Why e-signatures are the new norm for real estate
Katherine Crowley and Tarnya Mason consider the impact of the Land Registry’s decision to accept e-signatures.
In our first article, we talked about how the Covid-19 pandemic has accelerated the pace of digital transformation. The change in the Land Registry’s policy in the intervening four weeks is perhaps the best example yet of this. So what is the Land Registry’s new policy on e-signatures and how will it impact the way we sign real estate documents?
Land Registry’s new policy
From 27 July 2020 the Land Registry will accept an e-signed document for registration subject to:
- All parties agreeing to the use of an e-signing platform and electronic signatures (pasting an image of a manuscript signature or typing in a name will not be accepted).
- All parties being represented by a conveyancer.
- A conveyancer setting up and controlling the signing process and following Land Registry prescribed steps (set out in section 13 of Practice Guide 8).
Limitations on the use of e-signatures
The Land Registry’s new policy will undoubtedly allow many more real estate documents to be e-signed rapidly and efficiently, but the following requirements will prevent the universal use of e-signatures:
- Where an attorney signs under a power of attorney, the attorney will need to be legally represented as well as the contracting entity. This is often not the case. The same issue may arise with a paper discharge of a mortgage by a lender (commonly known as forms DS1 and DS3).
- All signatories must provide their mobile phone number to enable 2-factor authentication (2FA) and the generation of a six digit one-time passcode. Although this is a balanced approach providing security for the signatories whilst using cloud-based technology, some may be uncomfortable providing their mobile number as it will be recorded in the e-signing platform's audit trail for the transaction.
- The Land Registry requires 2FA for any witnesses as well as for actual signatories. It is unusual (and in our view, unnecessary) for such scrutiny to be applied to witnesses and many e-signature platforms simply do not have this functionality. As a work-around, witnesses could be treated as signatories within the e-signing platform so 2FA can be used. In practice this may cause difficulties. You may not know the identity of the witness when setting up the document for e-signature. More worrying are confidentiality concerns. Unlike a "wet ink" signing, a witness set up as a signatory in an e-signing platform will receive by email (and can download and retain) a PDF of the completed documents. This may be unacceptable to the transacting parties. The easiest way to avoid 2FA for witnesses is to avoid witnessing entirely. Companies may therefore prefer to execute by two directors e-signing instead of one director e-signing in front of a witness.
Conveyancers will be required to certify to the Land Registry (as part of their registration application) that "to the best of their knowledge and belief, the requirements set out in practice guide 8 for the execution of deeds using electronic signatures have been satisfied."
Where a witness is required, the Land Registry suggests the addition of the following wording (next to or beneath where the witness is to sign) to deal with the need for a witness to be physically present when a signatory signs: “I confirm that I was physically present when [name of signatory] signed this deed.”
In addition, remember the usual restrictions on using e-signatures that apply to all transactions:
- All parties to the transaction, including any lender providing finance, must consent to the use of e-signatures.
- A witness must still be physically present to see the signatory add their signature to the document on screen.
- Where one or more of the contracting parties is an overseas entity, you will only be able to proceed with an e-signing if local counsel is willing to issue a legal opinion confirming that the e-signed document will be legally valid and enforceable.
- The constitutional documents/internal procedures of the signing party may not permit the use of e-signatures.
- If the place of signature or the location of the document is important, perhaps for tax reasons, it may be preferable to avoid electronic signing as the answers to these questions are often unclear.
- It is not recommended for a party that executes by affixing a common seal to use an e-signing platform. The validity of e-sealed documents is uncertain, depending upon the type of entity, and it is not market practice.
E-signatures and e-signature platforms are here to stay. After 16 weeks of wrestling with couriers, scanners and home printers our clients are keen to take full advantage of their speed and efficiency. We hope that the platform providers will respond promptly to the need for 2FA for witnesses to help us make the most of this opportunity.
It is worth noting that the Land Registry is working towards accepting qualified electronic signatures which include signatory identification checks and remove the need for witnessing. Land Registry policy may shift again, but in the meantime we will be keeping our feet firmly fixed in the present and encouraging everyone to embrace e-signatures as another "new normal". In uncertain times, a sprint over the line to completion with the help of an e-signature platform is surely in the best interests of all contracting parties.
Katherine Crowley is the practice development manager in the real estate business group at Womble Bond Dickinson (UK) LLP and Tarnya Mason is an associate director in the real estate division and knowledge at Penningtons Manches Cooper LLP.
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