligation to deliver the land