We see examples of electronic signatures all the time in everyday life – when you make that online purchase by ticking a box "accepting terms and conditions", when you "sign" a handheld touch screen to confirm receipt of your delivery and when you use your fingerprint to pay for goods on your mobile. What you rarely (if at all) see is the use of electronic signatures in real estate transactions – this article explores the reasons why.
Before transacting electronically with others, one needs to be sure that the electronic signatures will be as legally binding as traditional wet ink signatures and offer adequate protection from forgery. Otherwise remorseful purchasers and unscrupulous vendors could seek to unravel contracts after performance to avoid obligations that no longer suit them. Innocent parties could also be exposed to a whole new level of electronic identity fraud.
The law therefore needs to evolve to provide a framework in which electronic signatures are as binding and safe as traditional wet ink signatures. Here we will look at the current legal framework for the use of electronic signatures and in particular the barriers to their adoption in real estate transactions in Scotland, England and Wales.
Legal framework for electronic signatures
The starting point for regulation is the EU law, the Electronic Identification and Signature Regulation 910/2014, which came into force in July 2016 and has direct effect in all member states without the need for national implementation. This regulation is commonly referred to as "eIDAS"1 .
eIDAS introduced three tiers of electronic signature:
Simple Electronic Signature
This is the simplest and most commonly seen form of electronic signature and it doesn't require any special identification or security technology under which the signatory's identity must be verified. It is therefore evidentially the "weakest" form of signature.
Examples of such signatures include typing a name into an electronic form of a document, scanned signatures, tickbox plus declarations, and electronically pasting a signature (in the form of an image) into a soft copy version of a contract in the appropriate place.
Advanced Electronic Signature
This type of signature relies on technology to verify the identity of the signatory. For an electronic signature to be "advanced" it must be:
(1) uniquely linked to the signatory;
(2) capable of identifying the signatory;
(3) created using electronic signature creation data that the signatory can, with a high level of confidence, use under his sole control; and
(4) linked to the data signed therewith in such a way that any subsequent change in the data is detectable.
Examples of advanced electronic signatures include using a web-based platform to apply a signature to a document.
Qualified Electronic Signature
This is the signature that has the highest evidential value and therefore presents the highest level of protection. A Qualified Electronic Signature needs to satisfy all the requirements of an Advanced Electronic Signature and in addition:
(1) be created by a Qualified Electronic Signature creation device which meets additional requirements laid down in eIDAS and is on a Europe-wide list of certified devices e.g. a secure smartcard; and
(2) have a qualified certificate for electronic signatures issued by a qualified trust service provider which meets other requirements laid down in eIDAS. This type of signature is not commonly used in the UK, in part because of the need to verify a person's identity first. One example of a Qualified Electronic Signature would be the Scottish Law Society's smart card scheme for solicitors; however it has not been widely adopted, due to concerns about liability.
Domestically, the Electronic Communications Act 2000 (ECA) was updated in light of eIDAS. Section 7 of the ECA provides for the admissibility of electronic signatures in legal proceedings in the UK.
What this all means in practice depends on where you are transacting with land.
Buying and selling real estate in Scotland
Contracts for the sale and purchase of an interest in land
If you are transacting in Scotland, the Requirements of Writing (Scotland) Act 1995 provides that contracts to create or transfer an interest in land need to be in writing and signed by or on behalf of each party. The normal way of validly concluding a contract for the sale or purchase of Scottish land is by "missives" (an exchange of letters), which are signed by the respective parties' solicitors.
Validity on its own is not always enough though as, if you wish to register a document with Registers of Scotland, it also needs to be "self proving" (which means that if the signature was ever challenged in the future there would be a presumption that the signature was valid unless proven otherwise). This is the highest standard of signature of Scotland, and usually achieving this is as simple as having your wet ink signature witnessed.
Electronic equivalents: For a contract for the sale and purchase of land to be signed validly by electronic means, it needs to be at least an Advanced Electronic Signature. However, for it to be signed in a "self proving" manner, it needs to be a Qualified Electronic Signature. Currently the only way of using a Qualified Electronic Signature to sign missives in Scotland is for the solicitors to use the Law Society of Scotland's smart card.
