The “classic” letter of obligation (LOB) was born of necessity into a family of domestic conveyancing norms obliging the delivery of the discharge of any relevant securities within 28 days of settlement. The LOB seeks certainty when indeed nothing certain is procured. What happens if the lender simply, repeatedly and nonsensically, fails to deliver the discharge?
After seven letters and six months on one matter and four letters and three months on another, a particularly well-known high street mortgage lender has still to deliver the discharges. So where do we stand? The fact is, as the selling solicitor, we are stranded, with the purchaser having a right to sue and understandably irritated colleagues at risk for not procuring a first ranking security.
The law does not assist. Whilst sched 3 to the Conveyancing and Feudal Reform (Scotland) Act 1970 provides that the lender will deliver the discharge, there is no time limit, and that right belongs to the seller, not the solicitor. And whilst the 1970 Act provides for legal recourse under s 18 by action for declarator, and execution by the sheri clerk is possible under the Courts Reform (Scotland) Act 2014, those rights also belong to the seller, who by this time is vaguely interested, if contactable at all. The Financial Ombudsman, the Financial Conduct Authority and the Lending Standards Board are all potential but lengthy recourses contemplated while the clock ticks. The obligation therefore becomes frustrated in fact, and places the profession at risk.
To have control over the delivery of the obligation in the LOB, the selling solicitor, caught with an unresponsive lender, needs to be able to seek legal recourse. We therefore propose an amendment to the standard clauses (a draft is below), assigning the seller’s rights to effect the delivery of the discharge to the selling solicitors.
In addition, it should confer on the purchaser, their solicitor and their mortgage lender, third party beneficial rights as defined by the Contract (Third Party Rights) (Scotland) Act 2017 to enforce the rights in respect of such assignation and/or the missives; and mandate the seller’s agent to disclose such of the seller’s relevant personal data and redemption information as is required to enforce the rights effectively.
Such a clause would in our view leave the obliged but frustrated solicitor with recourse following intimation to the offending lender, and restore the real and classic value of the letter of obligation.Ed Wright, Black & McCorry, Livingston
“The Seller HEREBY UNDERTAKES for the benefit of the Purchaser, the solicitor agent acting for the Purchaser, and the Purchaser’s heritable creditor whomsoever, and each of them ('the Parties') to deliver to the solicitor agent acting for the Purchaser EITHER a validly executed discharge of any Standard Security(ies) extant over the Property at the time of settlement (hereinafter referred to as 'any Extant Security') with relative registration forms and dues therefor within 28 days of settlement OR a copy of the Title Sheet for the Property showing that any Extant Security disclosed in the Legal Report exhibited prior to settlement has been discharged within 35 days of settlement; AND in consideration of the post-settlement enforcement of this obligation the Seller IRREVOCABLY ASSIGNS and CONVEYS the whole rights competent to the Seller to call for and enforce the delivery of the discharge(s) of any Extant Security under Schedule 3 and Section 18 of the Conveyancing and Feudal Reform (Scotland) Act 1970 ('the Rights'), to the agent acting for the Seller DECLARING FURTHER THAT the Seller HEREBY (One) CONFERS upon the Parties and each of them, third party beneficial rights as defined by the Contract (Third Party Rights) (Scotland) Act 2017 to enforce the Rights in respect of said assignation and/or the contract concluded hereby; and (Two) IRREVOCABLY MANDATES the agent acting for the Seller to disclose such of the Seller’s relevant personal data and redemption information as required by the Parties to effectively enforce the Rights.”