Head 26: 2

Question 1

How are standard securities ranked?

Answer 1

They are ranked by date of Registration in the Land Register.

Question 2

What happens if: there is a house worth £150k. Lender A has an all sums standard security over the house for the loan of £100k. Knowing the house is worth £150k lender B would be happy to learn £50k in return for a standard security. However if then A lends another £50k, lender A will take priority since it is an al sums security.

Answer 2

Under s 13 1970 Act lender B can protect himself by serving a notice on lender A. The effect of this notice is to restrict lender A’s priority to:
⁃ 1) the original advance
⁃ 2) to interest and expenses on that advance
⁃ 3) any further sum that A is contractually obliged to advance.

Question 3

Standard conditions for standard securities?

Answer 3

Found in schedule 3 of the 1970 Act (incorporated into every standard security by 11(2))

Question 4

Can the standard conditions for standard securities be varied?

Answer 4

The parties can generally vary the standard conditions but some of the conditions about enforcement cannot be varied (lender’s typically have their own set of conditions which are registered in the books of council and session).

Question 5

Examples of standard conditions?

Answer 5

⁃ Obligation for the property to be insured
⁃ Ban on letting without the creditor’s consent (if the owner grant’s a lease without the creditor’s consent the creditor can reduce the lease - this happened in Trade Development Bank v Warriner & Mason 1980)

Question 6

3 ways in which a standard security can be enforced?

Answer 6

1) Calling up notice (s 19)
2) Notice of default (s 21(1) and (2))
3) Right to apply to the sheriff for enforcement (s 24)

Question 7

What is a calling up notice (s 19)?

Answer 7

Requires the debtor to repay the whole debt within 2 months

Question 8

What is a notice of default (s 21(1) and (2)

Answer 8

Lender requires the debtor to remedy any default within 1 month or the security will be enforced.

Question 9

*RBS v Wilson 2010

Answer 9

the court held that:

For monetary default you must use a calling up notice.

This means that notices of default are limited to non-monetary defaults (e.g. for failure to insure, leasing without permission).

Question 10

So for monetary default what method of enforcement must you use?

Answer 10

A calling up notice (s 19)

Question 11

Notices of default are therefore restricted to…

Answer 11

Non-monetary defaults (s 21(1) and (2))

Question 12

Home Owner and Debtor Protection (S) Act 2010

Answer 12

This amends the 1970 Act so that in the case of residential properties the creditor MUST go to court (under s 24) to enforce a standard security.

So a calling up notice must be used followed by court.

Question 13

s 25 1970 Act

Answer 13

The creditor has an obligation to obtain the best price.

Question 14

In what order are the proceeds of sale distributed?

Answer 14

s 27 1970 Act

The money received by a creditor on the sale of property subject to a standard security is held by him in trust to be applied in the following order:

1) Expenses
2) Prior securities
3) The standard security and any ranking pari passu
4) Any securities ranking after
5) The residue is to be paid to the person entitled to the debtor or if the debtor insolvent then a trustee in sequestration.

Question 15

What is foreclosure?

Answer 15

s 28 1970 Act:

This has a narrow meaning and simply means taking ownership of the property (where the creditor applies to court to become owner of the land and only happens if the creditor can’t sell it)

Question 16

What is assignation?

Answer 16

s 14 1970 Act

You can transfer a standard security by assignation under s 14. The assignation must be registered in the Land Register or Register of Sasines.

NB the debt must be assigned too.