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DISPOSITION
Guidance Notes /

Introduction

A new style multi-option disposition has been produced, catering for conveyances of properties which are registered or unregistered, or form part of a registered or unregistered title, and creating new real burdens and servitudes, either unilaterally or reciprocally.

It replaces the two previous styles which dealt separately with (1) the creation of new burdens and/or servitudes affecting the land being sold only, and (2) the situation where new burdens and/or servitudes were being created that both benefit and burden the land being sold – i.e. burdens and/or servitudes are also imposed on the land being retained by the disponer.

The new style disposition also adopts the format the PSG has used in the recently added dispositions for residential properties. It uses definitions to populate a lot of the detail such as the conveyancing description or reference to a Title Number, and listing the writs referred to for burdens for example. The operative parts of the disposition are set out in a clause format, so that the drafter can select which of the clauses apply.

1Schedules

The format of each disposition provides for the details of the new burdens and servitudes to be set out in a schedule to the disposition. The Registers of Scotland have confirmed that this approach assists them in entering details of the burdens and servitudes on the title sheets for the benefited and burdened properties. However if only one new burden or servitude is being created, a separate schedule may not be necessary.

2Definitions

All of the key elements of the disposition are covered in the Definitions section. The drafter should carefully select which of the definitions are appropriate and relevant for the particular circumstances, and remove those that are not required.

"Seller" and "Purchaser" are defined terms in the disposition. It is a matter of personal preference whether the definitions are used.

There are alternative definitions for the property which is to benefit from any burdens imposed on the property being conveyed (which is defined as "Property"although alternative, more descriptive terminology can be substituted). If the benefited property is some other property belonging to the Seller, then the definition "Benefited Property" can be used. If the Seller is selling part only of the property, then using the alternative definitions of "Larger Property" and "Retained Property" may be more appropriate, although if only part of the property being retained by the Seller is affected, then there may be scope for a third defined area as "Benefited".

There is a definition of "Burden Writs" which is intended for first registrations, where the writs referred to for burdens can be listed. As an alternative, where there are many burden writs, the drafter could move them to a new part of the Schedule, if preferred.

For new burdens and servitudes which are being created for the Property, definitions of "New Burdens" and "New Servitudes" are provided. Where the Seller is imposing burdens on land whichhe is retaining, or imposing servitudes on the Property for the benefit of the retained property, these are defined as "Retained Burdens" and Retained Servitudes".

It is clear from the relevant part of the Schedule where burdens and servitudes that are being created are to appear, which of the properties is burdened and which is benefited.

Where there are existing servitudes that benefit the Property, a separate definition of "Servitude Writs" is provided, to distinguish these rights or pertinent from the burden writs. Note however that the Servitude Writs may also be Burden Writs.

In some cases, it may be necessary to list all the previous split-offs from the seller's title. These can be listed at the "Split off Writs" definition.

3Registered or unregistered land

Previous versions of the PSG dispositions showed alternative wording for property which is:

  • registered in the Land Register of Scotland or
  • subject to first registration.

Within each of these categories, alternative wording was given depending on whether the whole, or part only of the previously registered or recorded title is being transferred.

Now, the questions of registered or unregistered, whole or part, are dealt with through the appropriate and correct use of the optional definitions. The operative provisions in Clauses 3.1 and 3.2 of the style apply in all cases, and the appropriate optional provision(s) at 3.3, 3.4, 3.5 and 3.6 should be selected according to circumstances. The subclauses will need to be re-numbered if any are removed.

4Parts and pertinents

Pertinents are incorporated into the definition of "Property" with the wording "TOGETHER WITH….(One) the parts, privileges and pertinents:". While this wording is strictly speaking not necessary for a registered title if the property and any necessary rights have been properly described, there is no harm in including it. The PSG view is that important ancillary rights should be specifically referred to and this clause should be omitted. The wording has been left in for those who do not share this view.

5Burdens on first registration

Include Clause 4.1 when the disposition is a first registration. For registered titles, the burdens will automatically apply by virtue of reference to the Title Number, unless there are any burdens which you consider have been extinguished, and have decided to request that they be removed from the title sheet, or in the case of a transfer of part, where burdens affecting the Larger Property do not apply to the property being conveyed.

