Specialist Topics
Power of Sale
22.15 Dispositions under power of sale, other than in deeds inducing registration
Registration officers will sometimes find dispositions under power of sale that form part of the prescriptive progress of titles in first registrations. The 'power of sale question' in application forms is only for deeds inducing registration, so clearly it does not relate to dispositions under power of sale in other situations.
However, the principle outlined in Introduction still applies; the applicant’s agents are responsible for advising the Keeper (in answer to question 14 on Form 1) of any relevant information which is not apparent from the other answers and documents. If the evidence relating to a prior power of sale is not submitted, but question 14 is answered in the negative, registration officers should assume the solicitor is satisfied that there is no defect in the exercise of the power of sale procedures. The registration officer should rely on the solicitor’s certification and should not requisition the evidence.
Registration officers should, however, be aware that the current edition of the Registration of Title Practice Book states that solicitors should submit all the documentary evidence relating to a prior power of sale, explaining in their answer to question 13 if any evidence is no longer available. If the solicitor has submitted the evidence and answered ‘yes’ to question 13, the registration officer should check the evidence for obvious defects. If the solicitor has answered ‘no’ to question 13, the registration officer should follow the procedure in paragraph Settling practice where the agent answers ‘no’ to the question.
In the event of a disposition under power of sale forming an unregistered link in title in a dealing with whole or transfer of part application, the same procedures should be followed as appropriate, depending on the answers to questions 8 (b) and (c) on Form 2 or questions 12 and 13 on Form 3.
22.16 Exclusion of indemnity
An exclusion of indemnity relating to doubts about, or defects in, power of sale procedure should be entered as a note in the following form, or close to it, after the entry of the proprietor(s) in the proprietorship section of the title sheet:
· 'Indemnity is excluded in terms of Section 12(2) of the Land Registration (Scotland) Act 1979 in respect that satisfactory evidence has not been submitted to the Keeper that the statutory procedures necessary for the proper exercise of a power of sale under a heritable security were complied with, in relation to a Disposition (in implement of the exercise of such power) by XYZ plc of the subjects in this title to A [the said A] registered [date].’
22.17 Bonds and dispositions in security
Introduction
Though it is now very uncommon for a creditor to sell subjects under a power of sale deriving from a bond and disposition in security (hereinafter ‘bond’), the possibility does exist. The statutory procedure for the power of sale in a bond is elaborate and detailed, despite the original provisions contained in the Conveyancing (Scotland) Act 1924 (now Sections 33 to 42 after amendment) having been substantially altered by the Conveyancing and Feudal Reform (Scotland) Act 1970.
In general, most of the advice provided to registration officers in respect of power of sale under standard securities will apply to power of sale under bonds.
The starting-point for registration officers is the usual question concerning power of sale in application forms for registration. The question is non-specific as to the type of heritable security and therefore applies to bonds as much as it does to standard securities.
Where the agent answers ‘yes’ to the question, the norm is that the registration officer can settle the case without examining or requisitioning evidence relating to the exercise of the power of sale. The only check that the registration officer has to carry out is that the selling creditor has a recorded heritable security over the subjects.
Where the agent answers ‘no’ to the question, the registration officer must investigate the position thoroughly and generally follow the guidance given for standard securities. There are, however, some specialities regarding bonds, which are outlined in the following paragraphs.
22.18 Express grant of power of sale
An important point to note is that there is no implied power of sale. If the creditor is to have power of sale, this must be expressly conferred in the bond as follows: ‘and on default in payment, I grant power of sale’. The power of sale procedure would be invalid, and an exclusion of indemnity would be necessary, if there was no express grant of the power of sale in the bond.
22.19 Notice requiring payment
To initiate the sale procedure, and to put the debtor in default, the creditor must serve a notice requiring payment of the capital sum with interest and expenses within 3 month of its date. The registration officer should check that such a notice conforms with the statutory format of Form 1 of Schedule M to the 1924 Act. The form is as follows:
‘To A.B. (insert name and last known address of person to whom notice is given)
TAKE NOTICE that C.D. (name creditor) requires payment of the principal sum of (insert sum) with interest thereon at the rate of per centum per annum from the
day of due under a Bond and Disposition in Security by you [or by E.F. (original debtor)] in favour of the said C.D. [or of G.H. (original creditor) of which the said C.D. is now in right] and recorded in (specify Register of Sasines, and date of recording): And that failing full payment of the said principal sum, interest and expenses within three months after this demand, the lands and others (or subjects) held in security may be sold.
Dated this day of……………………………………………………………..(date of giving notice personally or of posting same).
