When acting for a purchaser in the sale of Scottish property, it is important to carefully review any Letter of Non-Crystallisation provided by the seller’s creditor.
We have recently seen an increasing number of selling agents proposing Missives which only require the seller to provide a Letter of Non-Crystallisation in the creditor’s standard form. This can present difficulties if the letter does not adequately protect the purchaser. For the reasons set out below, any such provision should be considered carefully and, where necessary, challenged during the negotiation of the Missives rather than at settlement.
What is a Letter of Non-Crystallisation?
A Letter of Non-Crystallisation confirms that the holder of a floating charge has not taken steps to crystallise or enforce its security over the seller’s assets. This gives comfort that the sale can proceed without the property becoming subject to the floating charge.
Key points to check
1. The addressee
Ideally, the letter should be addressed to:
- the purchaser; or
- “To Whom It May Concern”.
It should not be addressed solely to the seller. At the very least, it should contain sufficient information about the particular transaction to allow the purchaser to rely upon it. In our view, an implied right of reliance may not provide adequate protection.
2. The property and transaction
The letter should clearly identify the property being sold and refer specifically to the transaction. This avoids any ambiguity about the scope of the confirmation.
3. Confirmation of non-crystallisation and consent
The letter should:
- confirm that no steps have been taken to crystallise the floating charge;
- release the property from the scope of the floating charge; and
- expressly consent to the grant of the Disposition.
We have noticed that some creditors now only state that they are “not aware” of any event which has resulted in crystallisation. This is a knowledge-qualified statement and is not the same as confirming that the floating charge has not crystallised or attached to the property. Such wording should be treated with caution.
4. Restrictions and limitations
We have also received Letters of Non-Crystallisation marked “Restricted”.
Whether this presents a problem will depend on the wording of the letter as a whole. A restricted letter may still be acceptable if it includes the protections outlined above. However, the letter should make it clear that the purchaser, the purchaser’s lender and their professional advisers are entitled to rely upon it.
Our approach
We continually review and update our precedents and drafting as the practices and policies of creditors evolve. This is another example of why this item of settlement documentation should not simply be accepted in a creditor’s standard form.
Addressing these issues during the negotiation of the Missives helps avoid purchasers and their advisers being presented with a fait accompli when settlement documents are delivered.
For more information or advice, please contact our team.
