Real Estate Finance Development

Real Estate Finance (Development): What you need to know about the Moveable Transactions Act

The Moveable Transactions Act (the “Act”) was passed by the Scottish Parliament in May 2023 and will make fundamental, and very positive, changes to the commercial landscape in Scotland when it comes into force.

We expect that the Act will come into force in Summer 2024, although no date has been confirmed yet. The Act modernises the law relating to the transfer of contractual rights and the creation of security over those rights and creates a new security right (the statutory pledge) which will likely have a significant impact on the real estate finance and development sector.

What is changing?

When the Act comes into force, it will change how companies create security over their Scottish assets. It will be easier to use valuable contractual rights, such as rights arising under construction contracts, and, performance bonds, as security for borrowings. It will also be possible for companies to create a new type of security called a statutory pledge over their moveable assets in Scotland, such as plant and machinery, vehicles and stock in trade. Currently the only way to create security over these types of assets is to transfer possession of them to a lender (which is impractical in the vast majority of cases) or grant a floating charge.

The Act, namely, will introduce three key changes to the existing framework:

• creation of a statutory pledge – a new form of fixed security which will enable security to be granted over high-value moveable assets related to property development without the burdensome and disruptive requirement of delivering the secured asset to the lender. This will allow for effective fixed security to be taken over moveable assets, while minimising the impact on daily use and allowing continued operation;
• assignation of future claims – it will now be possible to grant fixed security over future income streams, for example, by assigning a future claim to rental income or receivables under a future contract, and
• modernisation of registration process – the Act introduces two new registers: Register of Assignation and Register of Statutory Pledges. Each of these newly created registers will be available online and allow for electronic registration, streamlining and modernising the existing administrative-heavy framework.

How will this impact on Development Real Estate Finance?

The Act will have a significant impact on the REF development sector, providing an innovative solution to an industry wide issue by modernising the way fixed security may be taken over various classes of asset.

It is normal in a development finance transaction for the principal development contracts and key agreements for lease to be assigned in security to the lender. The current administrative burden associated with intimating multiple notices will be reduced as it will be possible to register the assignation online via the newly created Register of Assignations without having to give notice to underlying tenants or counterparties to development documents.

The ability to assign future rights will also help to reduce the administrative burden in transactions, given that currently future rights can only be assigned at the time they are created and this often requires future security to be granted as a condition subsequent. Provided future rights can now be properly described, they can now be effectively secured in advance at completion.

Where a development involves the procurement or use of high-value moveable assets, fixed security over these moveables is rarely taken in commercial practice due to the requirement for the lender to have possession and/or control over the assets. The creation of a form of statutory pledge allows for such security to be created without the need for possession on the part of the lender. .

It is hoped that the Act will be amended to permit statutory pledges to be granted over shares in Scottish companies. This would remove the requirement for the lender/ security trustee or nominee to be registered in the company’s register of members, an issue which has caused increasing issues in recent years with the advent of the PSC regime and the National Security and Investment Act 2021.