Charges Section
9.16.4 Removal of notes regarding ranking
Where a security is discharged and ranking provisions affect it, the note(s) referring to the ranking provisions entered after the other security entry(ies) will need to be deleted or amended.
9.16.5 Schedule of prior and pari passu charges
The term ‘charges’ is used instead of ‘heritable securities’. In terms of Rule 6(1) of the 1980 Rules, this covers all registrable matters that fall to be entered in the charges section.
9.16.6 Effect of ranking clause in one of two or more securities registered on the same day
Where two or more securities are registered on the same day and the intended prior ranking security is for a set amount, has no provision for further advances and the ranking clause in the postponed security makes it clear that it is to rank postponed to the full amount in the first security the entries in the charge certificate will be as follows:
The appropriate ranking notes will be placed after each of the entries in the charges section (see Notes to be entered in the charges section).
When the prior ranking security is for £X and further sums, but the other security recorded on the same day contains a ranking clause postponing it to the amount of £X only, such a ranking clause creates a dual ranking situation. The result is that up to the amount of £X the first security has prior ranking over the second security, but as regards any further advances it does not have prior ranking, because the ranking clause does not cover these further sums. Unless there are express provisions stating otherwise, the two securities will then rank pari passu. In such cases of complex ranking, the situation is reflected by showing the other security in the schedule of prior and pari passu securities annexed to the charge certificate for the first security. Both charge certificates will therefore contain a note indicating the existence of a schedule, unless the charge the charge certificates have previously been issued, in which case they will not be updated.
The schedule annexed to the charge certificate for the first security will contain details of the second security, for example:
The appropriate notes should be entered after each security entry in the charges section (see Notes to be entered in the charges section).
Ranking provisions can also be agreed in a separate document such as a ranking agreement. The Keeper’s policy is to register the effect of such a deed in the charges section by simply referring to the document in a note after each of the affected securities:
Entry 1 Standard Security for £40,000 by said AB to CD (desig)
Similar notes will be added after
entries 2 and 4. The schedule for each standard security’s charge certificate
will contain details of each of the other standard securities.
The following note regarding ranking will be instructed for inclusion in the
charge certificate:
A ranking agreement, or similar deed, if submitted for registration, must be accompanied by either a separate application form on behalf of each creditor or a single application form signed on behalf of all the creditors.
A deed of postponement is a unilateral deed and as only one party’s real right is affected by this deed (the granter’s) only a single application form is required, even though ranking notes may be required against more than one entry. A separate deed containing ranking provisions should not be bound into the charge certificate for any of the affected standard securities.
9.16.9 Statutory ranking
A standard security granted in favour of a statutory body may affect the conventional ranking of existing securities. Therefore, where a security is granted under any Act, other than the Housing (Scotland) Act 1987* a senior team leader must be consulted before any charge is registered and charge certificate issued. If the Act in question does provide for preferential ranking of the security then the senior team leader will instruct which notes should be entered in the charges section and in the schedules on the charge certificate/s if appropriate.
*For more information on discount securities, see Discount Standard Securities.
9.16.10 Ranking of fixed and floating charges
A ranking agreement or similar type deed may provide for the ranking of both fixed and floating charges. A floating charge is an overriding interest, as defined in section 28(1)(f) of the 1979 Act. The particulars of the floating charge will therefore require to be taken from the deed and noted in the charges section, in terms of section 6(4) of the 1979 Act and Rule 6(2) of the 1980 Rules. It should not be given an entry number or date of registration, as it is not being registered. The noting should be in similar terms to the following:
· Bond and Floating Charge by said AB Limited in favour of the Royal Bank of Scotland plc dated ………. and registered in the Register of Charges ………
When the company is divested of the subjects, the note of the floating charge will be removed from the title sheet, provided the charge has not crystallised (i.e. attached to the property) on the appointment of a liquidator or receiver. Such an appointment should be apparent from the answer to the relevant question on the application form.
As the details of the floating charge are being noted as an overriding interest the details are not carried forward to any charge certificate schedule being created for a fixed security.
It is a long-standing and consistent policy of the Agency that a ‘subject to’ clause is not recognised as having the effect of a ranking clause and must, therefore, be disregarded when priority of registration is being considered.
When a prior heritable security is already registered (or recorded), and, because of its earlier date of registration (or recording), will rank prior to a second security, there should be inserted before the warrandice clause of the second security, in terms of Note 5 to Schedule 2 of the 1970 Act, the following clause:
‘But the security hereby granted is subject to [the prior security]’.