However, if there is a possibility that either party may need to register the contract in the future, the contract will need to be signed using wet ink signatures because electronically signed contracts cannot currently be registered with Registers of Scotland.
It is important not to confuse electronic signature with electronic delivery of traditionally signed missives. When missives are signed in the traditional way (with a wet ink signature) they can then be delivered by electronic means (e.g. scanned and emailed, with the wet ink signed principals following by courier or post). This is not the same as an electronically signed missive which exists in its electronic form only (and can be digitally interrogated). The principal of an electronically signed missive is the electronic file itself, whereas the principal of the electronically delivered missive (which has been traditionally signed) is the actual piece of paper with the signature on it and not the electronic file.
Because it is competent to conclude a traditionally signed contract by electronic delivery, the need to use actual electronic signatures for real estate contracts in Scotland is very much diminished. A contract that has been traditionally signed and delivered electronically can still be registered with Registers of Scotland, as long as the original signed version is presented for registration (and not the electronic copy).
Deeds transferring or creating a legal interest in land
With the exception of two situations set out below, it is not possible to register a document which has been electronically signed. This is the biggest impediment to using electronic signatures in real estate transactions in Scotland.
It prevents completion documents (e.g. dispositions, long leases, conveyances, securities or anything which creates, transfers or varies a right in land and requires to be registered) being signed by clients electronically. Unless you are registering a deed using either of the two Registers of Scotland schemes below, wet ink signature is currently the only option for deeds that create, transfer or vary real rights in land or buildings.
The two exceptions are:
1) Automatic Registration of Title to Land (ARTL): This is Registers of Scotland's automated system for land registrations, which is a complete e-conveyancing system using Public Key Infrastructure (PKI) technology, electronic certificates and smart cards. Solicitors can sign the deeds on behalf of their clients as long as they are registered to use the system. However, ARTL can only be used for dealings with the whole of a registered title (and there are additional exclusions), meaning there has been a limited uptake of the system.
2) Digital discharge service: This is Registers of Scotland's online system for registering discharges of standard securities (mortgages) over property. This service can be used in place of the paper-based process. In practical terms, it works by (i) a borrower's solicitor logging in and sending a request to the lender to discharge a standard security; and (ii) the lender confirming the discharge of the standard security directly to Registers of Scotland, using secure PKI technology. The borrower's solicitor and the lender both need to be registered with the service. It is currently only used for residential securities. A commercial digital discharge service is planned but has been put on hold by Registers of Scotland at the moment due to the complexities of the process.
Buying and selling real estate in England or Wales
Simple contracts for the sale or disposition of an interest in land
If you are transacting in England, section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 provides that any contract for the sale or other disposition of an interest in land must comply with certain formalities. These include, but are not limited to, a requirement that the contract be in writing and signed by or on behalf of each party.
The problem is that, while eIDAS sets out the different categories of electronic signature and the ECA confirms that electronic signatures are admissible in evidence, there is no clear legislative statement confirming that an electronic signature is as valid as a wet ink signature where there is a statutory requirement, such as section 2, for a signature. This means that there has been some doubt as to whether electronic signatures can, in light of section 2, be used to create valid contracts for the sale or other disposition of an interest in land.
As a result the Law Commission for England and Wales was asked to review this topic and in August 2018 it issued its consultation paper "Electronic execution of documents". It provisionally concluded that "the combination of eIDAS, domestic legislation and case law means that an electronic signature is capable of meeting a statutory requirement for a signature if an authenticating intention can be demonstrated". It should be emphasised that this was just a preliminary view – the Law Commission is still analysing the responses to its consultation with a view to issuing its final recommendations some time in the near future. So, while the initial consultation provides comfort, it does not completely resolve the issue in relation to simple contracts. It also does not fully address the practical and technical issues that accompany the use of electronic signatures (and which will be determinative of their evidential weight and reliability). Instead, the Law Commission has provisionally proposed that a working group should be set up to consider these aspects of the move to electronic signatures.
