Enforcement (known as Calling Up) of a standard security over real estate is a uniquely Scottish process. In the right circumstances it can be highly effective to enable a fixed security holder gain possession of land/property, collect rents and/or sell the secured property via enforcement of the standard security.
However, it does have a number of characteristics to be aware of:
- There is no equivalent of an LPA Receiver in Scotland. The only way by which a secured lender can acquire rights of possession and/or sale is via Calling Up its standard security in line with the requirements in relevant legislation (the Conveyancing and Feudal Reform (Scotland) Act 1970).
- The Calling Up process is highly formalised and sensitive – one error in the content or service formalities of the formal notices required may negate the whole process. Accuracy is therefore everything.
- In order to start the Calling Up process, the secured lender must serve notice upon the debtor. The secured lender then has to wait two months after the service of the Calling Up notice before it can enter into possession, collect rents and/or proceed to sell, unless waivers are provided by all relevant parties (including guarantors). There are then statutory requirements to advertise the property for sale … so it is not a swift solution.
- The secured lender may exercise its power of sale without taking possession if the real estate asset lends itself to such action. All the liabilities relating to the owner vis-à-vis the property (including those of a landlord, health and safety, environmental etc.) will however migrate to the secured lender when it enters into possession of the secured property. Be wary – possession may be deemed to have occurred upon fairly simple action being taken (entering the property to put up a for sale sign; giving permission to third parties to carry out ground works etc.).
- Without possession, no rents can be recovered by the secured lender. The secured lender should therefore consider taking an assignation of rents at an early stage. In Scotland this is perfected by serving an intimation/notification served on the tenant and in a distress situation will enable swift control of an income stream.
In short, Calling Up is a useful tool, but it is fraught with potential complexity and its full consequences should be thought through before embarking upon the process.
As an aside, the foregoing does not begin to address the complexities arising when residential rather than commercial real estate is involved…that is a whole different heap of trouble!
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