The warrandice clause should have been altered accordingly. These qualifications are in the nature of a warning to the creditor in the new security that a prior security exists. They are not regarded as affecting the ranking of the securities.
If two securities are received on the same date, one of which contains a ‘subject to’ clause, they shall be treated as pari passu securities. There is no need to advise the presenting agents that the securities will be treated in this way, unless one of the creditors is a building society. A building society is bound by section 11(5) of the Building Societies Act 1986 to obtain a prior ranking. Accordingly, where one creditor is a building society, the registration officer should contact the submitting agent and explain that in such circumstances the Keeper will treat the securities as pari passu. The agent should be given the opportunity to remedy the situation. This can be achieved by arranging for the withdrawal and re-presentation of the other security at a later date, so that it will rank postponed by date order. However the written authority of the agent for the second creditor must be obtained before this course of action is taken. The agent for the second creditor should be assured that their deed will still benefit from the abated registration fee. Note: this course of action does not apply where the Building Society has demutualised. In such cases the successor company should be treated in the same manner as any other creditor.
9.18 Undertaking in deed inducing registration
Where part of the consideration in the deed inducing registration is a personal undertaking of the grantee to repay the sum outstanding in an existing heritable security:
9.19 Disposition and deed of variation
When two or more individuals hold title in the Sasine Register, a transfer between them for valuable consideration will induce first registration of the subjects or a pro indiviso share thereof. This situation usually arises on marriage or on the break-up of a marriage. It is Agency policy to encourage voluntary registration of any remaining share. Where the parties have previously granted a standard security in joint names, it is likely that the creditor will want the person acquiring the whole property to undertake the whole obligations contained in the standard security. This is normally done by a deed of variation. Separate application Forms 2 are required for both the standard security and the deed of variation. It must be stressed that, in circumstances such as these where the security has not previously been registered, the Keeper will not accept an application to register the variation unless the security is registered as well. Applications to register a variation of an unregistered security will be rejected.
9.19.1 Entry in charges section
The entry in the charges section for the standard security will narrate the original party/ies to the security. Any party/ies not named in the B section will have to be designed. The variation will be entered in the form of a note e.g.:
Standard Security … by said A and B (desig) ….
The above note will only be added to the charge certificate if the applications for registration of the security and the variation are being dealt with at the same time; otherwise the note will only be shown in the C section. The deed of variation should not be bound into the charge certificate.
The details of a standard security can be varied after it has been granted. The only conditions that cannot be varied are the ones relating to powers of sale, foreclosure and procedure on redemption. Section 16 of the 1970 Act provides for securities to be varied by way of a deed of variation unless that variation could appropriately be effected by way of an assignation, discharge or restriction, or if the alteration involves an addition to or extension of the interest in land contained in the security.
A standard security can also be varied at the time it is granted, e.g. to depart from some of the standard conditions set out in the 1970 Act. If this is the case there is no need for a Form 2 to be submitted for the variation and no mention of it should be made on the title sheet or charge certificate.
Most creditors state in their terms and conditions that they must be a party to any variations of their securities but many variations are presented to the Keeper without any evidence of the involvement of the creditor e.g. subscription. In these circumstances, the presenting agent should be contacted to ask for written confirmation that the creditor did not wish to be a party to the deed.
Where a deed of variation is presented for registration after the security it is varying has been registered, it will be the subject of a separate application and have to be accompanied by a Form 2, Form 4 and the appropriate fee, (see Fees ). The deed should be checked to see that the parties are correctly named and designed and that the subjects are correctly referred to. As required by section 4(2)(d) of the 1979 Act the description of the subjects must include the title number. If the deed is acceptable, a note should be entered under the appropriate entry in the charges section. If the variation relates to a matter referred to in the title sheet entry then the note will give short particulars of the variation e.g.:
If the variation relates to a matter not referred to in the entry in the charges section e.g. the rate of interest or personal obligation, then the note will merely record the fact that a variation has been registered:
‘Note: Variation of the above Standard Security was registered (date)’
Only if the variation is being registered as part of the application to register the security, or in an application being processed at the same time as the security application, will the note also be added to the charge certificate. In this instance the charge certificate should be updated accordingly, however the deed of variation should not be bound into the certificate.
Details of a variation of a prior ranking charge will not be shown in the charge certificate schedule
Where a variation is submitted for registration of a security or charge that has been recorded in the Register of Sasines but not registered in the land register, the variation cannot be registered. For a variation to be able to be registered the security itself must be registered. In these circumstances the presenting agent should be contacted and asked for a separate Form 2 and abated fee to enable the registration of the security. See outstanding heritable securities.
Updated October 2008