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Real Estate IHL Series – Virtually Effective

The legal and practical issues that arise when executing documents electronically with a focus on practical points to consider and pitfalls to avoid. This is quite a hot topic at the moment with businesses having to continue to operate during lockdown.

What is an electronic signature?

An electronic signature is a way of signing a document online in place of a traditional “wet ink signature” and can come in many forms - clicking on an “I accept” button on a website, writing with an electronic pencil on a tablet, pasting an image of your manuscript signature into a document, typing your name into a document or using a commercial product to insert an electronic signature. Care has to be taken to ensure that a contract is not inadvertently created, particularly when exchanging emails containing the terms of a deal.

Which documents can be executed electronically?

  1. simple contracts - there have been no concerns about simple contracts being executed electronically for some time.

  2. contracts where the law requires certain formalities to be complied with (e.g. contracts for the disposition of an interest in land and guarantees). There has been no judicial authority confirming that such can be created electronically so there is a very small risk that the courts might say such contracts have to be signed in wet ink but this is unlikely.

  3. deeds - the consensus of academic and commercial opinion is that deeds can also be executed electronically. As above, there has been no judicial ruling on the electronic execution of deeds so there is a small risk that the courts might hold that a deed executed electronically is invalid but the risk is low.

  4. statutory declarations or affidavits to produced - not recommended. There is a still a concern that these documents have to be signed in wet-ink and declared in person (not remotely) so electronic signatures and remote declarations via a video link are not recommended for these documents.

Are there any risks in proceeding by way of electronic signatures?

  1. challenge in the courts for particular forms of contract being executed electronically. 

  2. commercial risk depending in the nature of the deal and the parties to the contract.

  3. evidential risk:

    • if contracts can be exchanged electronically in a chain of emails, a contract could be inadvertently created if the other side can show that there is an intention to be bound by the terms set out in the emails. To avoid this risk, here at Shoosmiths all real estate lawyers automatically include a statement in their emails that that email is not intended to create a contract and we recommend IHLs consider doing the same.
    • the Land Registry particularly is concerned about evidence of the parties’ intentions to be bound by the terms of an electronic document and requires both parties to be represented by conveyancers who control the signing process and for electronic signatures to be applied using a secure electronic platform using two factor authentication.

    • electronic execution does not avoid the need for a witness. Not only that, the court has said that the witness must be physically present when the party executes the deed before the witness can apply his or her own electronic signature. It is not possible to witness the execution of a deed remotely so where companies are executing deeds electronically, it may be easier for them to be executed by two directors, who do not need to be jointly present to execute the document, to avoid any questions about the presence of a witness when one director executed the document.
  4. registrability - certain documents have to be registered e.g. a charge a Companies House, a transfer at the Land Registry, certain documents with HMRC. In each case, you need to consider whether the relevant registration authority will accept electronically executed deeds. A big barrier in the real estate world was removed last year when the Land Registry agreed to accept electronically executed deeds.

Usability

The electronic platforms are very easy to use although the first time you use them it does take a while to get up to speed and there is an element of preparation required. However the platforms do give a greater degree of control and show more evidence of an intention to sign than simply pasting an image of a handwritten signature into a document.

The biggest drawback identified so far is that errors cannot be amended in manuscript if an error is made when entering completion information. Once the document is completed, you cannot change it. As it is the electronically executed version that is the original document, you cannot print off a copy and make manuscript amendments to it – it is equivalent to making amendments to a photocopy of a wet-ink signed document and arguing that this is the original amended deed. We are working with the Land Registry to establish best practice for amending documents where they have to be changed between completion and registration. The best solution, at the moment, is for a deed of rectification to be completed setting out the changes required to the original deed.

Electronic platforms – are they essential?

No – but there are helpful and they are secure. The Land Registry will only accept electronic signatures created using a secure platform.

Conclusion

The pandemic may have accelerated the development of e-signatures but these processes are here to stay and we need to embrace them as a profession.

Disclaimer

This information is for educational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.

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