Exploring the legal landscape: Differences in fixed/heritable securities enforcement

July 3, 2024

There are many differences between Scotland and England - from favourite alcoholic beverage to banknotes and national dress. For many, these differences can be quite stark and obvious. One area of divergence of which you may not be aware, however, is in relation to the enforcement of fixed/heritable securities.

In England and Wales, most will be familiar with the appointment of an LPA receiver who can be appointed relatively quickly and with powers to take possession of and sell an encumbered property. In Scotland, there is no equivalent to an LPA receiver and indeed no mechanism for appointing one. Instead, a lender must adopt the statutory calling-up process should they wish to enforce a heritable security, known as a standard security in Scotland.

What is involved in the calling-up process?

The calling-up process commences upon default by a borrower with the service of a calling-up notice upon them on behalf of the lender. The form of this notice is set out in the Conveyancing and Feudal Reform (Scotland) Act 1970. The notice must set out details of the encumbered property, the balance due and the applicable interest rates. If a lender strays too far from the proscribed statutory style for this notice, or fails to follow the strict service requirements, then the notice may be held to be of no effect by the courts and the process must be recommenced.

Following service of a calling-up notice, the borrower then has a period of two months in which to either make payment of all sums due to the lender or otherwise reach an accommodation with them (for example, by agreeing to sell the encumbered property). The borrower can waive this notice period should they wish to do so by returning a pro forma document known as a Form C to the lender. If the borrower resides at the security subjects, there are further additional steps a lender must undertake prior to any enforcement action.

Expiry of a calling-up notice

Once the notice has expired, the lender can elect to either sell the security subjects or lease the same to recover all or part of the sums secured by the standard security. However, if a lender wishes to lease the security subjects for a period of more than seven years, they must first obtain the consent of the court to do so. If a borrower refuses to provide vacant possession of the security subjects, the lender can apply to the court for their eviction.

The majority of lenders thereafter elect to sell rather than lease the security subjects. In doing so, the lenders are under an obligation to obtain the best price that can be reasonably obtained in the circumstances. If the security subjects are sold and a shortfall remains, the lender is entitled to continue to pursue the borrower to recover this balance as an unsecured debt.

If, after exposure to sale and auction, the security subjects have not sold, then the lender may seek an order of foreclosure from the courts to obtain title to the property.

Horizon scanning

There has been a groundswell of opinion in Scotland that this enforcement procedure is somewhat outdated and requires modernisation. Indeed, for a number of years, the Scottish Law Commission has been considering separating out the process for residential and non-residential security subjects. However, more pressing matters such as Covid have meant we still have no timetable for any such changes and so must continue to operate under the regime as set out in the 1970 Act.