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Looking at e-conveyancing in England

25 February 2003

Electronic conveyancing does not mean the ancillary use of computers by different participants in the conveyancing process. It means that the total conveyancing process - from the time instructions are received to the register of title deed - takes place in a single, secure, unified and paperless system.

In England and Wales, the law requires the key documents in any sale, lease or mortgage of land to be made on paper. The current law regarding the forms of contracts and deeds is as follows:

* Contracts: section 2(1) of the Law of Property (Miscellaneous Provisions Act) 1989, provides that "A contract for the sale or other disposition of an interest in land can only be made in writing."

* Deeds: section 52 of the Law of Property Act 1925 provides that "all conveyances of land or of any interest therein are void for the purposes of conveying or creating a legal estate unless made by deed."


What is the situation in South Africa?

* Contracts: section 2 (1) of the Alienation of Land Act No 68 of 1981 reads thus: "Formalities in respect of alienation of land.-(1) No alienation of land after the commencement of this section shall, subject to the provisions of section 28, be of any force or effect unless it is contained in a deed of alienation signed by the parties thereto or by their agents acting on their written authority."

* Deeds: section 16 of the Deeds Registries Act 47 of 1937 reads thus:
"How real rights shall be transferred.-Save as otherwise provided in this Act or in any other law the ownership of land may be conveyed from one person to another only by means of a deed of transfer executed or attested by the registrar, and other real rights in land may be conveyed from one person to another only by means of a deed of cession attested by a notary public and registered by the registrar..."

In both countries therefore, these legal requirements for written contracts and deeds are an obstacle to electronic conveyancing. What statutory changes has England made to facilitate electronic conveyancing and how have they started to address the problems?

As far as contracts are concerned, section 8 of the Electronic Communications Act 2000 allows the Minister to amend primary and secondary legislation to authorise or facilitate the use of electronic communication and electronic storage. This power is subject to limitations. Firstly, the order can only be used for a purpose specified in section 8. Secondly, the Minister must be satisfied that the records of electronic transactions will be as satisfactory as in other cases.

More importantly, section 6 provides that orders "shall not subject to paragraph (b) require the use of electronic communications or electronic storage for any purpose;" This means that the use of electronic conveyancing documents as authorised under section 8 will be voluntary.

What about Deeds? Section 91 of the Land Registration Act 2002 comes into operation on 13 October 2003. It requires an electronic document to meet several conditions, including:
1) providing for a date and time for it to take effect;
2) that it has the electronic signatures of all the parties;
3) that these signatures are authenticated and certified;
4) that such other conditions as may be prescribed are met.

These conditions are open ended and will be worked out with the intention of providing for deeds in an electronic form, based on the responses of the consultation exercise.

The Land Registry has already taken a number of steps to prepare the ground for E-conveyancing. These include computerising all of its titles, of which 97% are capable of electronic delivery. It is also scanning some 95 million pages of deeds and computerising all of its plans to make them available to view via Land Registry Direct. The National Land Information Service (NLIS), provides a single hub for the electronic delivery of land and property related information.

It is already possible for mortgages to be discharged electronically and soon it will be possible to carry out other functions electronically, such as creating a legal mortgage. It is possible to take an electronic lease for less than three years because no legal requirements exist as to their form.

If you consider that the move to e-conveyancing is evolutionary, it will initially be voluntary. Eventually, it will have to be compulsory because in a chain of electronic, related transactions, the non-electronic transaction will slow the process. A clearer picture of how e-conveyancing will work is emerging as consultations with concerned parties progress. The Lord Chancellors Department Consultation paper: Electronic Conveyancing - A draft order under section 8 of the Electronic Communications Act 2000, is an example of initiatives that have been taken. Prepared with HM Land Registry and the Law Commission, it sets out the draft proposals for creating a legal framework for implementing E-conveyancing.

It foresees an online "deal room" in which the entire conveyancing process will be conducted under the auspices of the Land Registry. As documents are posted to the deal room by solicitors, they will be checked and amended if discrepancies occur. Hard copies will also be available. Since the entire process will be online, relevant information such as title description from the National Land Information Service (NLIS), pre-contract enquiries and replies will be submitted and completed online.

Once everyone has agreed to the form of the documents and due diligence has been completed, the parties will indicate the date and time at which the electronic contract is to take effect and attach their certified electronic signatures to the documents.

The Registers of title will then be frozen at this date and time and the contract will be registered. Then at a click of a mouse, the property will be transferred to the buyer, the change of ownership will immediately be registered in the Land Registry, the payment of the purchase price will be effected, the mortgage will be discharged and the stamp duty will be paid.

In looking for a conceptual model for e-conveyancing, the idea of the deal room is compelling. Such an area where parties to a transaction can negotiate documentation in a secure environment could be described as a closed extranet. In some ways such a model exists in the Share Transactions Totally Electronic (STRATE) system used by the Johannesburg Stock Exchange.

The costs of gearing up to such a system will be quite high, however most attorneys already have some sort of a computer system. In the long run, these costs will be offset by savings and higher efficiency.

The idea of an electronic signature must now be examined because in order for people to successfully adopt e-conveyancing, electronic signatures must be widely accepted.

What we need are digital signatures. Such signatures are defined by the European Directive on Electronic Signatures as:
1) uniquely linked to signatories;
2) capable of identifying the signatories;
3) created in such a way that only signatories can control their signatures; and
4) linked to data to which the signatures relate in such a way than any subsequent alteration of the data is revealed.

Such a signature will be verified by a certification authority.

On the subject of stamping electronically created documents, stamp duty could be modelled on stamp duty reserve tax (SDRT) or virtual share transfers. It will probably be payable on completion of the transaction rather than appearing on a document. We envisage that funds will be transferred using an electronic funds transfer system, a financial "hub".

When considering plans, we see that the Land Registry has already scanned all of its maps so that they may be viewed electronically. Computer mapping is also being introduced and this will allow for vectorised maps.

As with most initiatives, security issues, confidentiality and fraud prevention will need to be addressed. Perhaps the biggest question mark of all hangs over the use of digital signatures. The technology to provide sufficient encryption already exists but we must realise that every environment has its risks and these can be controlled. When dealing with fraudulent transactions the question of liability will depend on whether the document was digitally signed by the principal parties to the transaction or by their agents. If it was signed by their agents, then the law of agency will apply.

In conclusion, implementing electronic conveyancing in England will prove to be immensely complex. As we have seen, it involves the Land Registry, Lawyers and the banking system. It concerns issues of security and fraud. It will also demand that existing legislation be amended and new legislation be passed.

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