When it comes to registration of contracts at the Land Registry it is important to realise that these will not be substantively registered. Instead, they are generally noted against title. By virtue of section 32 of the Land Registration Act 2002 (2002 Act), the fact that an interest is the subject of a notice in the register (whether agreed or unilateral) does not mean that the interest is valid, merely that if it is valid its priority is protected. As such the Land Registry may well note an electronically signed contract against title but that does not mean that the interest thereby protected could not be challenged in later legal proceedings – so you come back again to the question of whether or not an electronic signature is sufficient to satisfy the requirements of section 2.
Deeds transferring or creating a legal interest in land
Documents transferring or creating a legal interest in land are generally required to be made by deed (section 52 of the Law of Property Act 1925). The formalities for the creation of a deed are set out in section 1 of the Law of Property (Miscellaneous Provisions) Act 1989, namely: the document must be (i) clear on its face that it is a deed; (ii) signed; (iii) witnessed; and (iv) delivered. So deeds that transfer or create a legal interest in land face additional issues to those surrounding simple contracts.
The Law Commission's consultation on electronic signatures specifically excluded registered dispositions under the 2002 Act (the bulk, if not all, of deeds transferring or creating legal interests in land) so we do not have its view (provisional or otherwise) on these types of document. What we do know from the Law Commission's consultation is that it identified specific concerns regarding the electronic execution of deeds generally and those issues are equally likely to affect deeds relating to land. In particular the Law Commission had concerns about how an electronic signature could be properly witnessed and attested, resulting in a number of suggestions for more flexible arrangements to accommodate electronic execution (for example, that it should be possible for a witness to observe an electronic signature via a video link).
The reason why the Law Commission specifically excluded registered dispositions pursuant to the 2002 Act was that the Land Registry is undertaking its own separate project on electronic conveyancing and registration. That project has to be viewed against the relevant statutory backdrop.
Section 91 of the 2002 Act provides that a document that purports to effect a registrable disposition and is electronically signed will, provided it complies with certain conditions including those set out in the Land Registration Rules 2003 (the Rules), be regarded for the purposes of any enactment as a deed. In essence the Rules provide that to qualify for the treatment under section 91 of the 2002 Act the registrable disposition must be of a kind that has been specified in a notice from the Land Registrar and must comply with any requirements set out in that relevant notice from the Registrar. This means that the statutory framework is in place to allow all registrable dispositions to be effected by an electronic document signed electronically subject only to the Registrar issuing a notice to that effect. So far, however, the Registrar has only issued one such notice and that was in relation to a very restricted category of digital mortgages.
The Land Registry is working hard on its Digital Street programme to develop electronic conveyancing. It has just completed its first digital transfer. However, unless you are part of one of the pilot schemes, there is currently no scope for registering an electronically executed deed purporting to effect a registrable disposition of land. Even when the Land Registry does start accepting electronically executed deeds it intends to use its own purpose-built electronic signature solution to authenticate documents most likely based around an Advanced Electronic Signature (see above). So the real estate market in England and Wales is dependent on the Land Registry leading the way and for the time being the baseline position is that you cannot use electronically executed deeds to effect the creation or disposition of a legal interest in land in England and Wales.
Although much has progressed legislatively to allow electronic signing to permeate the world of real estate transactions, we are not yet at a point where we can buy land or buildings "online". Commentators are keen to write about the latest technology and the "future" of conveyancing as they see it, but this often gives a perception that professional conveyancing practice is more advanced than it is.
Whilst there are very good reasons that the majority of conveyancing is not currently carried out using electronic signatures, it is right and proper that the framework is constantly challenged to open up more efficient ways of delivering these transactions. Both Registers of Scotland and the Land Registry in England and Wales are pushing hard on their programme of digitisation and have achieved much in the last few years. More is to come in this regard, and hopefully in the next few years solicitors will be carrying out conveyancing transactions north and south of the border in a digital, secure and efficient environment that successfully incorporates electronic signatures. Innovative law firms such as Dentons are poised and eager to offer exciting solutions for clients in this sphere as soon as the underlying infrastructure and legislation allows it. Until then, though, we are stuck with the old faithful pen and paper for the majority of real estate transactions – a piece of "technology" that has served us well.
Post Brexit, eIDAS will be onshored into UK legislation by virtue of section 3(1) of the European Union (Withdrawal) Act 2018.