Proposals for the reform of securities granted over land and buildings in Scotland have been published in a new discussion paper from the Scottish Law Commission.
The paper is the first of two to be published by the Commission under its review of the law on heritable securities, or mortgages in popular language. It covers loans both to individuals and to businesses; as the Commission states, the use of property to secure debt is of crucial importance to the economy and to citizens. It allows businesses to grow, and people to buy their homes.
Securities themselves are big business: 127,306 transactions were registered in Scotland in 2017-18.
Over 50 years since the last major review of the law on security over land, which led to the introduction in 1970 of the “standard security” now in use, the Commission believes the basic structure of the law is fit for purpose, but much needs to be improved. For example, court decisions show that key rules are unclear and there are too many compulsory forms of document, which are difficult to use.
Today's discussion paper considers creation, variation, transfer and discharge of standard securities, as well as which types of obligation can be secured. A second discussion paper on enforcement is scheduled for late 2020. However the Commission is not examining issues relating to mortgage lending, such as the fairness or otherwise of the secured loan and interest on it, or the regulation of mortgage providers.
The paper sets out over 60 proposals and questions, including that:
- the law on security over land is consolidated, to bring into a single Act provisions from legislation up to 150 years old;
- standard securities should continue to be the only form of security allowed;
- the compulsory forms of document are abolished;
- matters relating wholly to the obligation between the parties should be for the parties, subject to the general law on, for example, unfair terms in consumer contracts;
- the “standard conditions”, which govern every standard security, in their current form are abolished, though alternatives are proposed as to what should take their place;
- people who lease mortgaged properties should be clear about their rights and responsibilities, and a creditor should be entitled to remove the tenant of a secured property, where the lease was granted without their consent, if the security is enforced;
- there should be no set form of transfer (assignation) of a standard security; and
- a sunset rule under which very old securities are automatically extinguished after a certain period of time should be considered.
Click here to access the discussion paper and related documents. The Commission is very keen to hear from everyone with an interest. Comments can be made until 30 September 2019.