The Law Commission report on the ‘electronic execution of documents’, published in September, provides welcome clarity to practitioners as to the legal status of electronically executed documents. In a nutshell, it says that unless there is a legal bar to executing a document electronically, then such execution is fine.
However, one such legal bar exists for property documents. Currently the Land Registry does not accept electronically executed deeds as being valid for disposal of registered land. As an example, property can only be validly sold if the seller and buyer execute a hardcopy document and then submit it to the Land Registry for registration, which takes time.
The key point here is that valid electronic execution of documents is crucial to unlocking the potential of a digital Land Registry. The Land Registry is currently exploring, as part of its Digital Street initiative, how best to use technology such as blockchain to improve its service.
Let us assume that the Land Registry, as may well happen, is placed on to a distributed ledger in the future. All the relevant information for a property would be stored on that ledger. When the property was sold, the ledger would then be updated to reflect the new owner.
If the parties could validly execute deeds electronically, then in theory there would be no reason that property ownership could not be transferred instantaneously.
Ultimately this opens up the possibility of property, or at least units of ownership in a property, being traded in the same manner as equities, rendering it a much more liquid investment.
While there are a number of hurdles to overcome to get to that point, not least regulatory, the two greatest bars to such an outcome would be the level to which buyers and lenders would forego diligence on a property and the extent to which the Land Registry would guarantee the ownership of property where they cannot pre-emptively vet registration. The former is a commercial decision; the latter will be driven by the confidence the Land Registry has in the data contained on the ledger.
So, esoteric as the outcome of a Land Registry review on electronic signatures might sound right now, in the future that review may well have profound effects on how the property investment world works.
Interestingly, the Land Registration Rules 2003 already anticipate the use of electronic signatures to facilitate dispositions – all that is required is an order of the Land Registrar that a particular type of disposition can be effected by an electronically executed document.
The direction of travel for this issue points towards such an order being made. The future may be nearer than we think.
Mark White is an associate at Charles Russell Speechlys