HM Land Registry has announced it is partnering with UK software company Methods, who will utilise R3’s blockchain platform (distributed ledger technology), Corda, for the second phase of HM Land Registry’s groundbreaking research and development project, Digital Street.
What is Digital Street?
As briefly mentioned in a previous article, the Digital Street research project is part of HM Land Registry's business strategy for 2017 to 2022, exploring how innovative use of technology, such as blockchain, distributed ledgers and smart contracts, could transform the land registration and property buy and sell process. HM Land Registry first unveiled its plans back in December 2017 and, in February of this year, set out three key focus areas behind the Digital Street project:
- Digital Mortgage. A digital 'Sign Your Mortgage Deed' service will replace the paper mortgage deed and transform the process for homeowners remortgaging. In April, the first digital mortgage deed entered into the Land Registry.
- Find Property Information. This service allows users to download information about a property in an easy to understand format.
- Making the way for digital, by changing its rules. In order to become 'the world's leading land registry for speed, simplicity and an open approach to data', HM Land Registry plans to make changes to UK legislation to allow for fully digital conveyancing.
What are the benefits of using blockchain in land registry and real estate?
When the HM Land Registry first unveiled its plans, it stated that "if all the parties involved had the right data, at the right time, they could make decisions faster which would make the [property purchase] process simpler and more certain."
It hopes that using blockchain and smart contracts to create a digital register, in line with its second aim (Find Property Information), will automate systems to provide absolute assurance about property ownership in England and Wales and allow buyers to conduct their due diligence more quickly. HM Land Registry also helps that the technology will increase trust between parties in transactions, and streamline the buying and selling process of a property.
The plans don't however go into detail about how the use of blockchain and smart contracts will work, and there remain a number of regulatory, technical, legal and practical challenges to the widespread commercial implementation of this technology.
What is a smart contract and what are some of the challenges under English law?
What is a smart contract?
'Smart contracts' pre-date blockchain technology. Due to their use as an application of this booming technology, smart contracts are coming back to the fore.
The term 'smart contract' was coined by Nick Szabo in 1994 as "a computerized transaction protocol that executes the terms of a contract. The general objectives of smart contract design are to satisfy common contractual conditions (such as payment terms, liens, confidentiality, and even enforcement), minimize exceptions both malicious and accidental, and minimize the need for trusted intermediaries. Related economic goals include lowering fraud loss, arbitration and enforcement costs, and other transaction costs".
In short, the term 'smart contract' refers to a piece of computer code that is capable of monitoring, executing and enforcing a digital act between two or more parties. In other words, it will execute various commands which have been programmed. For example, if Party A completes Task X, then Party B will transfer £1 to Party A.
Challenges under English law
In brief, under current English law, in order to have a legally binding and enforceable contract, the following elements are required: 1) offer; 2) acceptance; 3) intention to create legal relations; 4) consideration; and 5) certainty of terms. Clearly, as computer code, smart contracts are unable to do this as they are not a 'contract' in the traditional sense.
Will blockchain and smart contracts take off?
Potential use cases of smart contracts and blockchain are relevant to nearly all industry sectors: IP licensing, supply chain tracking, financial and commodity trading, real estate title registration and identity verification. Mishcon de Reya is working on developing techno-legal specifications and open source technology for smart legal contracts in the real estate and construction industries through its Accord Project.