Analysis: Notices of Potential Liability

Background

The way Notices of Potential Liability (NPL) are discharged from the title to a property in Scotland upon a sale is changing as a result of the introduction of the Notice of Potential Liability for Costs (Discharge Notice) (Scotland) Order 2014.

A NPL is registered against the title to a property, typically a flat. It can be registered by either the owner of a flat within the same block, by the Manager or by the Factor (company appointed to manage the common areas of a block of flats). 

A NPL is registered against the title when the sums for maintenance or work carried out or to be carried out in relation to the property have not been paid. It can also cover monies due to Factors (fees and outlays).

The effect of a NPL is that a person may, on becoming owner of the flat, become liable for the outstanding costs relating to it.

NPLs expire three years after the date of registration but can be renewed by registering a further NPL.

When it comes to repossession, sales advice to clients has always been that when they instruct to negotiate the missives (contract of sale), the negotiator should attempt to ‘contract them out’ of paying the amount due under the NPL and pass liability onto the purchaser.

That said, in the majority of cases – and particularly where the NPL amount is substantial - a purchasing solicitor will generally refuse to take the risk of being liable for the notice and will insist as a condition of the sale that the seller meets the cost.

What has changed?

Prior to 16th December 2014 - when the Notice of Potential Liability for Costs (Discharge Notice) (Scotland) Order 2014 came into force - it was not entirely clear how NPLs were to be discharged (removed from the title of the property).

Usually a letter from the Factors or party who registered the NPL confirming that the outstanding sums have been paid would have been sufficient for the title to be amended by the Keeper of the Register. This letter was referred to as a ‘Letter of Satisfaction’.

Letters of Satisfaction are no longer accepted. The result is that in cases where it is not possible to pass liability for the NPL to the purchaser, the solicitor is required to draft a Discharge for you and have it executed. Payments will also have to be made to clear the NPL. The charge of registering any Discharge is set by The Keeper and is presently £60.00.

There is a possible alternative to the seller making payment of the NPL and having to prepare and execute the discharge: the agreed purchase price can be reduced by the sum due under the NPL with the liability being passed to the purchaser. This does throw up the possibility of a challenge as question must be “does such action create a potential customer detriment situation given that there is no obligation for the seller to make the payment?”.

The view is that clients should therefore make payment of an NPL where this is an option in order to ensure that a repossession sale can proceed.

Conclusion

It is assumed solicitors generally will continue, where applicable, to take instructions on paying the NPL in each individual case.

Where appropriate, they will also no doubt liaise with an Asset Manager in order to ensure that recommendations received are tailored to the individual case. For those cases where liability must be absorbed and the NPL settled to allow the sale to progress, they will prepare the discharge and arrange execution.

Lenders will require to discuss and agree a fee with their solicitors for drafting the discharge, arranging execution and preparing the discharge for registration.