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Validity of electronic signatures in real estate transactions

Validity of electronic signatures in real estate transactions

The Law Commission’s report confirms that electronic signatures can be used to execute documents as an alternative to wet ink signatures

The Law Commission has published its final report on the validity of electronic signatures. The report confirms that electronic signatures can be used to execute documents as an alternative to wet ink signatures in a wide range of circumstances if the usual rules on signatures are met. There are certain exceptions such as stock transfer forms and extra care should be taken with documents that are to be executed as a deed.

What is an electronic signature?

An electronic signature is anything in electronic form which is incorporated into, or otherwise logically associated with, any electronic communication or electronic data and which purports to be used by the individual creating it to sign.

A simple electronic signature may be a scanned copy of a wet-ink signature or may be created where the signer writes or types their name directly into the electronic document.

Legally binding

A move to electronic signatures does not mean a move away from all established principles surrounding how a party can sign a document.

The requirements for a valid deed are that the deed must be:

  • made in writing;
  • clear from the face of the instrument that it is intended to take effect as a deed; and
  • validly executed as a deed by the person making it and a deed must be delivered.

To create a legally binding contract, there must still be an intention to create legal relations and the person signing must have intended to authenticate the whole of the document.

In real estate transactions, Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 requires a contract for the sale or other disposition of an interest in land to be in writing, incorporate all the terms and be signed. This may sound straight forward. However, caution should be taken and it is important to understand what may constitute a legally binding contract. Once a contract is formed the parties will have several legal obligations and a breach of these may incur serious liabilities.

  • In 2016, the Law Society and the City of London Law Society expressed in a practice note that an electronic document would be sufficient to satisfy a statutory requirement for a contract to be in writing.
  • In Neocleous v Rees [2019] EWHC 2462 (Ch), the High Court found that an automatically generated email footer containing the name and contact details of the sender constituted a signature.
  • In Green (Liquidator of Stealth Construction Ltd) v Ireland [2011] EWHC 1305 (Ch), the court thought it possible for a string of emails that contained all the relevant terms to constitute “one” document incorporating all terms.

Key conclusions of the Law Commission’s report

The Law Commission confirms that in ”most cases”, an electronic signature is capable in law of being used to execute a document (including a deed) provided that the person signing the document intends to authenticate the document and any execution formalities are satisfied. An electronic signature is also admissible as evidence in legal proceedings.

The Law Commission has also concluded that the current law does not allow for “remote” witnessing. The requirement under the current law is that a deed which must be signed ’in the presence of a witness’ requires the physical presence of that witness even in the case where both the person executing the deed and the witness are executing/attesting the document is using an electronic signature. Therefore, this remains an area of concern with uncertainty around the use of electronic signatures to execute deeds validly.

However, HM Land Registry has some authority to determine when electronically created and signed documents can be regarded as deeds. For example, the ‘Sign Your Mortgage Deed’ service is replacing the paper mortgage deed. Here, a witness will no longer be needed to observe an individual’s wet-ink signature on a mortgage deed as the service makes use of ‘GOV.UK Verify’, which enables the individual’s identity to be verified online and mortgage deeds to be digitally signed.

Next steps

The Law Commission’s report includes some recommendations for the creation of an industry working group to focus on practical issues and a review of video-witnessing for deeds.

HM Land Registry’s ‘Digital Street’ research and development project is looking at ways of improving the conveyancing process in the future. They have used their blockchain prototype to show how buying and selling a property can be made simpler and quicker by demonstrating a digital transfer of ownership. If developed successfully, this new technology would allow a wider use of electronic execution of documents in real estate transactions. 

This article is provided for general information only and is not intended to be nor should it be relied upon as legal advice in relation to any particular matter. If you would like to discuss any aspect of it please contact Fionan Foo at fionan.foo@burlingtonslegal.com.

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