The Practicalities Of Real Estate Transactions In The Lockdown, A New Business As Usual
The stay at home measures implemented by the Government in response to the spread of coronavirus (COVID-19) have raised new challenges for property practitioners in how we and our clients continue to carry on with business as usual.
The precautions put in place have raised the question of how to sign documents when physical signing is not possible.
Contracts for the sale of land generally have to be made in writing and signed by the parties. The usual practice for documents of this type is execution in paper form using a traditional wet ink (handwritten) signature.
An electronic signature is the electronic equivalent of a handwritten signature and links a person to the contents of an electronic document. Electronic signatures come in various forms including a scanned written signature, a digitally drawn manuscript signature and there are cloud based e-signing platforms.
The Law Commission’s view endorsed by the government is that electronic signatures are capable of being used to execute both contracts and deeds in England and Wales provided that, (i) the person signing the document intends to authenticate the document and (ii) any formalities relating to the execution of the document are satisfied.
What about deeds?
It is possible for a deed to be executed using electronic signatures. However, there is less clarity as to whether the formalities for a valid deed are capable of being satisfied without the manual execution of a paper copy of the deed or its signature page. There have not been any cases to test the question of whether a deed may be executed using an electronic signature and there are no legislative provisions in effect.
There are additional conditions and considerations in the procedural signing requirements for deeds. A deed must be physically whole and any witness must be physically present to sign the attestation clause.
The signatory and the witness must both sign the same document and the witness must be physically present at the time of signing. Currently this means traditional physical presence. Virtual presence is not enough; it is not sufficient for the witness to watch the document being signed remotely by video link or otherwise.
Can family members act as witnesses?
If, as a result of these unique times, the commercial imperative justifies departing from best practice and there is no conflict of interest then while not preferred it may be acceptable for a family member to act as a witness. A witness who is member of the same household should be an adult who is not a party to the deed, is not benefitting from it, has no direct or indirect financial interest and can be said to be independent of the matter in question.
As there is a risk of a witness’s independence being called into question, it would be prudent to identify the witness in advance and get confirmation of their age and capacity, that they are not a beneficiary and have no interest in the document they are witnessing.
There may be additional requirements to check. Lenders usually stipulate that the witness must be independent.
What about companies?
Under the Companies Act 2006 (CA 2006) a document may be executed by one director in the presence of a witness. There are the same issues as for an individual in executing a deed validly. The director and the witness must both sign the same document, the witness must be physically present at the time of signing and should be independent.
Under the CA 2006 deeds may also be executed by two directors. There is no requirement for these signatures to be witnessed or for the signatures to be applied at the same time. In the view of the joint working party of the Law Society Company Law Committee and the City of London Law Society Company Law and Financial Law Committees in their note on electronic execution published in 2016, it is permissible for each of the two directors to sign the deed in counterpart or by one signing followed by the other adding their signature to the same version of the deed.
There is no requirement that all the parties to a transaction are physically present in the same place in order to execute documents. Virtual signings, where copies of a document are circulated electronically to signatories at different locations, signed and subsequently circulated in scanned form are increasingly common.
In 2010, the Law Society issued guidance on the execution of documents by virtual means where the parties were not all present on completion of a transaction. It suggested a range of options when executing documents at virtual signings. For contracts for the sale and transfer of real property the approach is referred to as Option 1.
In practice this means that the final execution copy of a document can be sent by email to all parties. They print and sign the signature page, scan it and return by email the final version of the document together with a scanned copy of the signed signature page, in accordance with agreed signing instructions.
What about the Land Registry?
Electronic signatures cannot be used for any documents that need to be registered at the Land Registry, including transfers, other deeds and most leases.
The Land Registry will not accept a signature in facsimile, each individual must sign manually and traditionally a paper copy is required for registration purposes.
On 4 May 2020, in response to the coronavirus (COVD-19) outbreak, the Land Registry temporarily relaxed its approach to virtual signings. It will until, until further notice, accept for the purposes of registration a transfer or other dispositionary deed signed in accordance with Option 1.
For land registration purposes a signature page will need to be signed in pen and witnessed in person (not by a video link). The signature will then need to be captured to produce a PDF or other suitable copy of the signed signature page. Each party sends a single email to their lawyer attaching the final agreed copy of the document and the copy of the signed signature page.
A brave new world?
The industry has been working together, both collaboratively and creatively to mitigate the disruption caused by the coronavirus (COVID-19) crisis.
Where property documents are candidates for electronic signature, such as contracts, this is being embraced.
Where hardcopy documents, manual signing and physical presence are required, alternative arrangements and modifications to standard completion undertakings are being put in place
Changes in practice and new processes and protocols to reflect the difficulties we face are being contemplated and agreed.
Will this be the end of the paper copy, the pen and the common seal? The crisis has forced changes to working practices many of which will, hopefully, be here to stay. It will be hard to go back to traditional established ways now we have had a taste of using different, more efficient processes.
Will people try to deny or avoid contracts when we have moved past this crisis? Will there be a surge in fraud cases? We wait to see whether there will be a downside to these enforced changes.