As the house building market picks up, the conditions of the CML Handbook relating to new-build homes assume greater importance. When can a solicitor send the certificate of title?

There are encouraging signs that the fragile state of the house building market is beginning to show some improvement. As the recovery in the market gains traction, there will be an increasing number of properties being sold mid-development, or even “off-plan”. This is a timely reminder to solicitors of their obligations, with particular regard to newly built properties, as required in terms of the CML Lenders’ Handbook for Scotland. (If no loan is involved, the terms of the Handbook do not apply. Nevertheless, the Handbook might be considered as representing good practice.)

The relevant paragraph of the Handbook is para 6.7: New Properties – Building Standards Indemnity Schemes.

Paragraph 6.7.1 reads: “If the property is newly built, or newly converted, or to be occupied for the first time, you must ensure that it was built or converted under a new home warranty scheme acceptable to us.” Practitioners should note that the provisions of the Handbook relate not only to newly built, but also to newly converted properties. If a property being purchased is a new conversion with no form of warranty cover in place, the solicitor should report the matter to the lender, who will have to reach a decision on whether they are prepared to lend in the absence of any such cover.

Paragraph 6.7.2 states: “Before you send the certificate of title, you must obtain a copy of a new home warranty provider’s cover note from the developer. The cover note must confirm that the warranty provider has carried out a final/pre-handover inspection and that the new home warranty will be provided.” This is the “cover note” scheme which was introduced in 2004, specifically designed to prevent borrowers moving into unfinished new-build properties. It will be noted that the cover note must be in the borrower’s solicitor’s hands before that solicitor submits a certificate of title to the lender.

It is fair to say that developers at large have accepted the constraints that this requirement puts on the completion process, and many standard builders’ missives will now refer to and use the release of the cover note as a trigger for setting the date of entry (payment), usually on a period of 10 days (which takes into account the time required by most lenders from receipt of a certificate of title to release of funds).

Authority to occupy

Although the cover note scheme has reduced the incidence of borrowers moving into unfinished new-build properties, it has not eradicated the problem entirely. It should be borne in mind that a cover note is not a substitute for local authority approval, nor a guarantee that such approval has, in fact, been obtained.

In relation to post-May 2005 developments, para 6.7.7 of the Handbook states: “If the property is newly built, or newly converted, or to be occupied for the first time, before you send the certificate of title, you must check… that the property has been inspected, where appropriate, by a verifier authorised and appointed under the Building (Scotland) Act 2003 and the verifier has either: accepted the submission of a completion certificate in connection with the construction or conversion of the property, or granted permission for the temporary occupation of the property without a completion certificate.”

There are three points to note: first, this paragraph of the Handbook too relates to newly converted as well as newly built properties; secondly, that the only verifiers currently authorised and appointed are the local authorities; and thirdly, that the requirement is that the local authority has either accepted a completion certificate or granted permission for temporary occupation.

References to the property being “passed as habitable and fit for occupation”, although used colloquially, have no foundation either in the legislation or in the Handbook. Indeed, the reference to “verbal habitations” was roundly criticised by Lord Glennie in the case of FM Finnieston Ltd v Ross [2009] CSOH 48.

In terms of the Building (Scotland) Act 2003, it is an offence to occupy or use a building until a notice of acceptance of a completion certificate (“completion certificate”) has been issued by the local authority. It is possible to obtain permission for temporary occupation or use from the local authority under s 21 of the 2003 Act, but such permission, being temporary, may be withdrawn. On new housing developments where a building warrant has been granted for the whole development which may include a number of new homes, a completion certificate is required for each individual home. A completion certificate cannot be applied for if the common services are not complete, for example connection to a suitable drainage system and access to a suitable road, or, in the case of flats, completion of the common areas.

The 2003 Act does allow the local authority (as verifier) to grant permission for the temporary occupation or use of the building, “during such period as is specified in the permission”; this period can also be extended. The temporary certificate can also be withdrawn by the verifier, or can lapse with no extension being given and, ultimately, no completion certificate being issued. In summary, although a building can be occupied without a completion certificate being in place for a temporary period only (which should be specified at the time), building warrants granted under the terms of the 2003 Act for developments with multiple homes generally should not rely on temporary certificates.

Sufficient check

How then should a solicitor carry out the requisite “check” required in terms of para 6.7.7? The Law Society of Scotland’s Property Law Committee has established that CML accepts it is not likely that pieces of paper will have been issued by the local authority at the time of submission of a certificate of title, and that the terms of the Handbook leave it open to the solicitor to make whatever enquiries the solicitor considers appropriate regarding whether or not the local authority has accepted completion. The obligation in terms of the Handbook is to “check”, without it being prescriptive about the steps that should be taken. The view is expressed that telephoning the verifier (i.e. the local authority) and receiving the appropriate reassurances would be sufficient to allow the solicitor to submit a certificate of title and then use the loan funds at completion.

Of course, it would be prudent to retain a file note recording this confirmation, as also the identity of the local authority official supplying the confirmation.

The Author
Paul Carnan, solicitor; member of the Property Law Committee
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