Despite electronic signatures being generally accepted as legally valid, property professionals are still uncertain whether or not they can sign or accept the signature of leases (or similar documents) electronically.
Understandably there is a growing demand for leases (among other documents) to be digitally authorised to speed up property transactions, so it is unsurprising that there is frustration that the Law Commission and the Land Registry are running two separate consultations on the issue, rather than a joint one to speed up matters.
Land Registry and Law Commission holding consultations on electronic signatures
The Law Commission sets out its position in relation to the use of electronic signatures in place of wet ink signatures. The Electronic Communications Act 2000 (s.7) provides that electronic signatures are admissible as evidence in legal proceedings (although doesn’t expressly provide for their validity). Further there is a growing body of case law where electronic signatures (including even a typed name in an email) have been accepted by the Courts as enough to satisfy statutory requirements for a signature. The Land Registry accepted its first digital mortgage in April of this year but this process has yet to be extended to anything other than mortgages.
It is important to note that the Law of Property Act 1925, which is the basis for most modern land law, requires certain documents to be made by deed for them to be legally effective. This includes leases for more than 3 years, and grants of easements (e.g. rights of way). Where documents should be made by deed, but are not, then the rights granted take effect only in equity. This can mean that rights might not bind successors in title, and could cause significant difficulties both in relation to various notices (e.g. break notices or notices required under the Landlord and Tenant Act 1954), and the grant of further rights adversely affecting the tenant.
Electronic execution of deeds is proving a sticking point
In light of the consultations above, it is tempting to think that a lease for less than 3 years could be signed electronically; however, this is unlikely to be possible. Although both the , the Land Registry and Law Commission consultations appear to be broadly in favour of electronic signatures, neither are so clear on the position of executing a deed using electronic signatures.
Many short term leases are used in relation to multi-occupancy buildings where tenants are granted rights to use the common parts (e.g. service yards, toilets, or corridors). These rights are easements and in order to be legally effective must be registered at the Land Registry. As noted above, easements must be made by deed.
The Law Commission consultation considers a range of possibilities from the signing of a document being witnessed by someone physically present who then adds their electronic signature to the witness. This approach relies on digital confirmation from the signatory that the signatory has signed. The requirement for a witness to be physically present is not a high barrier as there are few restrictions on who can witness a signature and we consider this requirement should be retained. The Land Registry, on the other hand, is reviewing a number of technology-assisted options.
Wet ink signatures likely to stay in the medium term
Sadly, neither the Land Registry nor the Law Commission have yet come to a conclusion on the electronic execution of deeds and so property professionals are left executing documents in the same way we have for centuries – with wet ink signatures.
It is important that lawyers work efficiently to deliver documents that implement their clients’ instructions so that commercial transactions are not delayed; tenants can get on with their businesses; and landlords can start collecting rent from their assets.