Litigation and Caveats Under the Land Registration etc. (Scotland) Act 2012

In terms of sections 10(1) and (2) of the Land Registration etc. (Scotland) Act 2012 (the “2012 Act”) the Keeper of the Land Register of Scotland (the “Keeper”) is required to enter the terms of any caveat, for which warrant has been obtained, against a title sheet.  This means that caveats cannot be used for properties that are still held on the Sasine Register, or are undergoing registration in the Land Register of Scotland. These caveats are a new creation under the 2012 Act. 

Prior to caveats it was possible to have the Keeper place an entry on a title sheet of a property subject to litigation. This was done under rule 17(2) of the Land Registration (Scotland) Rules 2006.  However, there was no concept of bad faith in this context under the Land Registration (Scotland) Act 1979, and so the rights of a party to rectify the Land Register where a third party had taken title in bad faith were limited.

The purpose of caveats is to warn a potential purchaser that the property is subject to litigation. This, in turn, prevents a third party purchaser from acquiring title to the property in good faith. This can be crucial as a good faith purchaser may be able to successfully resist an action for reduction of the disposition in their favour, which could frustrate a party who mounts a successful challenge in respect of the property and would, for example, otherwise be able to compel a third party to dispone it to them. Part 9 of the 2012 Act also contains provisions regarding the rights of good faith purchasers who may, in certain circumstances, acquire a good title from a person whose own title is void. 

The caveat does not attach to the owner of land, but to the land itself. As such they are not a replacement for inhibitions. A Legal Report should reveal if land is subject to a caveat in the property section, and whether the seller is subject to an inhibition in the personals section.

The framework for the caveats may be found in Part 6 of the 2012 Act.  In order to seek warrant for a caveat against a title sheet the prospective caveator must be involved in one of a certain type of action:-

1. An action for reduction of a registered deed on the ground that it is voidable;
2. An action which could result in a judicial determination that the register is inaccurate; or
3. An action for an order which would result in the judicial rectification of a deed that has been registered in the Land Register of Scotland.

The third type of action proceeds upon section 8A of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985.  This section refers to the amended section 8 of the same Act.  These amendments, as with the 2012 Act, will come into force on 08 December 2014.

Caveats can only be registered against land to which the underlying court action relates. The onus is on the party seeking the caveat to satisfy the court that warrant should be granted. The applicant requires to satisfy the court on three items:-

1. That the applicant has a prima facie case on the merits of the underlying court action;
2. Were the caveat not entered onto the title sheet there is a real and substantial risk that enforcement of any decree or order in that particular court action granted in favour of the applicant would be defeated or prejudiced by reason of the other party being likely to deal with the relevant plot of land; and
3. In all the circumstances, including the interests of third parties, it is reasonable to make the order sought.

It is worth noting that even if an applicant satisfies the court on these three points it does not automatically follow that the order will be granted – the wording in section 67(3) of the 2012 Act affords the court discretion.

Caveats last for 12 months from the date that it is placed on the title sheet, although this duration can be varied by the Scottish Ministers (in consultation with the Keeper).  There would therefore be a slight gap between the date that warrant was granted and the date that the caveat appears on the title sheet, but of course an applicant would be keen to minimise this time as much as possible.

The Keeper has issued guidance (here) to the effect that a caveat application (including renewals) would only be rejected where:-

1. the description of the property is at variance with the title number(s) quoted;
2. all of the title numbers affected are not included;
3. there is no completed title sheet available;
4. the original caveat has expired and an order for renewal, recall or restriction is submitted after the reference to the caveat has been removed from the title sheet;
5. details of the warrant as prescribed in the Act of Sederunt are omitted from the court order.

Caveats may be renewed by the person who initially placed the caveat on the title sheet. The applicant faces the same three part test as they did when they initially sought an order to place the caveat on the title sheet, except that the reference to entering the caveat onto the title sheet is replaced with reference to renewing the caveat. There is no upper limit to the number of times that a caveat may be renewed.  The relevant form to use when submitting the decree to the Keeper is “Application relating to a Caveat”.  It is important to note that the caveat is removed from the title sheet upon the expiry of 12 months. Once a caveat has been removed it cannot be renewed – it will therefore be crucial that an application to renew is made in good time before the expiry of the term.  Further time should be allowed for seeking the court order for renewal, and potentially having a hearing if the defender objects.

There is provision for the caveat to either be restricted, or recalled, by “any person with an interest”. This is wider than simply the owner of the affected property. The above three tests apply to these applications, and the onus of proof is on the original applicant to show why the order restricting or recalling should not be made. Caveats may be discharged at any time by the person in whose favour the warrant underpinning the caveat was granted without further recourse to court.

In summary, caveats are a new tool that those involved in some types of property litigation should bear in mind.  If a caveat is not sought and placed on a contested title sheet the danger is that although one may eventually obtain decree the defender could have alienated the relevant property to a good faith purchaser.  Whilst this could be attacked, it would be far simpler to seek a caveat which would conclusively demonstrate that the land could not have been acquired by a third party in good faith.