Author: Lydia Maciver
The Law School had cause for celebration early into the new academic year with the appointment of Dr Frankie McCarthy to the Scottish Law Commission. Dr McCarthy is the very first female property law commissioner, following in the footsteps of Glasgow academic Professor Jack Halliday who was the first ever property commissioner back in 1965-1974. Dr McCarthy will hold the appointment for 5 years and will be overseeing the reform of heritable securities: the law dealing with the securing of debt over heritable property.
The main legislation in this area is the Conveyancing and Feudal Reform (Scotland) Act 1970 which provides for a “standard security” to be the main, often the only, way of securing debt over heritable property. The main purpose of a standard security is that in exchange for a loan, usually from a bank or building society, the debtor will grant a standard security over some heritable property. The majority of people do not know what a standard security is and are more acquainted with the English terminology of a “mortgage.” However, there are vast differences between how a standard security operates in Scotland compared with the English mortgage. Thus, in Scotland where someone talks about ‘having a mortgage’ this is not true. They have in fact a standard security. A standard security must be registered in the Land Register. In the event of default where the debtor is unable to pay back the loan as agreed, the creditor can enforce the security. This usually involves selling the property.
The reform group are focusing on two main areas: pre-default matters such as creation and transfer of a standard security, and post-default matters such as enforcement. Over the years since the 1970 Act, it has come to be commonplace for the courts to deal with various minor technical issues in regard to whether there has been correct enforcement of the standard security. This has resulted in both creditors and debtors being uncertain as to how close to the statutory form there must be compliance. Will a seemingly minor oversight result in a creditor being unable to enforce a security against a defaulting debtor? In contrast, will the failure of a creditor to take all necessary steps prior to enforcement be overlooked by the courts? The lack of clarity of the law is unhelpful and makes commercial practice a bit of a guessing game. The overall aim of the reform project will be to clarify and consolidate the current law, and to provide more flexible ways to create and deal with a standard security.
Given the importance of the standard security mechanism for debtors to raise credit and creditors to secure their risk, it clear that that its functioning is a matter of great importance. It is therefore very much a welcomed area for reform.
For further information, visit the SLC heritable securities reform project page. On behalf of the GULS Law Review Committee, we wish Dr McCarthy all the best as she heads up this important project.