For how to deal with burdens which benefit the property, see Note 7 below on Division of benefited properties.

6New real burdens and servitudes

If only real burdens, or only servitudes are being created the wording in the disposition and schedule should be adjusted as appropriate. The precise terms of the real burdens and servitudes should be inserted in the relevant parts of the Schedule.

7Division of benefited properties

On the sale of part of a property which is already a benefited property under an existing burden, the part conveyed will cease to be a benefited property (s.12 of the 2003 Act), unless specific provision to the contrary is made in the disposition. Consider whether for example, both the part conveyed and the part retained are separately to constitute benefited properties, or if the part retained is to cease to be a benefited property, and select the appropriate option.

For clarity, it will be necessary to includethe definition for "Retained Property" if departing from the default position in terms of section 12(1).

Both options in Clause 4.3 can be removed if the intention is for the retained property only to be the benefited property.

8Community interest in land declaration

As all of Scotland is now subject to the community right to buy provisions under the Land Reform (Scotland) Act 2003, consider whether either of the declarations in Clause [6] is required.

The 2003 Act creates a general rule that property subject to an entry in the Register of Community Interests in Land ("RCIL") cannot be sold other than to the community which has registered the entry. Section 40 of the Act then sets out certain circumstances in which property can be sold regardless of an entry in the RCIL, such as a transfer between companies in the same group, transfers other than for value, transfers within a partnership or a trust, etc.

The 2003 Act, as amended, no longer provides a specific exemption where the sale is in implement of missives concluded on a date on which the Register did not contain a community interest, or an application to register a community interest, in the land. Instead, the 2003 Act now provides (section 39(5)) that where missives have been concluded before an application from a community body is received by Scottish Ministers, they must decline to accept the application. The option in Clause 6.1 provides wording to cover this set of circumstances, where it is known prior to execution of the disposition.

In the past, the Keeper has said that a declaration of this type will not invalidate a disposition even if it turns out not to be necessary when the disposition is registered, and it is assumed that that approach will continue. However it is recommended that you adopt a pragmatic approach when considering whether to incorporate such a declaration in the circumstances described, and in particular you should ensure that if you have incorporated a declaration on a fail-safe basis and it turns out not to be necessary, because no interest is registered in the RCIL, you should make this clear in your application for registration to avoid unnecessary confusion or even rejectionat the Registers (see suggested wording in Annex below).

The alternative declaration is to comply with section 43 of the 2003 Act which requires that any disposition implementing an excepted transfer must contain a declaration specifying which of the section 40 exemptions applies. You may wish to consider including the declaration even if there was no entry in the RCIL at completion because it is always possible that an entry could appear in the RCIL after delivery of the disposition but before the disposition is registered. In those circumstances a disposition could be rejected by the Keeper and a fresh disposition incorporating a declaration would be required.

9Application to the Lands Tribunal

If the parties agree, the clause preventing applications to the Lands Tribunal to vary the terms of the burdens or servitudes for up to a maximum of five years can be included. This will then have the statutory effect provided for in section 92 of the Title Conditions (Scotland) Act 2003.

10Trust clause

Trust clauses in dispositions have been in and out of fashion over the years and tend to have fallen out of favour in recent times, particularly as academic opinion is that they "have never really worked" and that there is no clear trust purpose.

The PSG has however been considering the use of a trust clause again in light of the introduction of the one-shot rule under the Land Registration etc. (Scotland) Act 2012, and the experience of many practitioners of having their application rejected many weeks or months after submission and that a number of these rejections have been erroneous.

To decide whether or not to support the use of trust clauses, the PSG has consulted with colleagues expert in the areas of insolvency and trusts. The outcome of these deliberations has resulted in broad support for their use, and in doing so, addressing some of the concerns that have been voiced by academics.

It is accepted, that in light of the protection given in a personal insolvency situation, formerly by section 17 of the Bankruptcy and Diligence etc. (Scotland) Act 2007, and now re-enacted by section 78 of the Bankruptcy (Scotland) Act 2016, there is less of an issue in situations where the disponer is an individual. However section 78 provides no protection for corporate insolvency and the seller in a commercial transaction is far more commonly a corporate entity.

