The legal process is the same as that for the rest of Scotland, which is very different from the English system. The process of purchasing or selling a property is called “conveyancing”. Agreeing the terms and conditions of buying or selling a property is becoming more complex than ever as new laws and guidelines come into force, and things can become very distressing if something goes wrong. You should therefore obtain sound advice from a solicitor before you commit yourself.
We aim to provide a quality professional service – good advice, prompt attention to your business and effective communication to keep you up-to-date with what is happening in your particular transaction. We have prepared this note to guide you through the conveyancing procedure for purchasing a property in the islands.
1. Initial Consultation
The first stage in the process is generally a meeting or telephone consultation with one of our solicitors, Neil Risk or Laura Sinclair, so that we can discuss the property that you are interested in.
Matters which will be discussed the initial consultation are the property itself (its condition etc), any Home Report available or valuation you have received and the price you are proposing to offer for the house, your financial arrangements for the purchase of the property (eg whether you require a mortgage and whether this has been approved by your Bank or Building Society). We will also provide a written Estimate of our fees, VAT and outlays and our Standard Terms of Engagement if your offer is successful.
2. Money Laundering Regulations
If we are to act for you in the purchase of a property, we shall require up-to-date identification from you for the purposes of the Money Laundering Regulations.
In this regard, we will need to see the originals of your passport or photo drivers licence and a bank statement or public utilities bill sent to you at your home address which must not be more than 3 months old. There are various other items of identification which can be used as alternatives, and we will be happy to advise you on what documents will be suitable. Copies of the identification are not acceptable. If you don’t live in Shetland, you will need to have a local solicitor certify copies of your identification documents. The solicitor should then send these documents under cover of a letter on headed note paper, signed by a partner.
3. Noting your Interest
If you find a property that you are interested in, the next thing to do is to “note your interest” with the selling agent. It is best to have a solicitor do this for you. Noting your interest does not oblige you to buy the property (or even submit an offer), it merely lets the seller know that you are interested in the property and want to be kept informed of developments, eg whether a closing date for offers is to be fixed. A closing date will not always be fixed and the sellers may accept an offer without giving any other party the opportunity of offering.
4. Home Report
Once you have noted an interest in a property, a selling agent must provide a copy of a Home Report to you on demand. These are generally provided by email for which no charge is made; however, the agent is entitled to make a small charge for its provision. This contains a Property Questionnaire prepared by the seller, a Report on the condition of the property prepared by a surveyor and lastly, an Energy Performance Certificate. Home Reports contain a lot of detail so if you are unsure about anything, we will be happy discuss this with you.
5. Obtaining a Survey
Despite the availability of Home Reports, you may still wish to have an independent report on the property you are considering buying (your mortgage lender may require an independent report). This can be a simple mortgage valuation report, a more detailed survey report or a full building survey. The surveyor can advise you on the best type of report for the property you have chosen and the cost of the report. If you need to submit a quick offer, you can make the offer subject to having a survey carried out.
There are 2 local firms of surveyors in Shetland who can do this for you:
David Adamson & Partners
4a North Ness Business Park
Telephone: 01595 696788
Email: [email protected]
Stuart J Masterton AssocRICS
PO BOX 11688
Telephone: 01595 890291
Email: [email protected]
6. Obtaining a Mortgage
We cannot provide financial advice regarding mortgage options as we are not authorised to do so. If you need help in choosing a mortgage, we can provide details of independent financial advisers in Shetland who can assist you. If you have not received formal approval of your loan, we would recommend making any offer you submit conditional upon your obtaining a mortgage. Otherwise, you could find yourself tied into buying a property without a mortgage.
7. Making an Offer
If you decide to go ahead and submit an offer to the seller’s solicitor, we will draw up and sign the formal offer on your behalf. All firms in Shetland have adopted a standard form of offer known as the Scottish Standard Clauses (Edition 1), which is used by most solicitors throughout Scotland. The purpose of using this is to standardise the process of making an offer and to limit the qualifications that are made to the offer by the vendor’s solicitors. This is with the ultimate aim of reducing arguments about the meaning of the contract to purchase and protect the interests of both parties to the transaction. We will provide you with advice regarding the various clauses contained in the offer, and will send you a copy of the offer that has been submitted on your behalf. A copy of the Client Guide to the Scottish Standard Offer and Scottish Standard Clauses (Edition 1) can be viewed here.
If a closing date for offers is set by the seller’s agent, the offer must be submitted before the appointed time on that day. In other situations, you may have agreed a price with the seller or you may want to chance your luck and submit a quick offer for consideration by the seller. We can advise you on the best course of action depending on your circumstances.
