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certificate within a specific period. Sometimes the title
is complicated and it is quite clear that the land
certificate will not be available for some time. In those
circumstances it is quite reasonable to try to renegotiate
the period (in one recent case, the period was
negotiated to five years) in conjunction with the best
estimate from the Keeper
Where no Letter of Obligation may be given –
Specific Instances
In some cases it may be inappropriate to give a Letter
of Obligation at all. These are very exceptional and
should not affect the vast majority of transactions but
the following are some examples:
(a) In one case a lender’s solicitor asked for a Letter
of Obligation from a borrower with an in-house
legal team. No external solicitor had been
instructed (and there was therefore no master
policy cover for the grant of the Letter of
Obligation because the in-house legal team were
not covered by the master policy). In such
circumstances as it was a commercial organisation
and as the lender had been made aware of the
circumstances at the earliest possible opportunity
it had to be accepted that no Letter of Obligation
would be given. (This case did fall within the
“contracting out” parameters in any event).
(b) When buying from an insolvency practitioner a
client will normally buy the property “as it stands”.
Given the status of the law and the very limited
rights to challenge a liquidator’s or receiver’s title it
is unlikely that a Letter of Obligation would give
very much additional benefit. Subject to the
comments in the next paragraph, if the searches
are up to date there is very little further that can
go wrong.
Solicitors for an insolvency practitioner should be
encouraged to give such letters of obligation since
they are not subject to any loading or excess if it is
in the classic format, although in a commercial
transaction the “contracting out” situation could
apply. Some receivers’ solicitors are concerned
that there might be a “Sharp v Thomson” type
disposition in a drawer, delivered but unrecorded.
The Keeper has confirmed that he will not exclude
indemnity on that ground and the insurers do not
add any further loading or penalty, although they
do expect the lawyer acting for the receiver at
least to make enquiries of the former directors
(even though there may be no response.
However, where the purchaser is granting an
obligation to the lender’s solicitors following such a
sale there is no penalty under the master policy
just because there is no “back to back” obligation
from the receiver’s solicitor, so long as that
(purchaser to lender) obligation complies with the
“classic” rules.
(c) Frequently house builders’ solicitors refuse to give
letters of obligation. They insist upon purchasers
obtaining their own searches and accepting the
position without a Letter of Obligation. This is an
unsatisfactory situation and has been raised with
Homes for Scotland although there is no
immediate prospect of the situation changing. If a
Letter of Obligation is not to be given to a
domestic client in such a case the possibility of the
builder going into liquidation and receivership
should be discussed with the client.
Leases
Very often tenants take entry on missives but the lease
is not signed up until later. A Letter of Obligation can
be granted at entry. If there is any doubt arrangements
should be made to have the lease signed by all parties
in time for entry. If that is not possible then the Keeper
will in those circumstances accept the missives
(provided they are self-proving and comply with all the
other formalities) for registration in the land register.
Very often clients will take the risk and the Letter of
Obligation can then be left until the lease is signed up.
Selling a company
If property is acquired on the sale of a company then
there is no conveyance of the property and in theory
no Letter of Obligation need be given. However
sometimes the purchaser’s solicitor has to give a Letter
of Obligation to its clients’ funder. That is treated no
differently from any other so long as it is in classic format
and the checks have been carried out. In many cases
there will be property warranties available from the
seller of the shares.
Registration of Title
One practitioner raised a query regarding the giving of
a Letter of Obligation where on a second registration
the Land Certificate had not been issued. The obligation
to deliver a Land Certificate with no exclusion of
indemnity is a clients’ obligation. It does not matter in
relation to the solicitor’s Letter of Obligation whether
or not the Land Certificate has been issued. The Letter
of Obligation only covers the gap period and that is no
different from any other transaction.
Property Standardisation Group
The Property Standardisation Group is currently looking
at letters of obligation and are about to publicise a set
of styles that they have agreed between them . This
group comprises members of Dundas & Wilson,
Shepherd + Wedderburn, Maclay Murray & Spens and
McGrigor Donald. The Conveyancing Committee has
met with them, and has looked at the styles. The
Committee’s position is that while these styles may be
of use to the profession that will be for each individual
practice unit to decide.
Journal
Conveyancing
e:
linseylewin@lawscot.org.uk
29 April 2003 Volume 48 No 4