The view of the trust and insolvency experts is however that there is a trust purpose – being “holding until title is registered”. That is considered to be no different to a bare trustee holding property for an underage beneficiary. It is the property of the beneficiary either way, and once the purpose is achieved – registration or attainment of legal capacity, the trustee’s duty to hold is extinguished.

The key legs of a trust are present in a trust clause: trustee, beneficiary, trust property and delivery through intimation and physical delivery of the disposition.

Consideration has been given to assessing the responsibilities and duties of trustees and beneficiaries, and whether by carving them out, that in some way undermines the validity of the trust. Trusts are conditioned in many ways, and trustees invariably have powers given, or not, and obligations given or carved out, without an issue. Accordingly it is not considered that doing so will necessarily undermine the trust clause or the existence of the trust per se, and the carve out of any offending duties or responsibilities on the part of the seller should provide appropriate protections.

The concerns that if a trust is created, the provisions of section 2 of the Trusts (Scotland) Act 1961 could actually prejudice the purchaser in the event of the seller subsequently granting a deed to another party, while valid, are in the PSG’s view the lesser of two evils, and the occasions on which such third party deeds are granted are mercifully rare, compared with, regrettably, the ever-present spectre of insolvency. The purchaser's protection in this instance is bolstered by the inclusion in the Offers of an "assist" clause (clause 7.8.3/8.8.3), by which the seller obliges itself to co-operate with the purchaser in the event of its application being rejected and do everything necessary to enable the purchaser to obtain a valid registered title.

It seems unlikely that a Court would strike down the trust on the ground that it was abusive or seeking to prejudice the seller’s creditors. While the result is to take the property outwith the reach of the seller’s creditors, that was not with the intention of prejudicing the creditors. The price has already been paid and the clause is to allow the transaction, which the debtor has already concluded with the seller, to complete.

The key issue here, in the PSG’s view is that, in the event of the intervening insolvency of the seller, followed by the rejection of the disposition, in the absence of any trust clause, the property remains an asset of the company. While if the seller has become insolvent and, the reason for rejection is such that a new deed is required, there is no obligation on an insolvency practitioner to assist the purchasers and the Courts would be unlikely to be willing to compel an insolvency practitioner to act in a way that assists the purchaser, it is more probable that, if the company had received the purchase price (and assuming there was no dispute around proper value being obtained for the property), where a trust clause has been included, most IPs could be persuaded to assist the purchaser if their costs were met.

In a liquidation, it seems that rectification of the purchaser’s title would require a Court validation order. Again however, if the company had received full value for the property and there was no prejudice to the general body of creditors, then it is difficult to see why the Court would not grant the necessary validation order.

Accordingly a suitable form of trust clause, intended to address previously expressed concerns, is included in the style disposition. It is however a matter for the individual drafter whether or not they wish to include it.

11Deeds of conditions created prior to the appointed day

Clause [9] in the disposition can be deleted if there is no deed of conditions registered or recorded prior to 28 November 2004 in which section 17 of the Land Registration (Scotland) Act 1979 was excluded which needs to be applied to the Property.

If there is a deed of conditions in this category, then section 6 of the 2003 Act provides that its terms must be specifically imported into the title and the wording to achieve this is reproduced in the deed from Schedule 1 of the 2003 Act.

12Dual registration

The real burdens and servitudes will need to be registered against both the benefited and burdened properties, and the appropriate provisions for dual registration should be included in the missives.

Annex

Suggested wording for covering letter to Keeper where no entry in RCIL:

On a fail-safe, basis, we incorporated a provision in the disposition in case of an application to register a community interest was made after conclusion of missives, but before completion, to allow registration of the disposition in the event of an entry, affecting the Property, being made in the Register of Community of Community Interests in Land ("RCIL") in the period between conclusion of missives for the sale of the Property, and registration of the Applicant's title.

We understand that a declaration of this type will neither invalidate a deed, nor an application for registration, in the event that the declaration is not ultimately required. No such entry in the RCIL has been made as at today's date. If this remains the case [(and we have no reason to believe otherwise)] as at the date of registration of the Applicant's title, please disregard the declaration.