8. Acceptance of the Offer
If you are successful with your offer and the seller wants to accept it, we will receive a formal acceptance. This document is usually called a “qualified acceptance” because it contains further conditions or “qualifications” to amend or delete certain conditions in the offer.
The conditions in the offer which we will have submitted on your behalf are designed to make the seller disclose certain facts about the property and the title to it. Upon receipt of the qualified acceptance, we will send you a copy and provide advice in our covering email or letter dealing with each of the qualifications in relation to the offer and providing our advice as to what you should do in response to the acceptance. This may not happen if there is a very tight timescale for the completion of the conveyancing, in which case we would arrange a meeting or telephone call to discuss the qualifications.
Once we have taken your further instructions, we will issue a further “formal letter” to the seller’s agent – in some cases there are several exchanges of formal letters before both sides reach agreement. This has become a less frequent occurrence since the Scottish Standard Clauses were introduced.
9. Concluding the Bargain
Once negotiations are concluded, the final formal letter is issued. This is usually known as the “letter concluding the bargain”. The initial offer, qualified acceptance and all subsequent formal letters, are collectively known as the “missives”. The final letter concludes missives, and this means that a legally binding contract has been entered into requiring you to purchase the property at the agreed price on the specified date of entry. We will provide you with copies of all the formal letters as the transaction progresses.
10. Checking the Title
We will receive the title deeds to the property from the seller’s solicitor, and these will be examined to check (1) that the seller is the owner of the property and that there is nothing to stop him from selling the property, (2) that the title is valid and describes the precise extent of the property, and (3) that there are no onerous conditions which affect the property which could be detrimental to your enjoyment of the property. We will ask you to confirm that the extent of the property as described in the title deeds is precisely what you understand you are buying.
The latest system of Land Registration was introduced to Scotland in December 2014 under the Land Registration (Scotland) Act 2012 (see https://www.ros.gov.uk/about-us/2012-act for more information). The system is map based, and so the title and the Ordnance Survey map must match. If the property you are buying has not previously been registered in the Land Register of Scotland, the seller’s solicitor must produce a “Plans Report” which compares the extent of the property as detailed in the title deeds with the extent of the property as shown on the Ordnance Survey map. It also checks to see that there are no overlaps with adjoining registered titles. If there are any discrepancies, these must be corrected before your title to the property can be registered. Sometimes it is the Ordnance Survey map which is incorrect or out of date, but usually the title needs to be rectified in some way. We will advise you upon what will be needed should this situation arise.
If the property you are buying has previously been registered in the Land Register of Scotland, the whole process should be easier because a Land Certificate (under the previous legislation) or Title Sheet (under the current legislation) will have been issued to the previous proprietor. The Land Certificate is covered by the Keeper of the Registers of Scotland’s indemnity or guarantee. Under the latest Act, the Keeper provides a “warranty” rather than an “indemnity”.
The seller’s agent will also produce various other certificates and documents which we will need to check before we are satisfied that you should go ahead with the purchase. There are some documents which are peculiar to the local or rural circumstances), eg decrofting directions removing the land from the application of crofting legislation and septic tank registration documentation. We will advise and consult you at each stage of the process.
11. Your Title and Mortgage Document
We will draft the “Disposition” in your favour (your title) and this will be “revised” (checked) by the seller’s agent. We will then prepare the final version of the document and send this to the seller’s agent so that it can be signed by the seller in time for completion of the transaction.
If you are buying the property jointly with someone else, the Disposition will contain a clause specifying on what basis title is being taken, either with a “survivorship destination” or in joint “pro indiviso” shares (pro indiviso means “for an undivided part”). This will affect what happens to the shares in the property if any of the joint owners die. If there is a survivorship clause, your share in the home will pass automatically to the other joint owner if you die. Having a survivorship clause also means that you won’t be able to leave your share of the house to anyone else in your Will. There can be problems if you and your spouse or partner split up if there is a survivorship clause, as the deceased person’s share could pass to the survivor even though the survivor no longer resides in the property. If you don’t have a survivorship clause and title is held in pro indiviso shares, you can leave your share of the house to anyone you choose in your Will.
It is up to you and the other owner to decide whether or not you want to have a survivorship clause in the deeds to your house, and your decision will depend very much on your personal circumstances. We will be happy to discuss the options with you before you decide, and can explain in more detail how survivorship clauses work. (Please note that we do not provide tax advice).