(To be signed by the creditor, or by his agent, who will add his designation and the words Agent of the said C.D.)’
The registration officer may ignore minor deviations from the statutory wording which make no material difference to the substance of the notice. However, major defects can nullify the notice and the whole procedure following on from the notice. Examples of major defects are the omission of significant text such as ‘Take notice that C.D. requires payment…’, or an error in the name of the debtor, or failure to date or sign the notice. A major error gives cause for real concern and an exclusion of indemnity is probably necessary. A registration officer who is unsure how significant an error is should consult his or her team leader.
22.20 Life of notices
The 3 month period of the notice must elapse before any further step is taken, unless with the agreement of the debtor.
A notice ceases to have effect (for the purpose of the power of sale) 5 years after:
In the unlikely event that a time-expired notice is submitted with an application, an exclusion of indemnity is called for.
22.21 Evidence of service of notice
The service of notice procedure stipulated by section 34 of the 1924 Act indicates the necessary evidence. The relevant statutory forms are Forms 2 and 3 of Schedule M.
Evidence of the service of the notice or can be either:
In the case of an acknowledgement, the registration officer should check that it conforms with the statutory format of Form 2. In particular, the acknowledgement must be signed and dated. The form is as follows:
‘I, A.B., above named, hereby acknowledge receipt of the foregoing notice (or of the notice of which the foregoing is a copy), and I agree to the period of notice being dispensed with (or shortened to………………………….). Dated this
day of……………………………………………………………..’
In the case of a certificate by the server, the registration officer should check that it conforms with the statutory format of Form 3. In particular, the certificate must be signed and, if the notice was served by post, a postal receipt should be provided. The form is as follows:
‘Notice of which the foregoing is a copy was posted (or otherwise, as the case may be) to A.B. above named on the ……………………..day of …………………..
(To be signed by the creditor, or by his agent, who will add his designation and the words Agent of the said A.B. and if posted the postal receipt to be provided.)’
The rules about the persons who serve the notice, and on whom notice is served, are much the same as for power of sale under standard security. See Persons by whom a notice is served and Persons on whom a notice is served.
22.22 Advertising for sale
The 1924 Act (sections 36 to 38) states the rules relating to advertisement of property being exposed or offered for sale by a heritable creditor in exercise of his power of sale. In particular section 38(5) makes provision that copy advertisements certified by publisher etc. be sufficient evidence of their publication. The rules are more demanding than the rules relative to power of sale under standard security but are relatively clear from a reading of sections 36 to 38. Registration officers should therefore look at these sections and pay attention to the provisions prescribing period or number of advertisements, newspapers, place of sale, upset price etc.
22.23 Effects of power of sale on other securities over the subjects
If more than one heritable security over the subjects exists at the time of sale, the registration officer should refer the case to a team leader for written instructions on the handling of the other security(ies). The following paragraphs will provide guidance to team leaders.
Where the creditor in a bond has exercised his right to sell, registration of the relevant disposition has no effect on other securities until a certificate of surplus/no surplus is registered. In terms of section 42 of the 1924 Act, registering the disposition and the certificate has the effect of completely disencumbering the land sold of all securities and diligences posterior to the security of the creditor, ‘save and except when the security and diligence of such creditor and any prior securities and diligences shall be assigned by way of further or collateral security to the purchase.
Pari passu ranking securities are not affected by these procedures as they are in the case of a disposition under a power of sale in a standard security. If the disposition induces a first registration, every heritable security (including the bond in favour of the selling creditor) subsisting in the Sasine Register will be entered in the charges section of the newly opened title sheet. When the relevant certificate is duly registered, entries relating to the seller's bond and any postponed securities will be removed from the charges section as if they have been formally discharged. Where the security subjects are already registered, the disposition may cause either a dealing with whole or a transfer of part. While bearing in mind that prior and pari passu securities are not affected when the certificate of surplus/no surplus is registered, registration officers should follow the procedures in respect of a standard security detailed in Effects of power of sale on other securities over the subjects.
22.24 Mortgage Rights (Scotland) Act 2001(the "2001 Act")
The 2010 Act repealed sections 1 to 3 and sub sections 4(4) to (5A) of the 2001 Act so that it will no longer be possible for debtors to seek a court order suspending the exercise of the creditor's power of sale which orders were previously registered in the Register of Inhibitions. Section 4 sub sections (1) to (3) of the 2001 Act and the amendments made to the 1970 Act being sections 19A, 21(2A) and 24(3) and (4) remain in force.
END OF TOPIC