E-conveyancing: The time is now?
Mark Johnson explores whether, post Brexit, it is now more important than ever to press ahead with electronic conveyancing to accelerate transactions and improve the liquidity of the property market
Readers will be all too aware that a common complaint from clients in a property transaction is how time consuming buying and selling property can be. Whether at a domestic level or in the commercial world, this can be held in stark contrast with other transactions which our clients experience. Clients are able to move around huge sums of money at the touch of button or buy and sell shares and commodities instantly. Yet when it comes to a transaction involving land, clients know they can be in for a frustrating wait.
This lack of liquidity can drive down prices at times of crisis as people rush to cash-in their assets amid concerns that the more protracted a transaction, the more their property will depreciate in value. Such a rush to sell property assets was evident in the days and weeks following the Brexit vote and was exacerbated by purchasers pulling out of transactions or activating so-called 'Brexit clauses', leading to the pool of buyers drying up.
As our politicians start to consider what they want post-Brexit Britain to look like, I would assert that the time is right to revisit e-conveyancing in order to retain the competitiveness of our property market. Liquidity of assets can be a key investment driver and a reputation for a slow and uncertain process can only serve as a negative for a UK economy with an increasingly global outlook.
Calls for reform of the way we buy and sell property are of course nothing new. Writing in Solicitors Journal in 2011, advocated wholesale changes to conveyancing and commented that 'merely tinkering round the edges is not enough'.
It was noted at that time that the Land Registry had just confirmed, following its consultation on e-conveyancing, that it was to put on hold the development of a system involving e-transfers, which would have enabled the transfer of property to be effected electronically.
A primary reason for stalling the project was to await the return of a healthier financial climate and more active property market. The Land Registry was keen to point out that it was not abandoning its work on e-conveyancing, but in the subsequent, more buoyant market no concrete steps were taken to further develop the initiative.
At this juncture it is only fair to acknowledge the tremendous strides in modernisation of property transactions which have occurred in the last two decades.
Sellers are increasingly aware of the importance of having a property prepared for market, and in May 2012 this was recognised succinctly in the excellent work of the Investment Property Forum guide 'Readiness for Sale', which highlighted the perceived illiquidity of property. Readiness for sale can shorten the due diligence process in complex transactions, preparing all documentation for review in advance and making use of data sites and other technology.
To assist in the due diligence phase, the advent of the National Land Information Service in 2001 provided parties with what the NLIS calls a 'one-stop shop' for land data. While the channels for this data are still sometimes at the mercy of the data providers in terms of timescales (notoriously local authorities), it does provide a more efficient service which undoubtedly streamlines the initial phase of a property transaction.
Use of online platforms is also evident in the property transaction itself '“ deal rooms, for example, allow parties to work collaboratively on contracts and provide transparency by offering the ability to see the chain of transactions. There are successful products available for forward-thinking property legal teams to utilise, but this area has not been without difficulty '“ a key example being the , which was wound up by the Law Society in December 2015.
The Land Registry itself also offers many of its services online, whether that be title searches, registration applications, or the discharging of charges. All of these services undoubtedly save time and the client money, and are a tremendous improvement on the paper-based systems.
So far I have discussed areas where the conveyancing process has been made more streamlined and efficient. However, none of these efficiencies relate to the actual process of transferring title in land from one party to another, which still necessitates a paper-based transaction.
As any student of land law will tell you, under section 52 of the Law of Property Act 1925 (with very limited exceptions) a legal interest in land cannot be conveyed or created without a deed. The student would go on to remind you that among the requirements for a deed are that it must be in writing and that it must be validly executed as a deed (under section 1 of the Law of Property (Miscellaneous Provisions) Act 1989).
Affording such special status to land derived from the belief that owning land equated to power and influence and so special requirements were to be met if you wanted to deal in land. The question to be answered is, therefore, if we are to fully embrace e-conveyancing, and stop 'tinkering at the edges' as Sampson put it, what reform can be achieved either within the current formality requirements or to overhaul the present law?
In July, a joint working party of the Law Society Company Law Committee and the City of London Law Society Company Law and Financial Law Committees published a note on the execution of documents using an electronic signature. This note was the result of legal advice from Mark Hapgood QC and extends to both deeds and contracts for the sale of land under section 2 of the 1989 Act. The note suggests that a contract executed using an electronic signature satisfies the statutory requirement to be in writing.
The acknowledgement, therefore, that land transactions could fall within the remit of electronic signatures may be a positive development for some, but the note cannot be taken as an absolute statement of the law given its stated aim was to make suggestions only and not to give advice.
Furthermore, from a property point of view, the note acknowledges that the Land Registry will require a wet-ink signature on documentation submitted to it for registration, and therefore any discussion of electronic signatures is almost entirely theoretical.
It is clear that in order to embrace electronic signatures a change in the law and the approach of the Land Registry will be required. Such a process will inevitably be led by the Land Registry itself, which will consult with stakeholders and would be wise to take into account successful examples of e-conveyancing from overseas.
The implementation of e-conveyancing in Australia, where Property Exchange Australia (PEXA) has been introduced, serves as a good template. PEXA is Australia's online property exchange network, which was formed in 2010 in response to an initiative of the Council of Australian Governments to deliver a single, national e-conveyancing system. The system includes secure digital signing technology allowing for the electronic signature of documents on behalf of clients. PEXA describes the use of digital signatures as 'an inherent part of the e-conveyancing process'.
PEXA requires all parties to the transaction to be members of the exchange but participation appears to be growing, with five states now signed up to the system. PEXA reported at the start of August that more than AS$20bn in value has now been transacted through the network.
While it is only three years since PEXA was adopted in Australia, it does serve as a positive example for the UK government, Land Registry, and the profession to review in any consultation process.
Post Brexit, we seem once again to be facing more uncertain times in the property market, which could signal pushing the e-conveyancing initiative even further into the future. I would argue, however, that we should act now because a move to full e-conveyancing could in fact stimulate growth by creating a more accessible and dynamic property market which is fit for Britain's post-Brexit future.
Mark Johnson is a lecturer at the