If you are obtaining a mortgage, we will receive loan instructions from your Bank or Building Society (provided that we are on the Bank’s panel of solicitors – we are for most Banks and Building Societies) and will prepare the Standard Security (mortgage document) for signature by you. We will then request the loan funds from the Bank or Building Society in time for settlement of the transaction.
All mortgage lenders require the details of the buildings insurance to be supplied to them before they will release loan funds. You will need to provide these to me before the settlement date.
If you are obtaining a loan or gift from a third party (eg parent or other family member) who will not be resident in the property, we are required to write to the Bank or Building Society informing them of this before we draw down your loan. This process must be completed even though you may have told the Bank or Building Society about the loan or gift when you applied for a mortgage. If the Bank of Building Society do not respond in this, this can delay settlement of the transaction.
12. Land and Buildings Transaction Tax
Land and Buildings Transaction Tax (LBTT) is a tax on transactions involving land situated in Scotland. LBTT replaced Stamp Duty Land Tax (SDLT) in Scotland from 1 April 2015. LBTT applies to standard house purchases and to other types of land transaction. You can find more information at https://www.revenue.scot/.
LBTT is a self-assessed tax and it is the responsibility of the taxpayer to complete and submit an accurate LBTT return, where required, and pay any tax due. The tax is charged regardless of whether there is a document setting out the terms of the transaction, whether any document was executed in Scotland and whether any party to the transaction was present or resident in Scotland at the effective date of the transaction.
LBTT comes into play whenever a property is purchased or leased but, unlike SDLT which applies one rate of tax to the whole of the consideration paid, LBTT applies different rates of tax to different parts of the consideration in the same way as income tax is applied.
For residential property transactions, the rate of tax is determined by reference to percentages of the chargeable consideration for the transaction falling within the bands below:
|Purchase price||LBTT rate|
|Up to £145,000||0%|
|Above £145,000 to £250,000||2%|
|Above £250,000 to £325,000||5%|
|Above £325,000 to £750,000||10%|
If the purchase price is above the nil rate tax band of £145,000, LBTT is charged at the appropriate rate on the amount of the chargeable consideration within the relevant bands. For example, a house bought for £280,000 is charged at:
- 0% for the first £145,000, then
- 2% for the next £105,000
- 5% for the next £30,000 and
- so £3,600 must be paid in LBTT.
We are required to lodge a Land and Buildings Transaction Tax Return with Revenue Scotland for all purchase transactions with a consideration over £40,000. We will require your National Insurance number as this requires to be entered on the Return. The form will require to be checked and signed by you and on settlement of the transaction, it is submitted online and any LBTT is paid. Revenue Scotland will provide an acknowledgement which will be placed on your file as evidence that a return has been submitted.
13. Completion of the Transaction
We will require the balance of the price (or the whole price if you are not getting a loan from a Bank or Building Society) from you in time for the agreed “date of entry” (settlement/completion date). We will also ask you to add any LBTT payable, plus the fee for registration of your Disposition (and Standard Security, if applicable), so that we have these funds available to pay to Revenue Scotland and Registers of Scotland respectively as soon as possible after completion has taken place.
If you wish to pay this by cheque, we will need this approximately 7 working days before settlement, to ensure that there is plenty of time for the cheque to clear. If you wish to pay by bank transfer or internet banking, you can set up a transfer to reach our Client Account the day before settlement is due to take place. We will provide you with details of my bank account for this purpose. To satisfy the Law Society of Scotland’s money laundering requirements, we are required to produce evidence of the “source of funds” and “source of wealth” with which we intromit on behalf of clients. More information about what is required can be found here.
On the date of entry, we will pay over the purchase price to the seller’s agent in exchange for the title in your favour, other supporting documentation and the keys to the property. You will then be able to move into the property.
14. Registration of your Title
Once we have submitted the LBTT Return to Revenue Scotland (and any LBTT has been paid), the Disposition (and Standard Security, if any) can be registered in the Land Register of Scotland. If Registers of Scotland find everything to be in order, they will email us a link to the updated Title Sheet showing you as the new owner of the property and also disclosing details of the registration of your Standard Security (if any). We will provide you and, if you have a mortgage, your lender with a copy of the Title Sheet. Some lenders wish to hold the title deeds during the term of a mortgage, others require us to hold the deeds on their behalf, and some are happy to receive a copy of the Title Sheet and for us to send you any other documents. We will advise on your lender’s requirements at the time.
Next Steps ...
We hope the information provided is of some assistance to you in understanding the conveyancing process. If you require any further advice, please get in touch with us. We aim to provide an efficient, friendly and personal service on a range of legal matters. Find out more here.