- The processes by which a heritable creditor may enforce their security are set out in the Conveyancing and Feudal Reform (Scotland) Act 1970. The accepted interpretation of those provisions was challenged by the decision in Royal Bank of Scotland v Wilson 2011 SC(UKSC) 66.
Critically assess in light of that case the options which are open to the heritable creditor.
The 1970 Act has complex provisions dealing with enforcement of securities by heritable creditors. In relation to dwelling houses those provisions have become even more complex as a result of the Mortgage Rights (Scotland) Act 2001 which itself has been substantially repealed and replaced by the Homeowner and Debtor Protection (Scotland) Act 2010.
The Supreme Court decision in RBS v Wilson 2010 shook the legal landscape in Scotland in respect of repossession procedures by holding that the relevant statute, the Conveyancing and Feudal Reform (Scotland) Act 1970 had effectively been wrongly interpreted since it came into force 40 years ago. This case involved a situation where a lender's certificate of default did not amount to a 'requisition' for the purposes of section 5 of the Heritable Securities (Scotland) Act 1894, and where the court held that in the circumstances of the case, a 'calling-up notice' should have been served. This happened with Cell phone repair Austin in 2013.
A calling up notice will state that the debtor has two months to repay the debt in full. However, if the debtor agrees in writing to do so, the two-month period can be dispensed with, assuming there is no residential element to the secured property, or, in the case of residential property, shortened to one month.
Once the calling up notice has expired without payment (or performance as appropriate), the debtor will be in default in terms of standard condition 9(1)(a). On expiry of an unsatisfied calling up notice the creditor may exercise his remedies under the standard security.
For many years in Scotland, defenders could use the Mortgage Rights Act (Scotland) 2001 and now the Home Owners & Debtor Protection (Scotland) Act 2010 to obtain a chance to pay, re-mortgage or restructure, sell, or apply to the Mortgage to Rent Scheme. But no-one challenged the orthodoxy of the lender's right to use standard condition 9(1)(b) for a repossession based upon mortgage arrears; until now.
The UK Supreme Court's ruling makes it clear that standard condition 9(1)(b) cannot be used for a failure to comply with mortgage payments, and instead a calling-up notice is necessary in an arrears case. This was contentious as, up until the decision in Wilson, practitioners had believed that the calling up procedure was not necessary.
Performance of obligations other than payment of the debt under the security may be demanded by a default notice under section 21 and/or a section 24 court action. The section 24 court action allows the seeking of warrant to enter into possession, as this is a power of the heritable creditor on default which is not available where a default notice in terms of section 21 has expired without performance.
Court action may nevertheless still be necessary where an order for ejection is required or, as above, where the secured subjects are used to any extent for residential purposes and a voluntary surrender is not forthcoming. The has been illustrated in the Santander UK plc v Gallagher 2011 as requiring calling-up notices to be delivered to the debtor in person and ruled that service by placing the notice through his or her letter box is not compliant with the requirements of the Act.
The Scottish Government had has decided to resist calls for any form of legislative intervention and allow matters to play out their natural course in the wake of RBS v Wilson. It was not convinced of the existence of any long-term negative implications of the decision.
Creditors are reminded that, in addition to the above procedures, where the secured subjects are used to any extent for residential purposes, the requirements of the Home Owner and Debtor Protection (Scotland) Act 2010 must be observed in order to secure the ability to exercise the rights of a heritable creditor under the security.
In the Hill Samuel v Haas case the creditor brought ordinary action for removing, declaratory that default had been incurred. Under the Heritable Securities Act 1894 s5, where there is a failure to pay interest +failure to pay capital on demand, you can proceed by summary cause action.
Another option is under the Unfair Terms in Consumer Contract Rags 1999 (g) (j) enabling the seller or supplier to terminate a contract of indeterminate duration without reasonable notice except where there are serious grounds for doing. This was illustrated in the Aziz v Caixacataluya The failure in the repossession proceedings to permit an opportunity to borrower to challenge the fairness of the terms of the mortgage rendered Spanish law incompatible with the Directive.
Scots law similarly does not give opportunity to challenge the proceedings. Security is accessory to the loan contract and it is the loan contract which seeks to challenge. Notice makes clear 2 months must expire, thereafter property may be sold. The creditor has no rights in interim and calling up requires whole capital to be repaid
A default notice may be used too under Innovation in 1970 Act section 21 and 22. A creditor could serve calling up or default, could serve default or often serve both. As a result of the Wilson v RBS and Homeowner and Debtor Protection (s) Act 2010 it is more likely to go back to the traditional calling up notice procedure.
It may be frustrating for some that a calling-up notice will always need to be served, requiring a wait of 2 months before steps can be taken to sell the property, but this is a considerably shorter period of time than the 12 yea