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Law Commission confirms electronic signatures are valid – will this work for real estate?

Law Commission confirms electronic signatures are valid – will this work for real estate?

Posted on 23 September 2019

Since the Law Commission provisionally opined on the validity of electronic signatures last year, the legal profession has been eagerly awaiting the outcome of its consultation. The Law Commission has now published its report, confirming that electronic signatures are valid under English law, including for deeds.

Many businesses and lawyers have been using electronic signatures for some time, including conducting virtual signings using e-signing platforms such as DocuSign to execute documents. Mishcon de Reya has already successfully completed transactions using the technology where this has been appropriate.

However, notwithstanding the provisional opinion and guidance from The Law Society, which included leading counsel's opinion that electronic signatures are valid under English law, there has been some nervousness about their validity, especially in respect of deeds and certain real estate documents.

Leases, mortgages and property transfers have to be executed as deeds as a matter of statute, while real estate sale agreements are subject to specific signing requirements. On the other hand, use of electronic signatures is already widespread in the market for short-term residential lettings and student accommodation.

The report from the Law Commission is a step forward in giving comfort to those who have been reluctant to rely on electronic signatures for validity reasons thus far. Nevertheless, the Law Commission also recognise that there are other practical reasons currently acting as barriers to wider adoption. It is recommending that the Government sets up an industry backed working group to give guidance on these issues. 

What does the Law Commission say?

The report and the consultation together set out a useful analysis of the current law including the EU eIDAS Regulation, Electronic Communications Act 2000 and UK case law. 

The law does not prescribe a type of electronic signature, but common law in England adopts a pragmatic approach as to what will satisfy a signature requirement. For example, the courts have held in respect of non-electronic forms of signatures that simply signing with an "X" or using a stamp of a handwritten signature constitutes a valid signature.

More recently the courts have ruled that a name typed at the bottom of an email, the header of a "SWIFT" message or clicking "I accept" on a website are all valid signatures. In each case the key question is whether, in undertaking these steps, the person 'intends to authenticate' (ie give validity to) the document.

The report sets out a number of examples of electronic signatures to which the Law Commission's conclusions may apply, including, in addition to the examples above, signing with a finger or stylus on a screen, typing in a pin or password or using biometrics such as a fingerprint. 

The Law Commission also confirms its earlier view that formalities required for execution of deeds can be satisfied electronically. In relation to witnessing, the Law Commission concludes that the requirement to sign "in the presence of a witness" means a witness to the electronic signature must be physically present to see the signatory execute the document electronically, even if this is simply to watch them click a button. This means remote witnessing, e.g. by video-link, would not be valid at present but the law could be reformed to allow this.

What key challenges remain?

Documents requiring registration: some documents need to be registered with a particular body, such as the Land Registry or HM Revenue & Customs. The approach taken by different bodies remains inconsistent, with the Land Registry continuing to require a traditional "wet ink" signature for registration. As such, it is important to check the relevant body's requirements prior to signing.

Cross-border transactions: the fact that there is no harmonisation across different jurisdictions when it comes to executing documents means care must be taken when a document is not subject to English law, where an entity who is a signatory is registered in a country other than England or Wales, or where the document needs to be enforced overseas. Parties need to be comfortable that the signatures will be legally valid in all relevant jurisdictions.

Litigation risk: many real estate documents are covered by signing requirements in laws enacted long before the digital age. The Law Commission have pieced together the legal jigsaw and concluded (and we agree) that e-signatures comply with these laws. But there is enough scope in past rulings for a party who regrets signing a contract to argue that it is not valid. We think such a challenge would ultimately fail – but many of our clients would not want the risk of delay, expense and uncertainty while waiting for such a challenge to be resolved.

Technological and practical challenges: there continue to be some concerns around security in relation to e-signing technology and the practicalities and confidentiality issues around conducting signings using particular software.

Wills, LPAs and vulnerable parties: the conclusions of the Law Commission do not apply in respect of some documents, such as wills and lasting powers of attorney. These are being considered separately as these documents have specific formalities in law relating to their execution, and issues of vulnerability of signatories needs to be addressed.

What happens next?

In the executive summary, the Law Commission says about the report: "we hope that it will assist users and potential users of electronic signatures to proceed with confidence."

As we say in our introduction, the confirmations by the Law Commission should be a step towards increased use of and trust in electronic signatures. Nevertheless, the Law Commission recommends that the validity of electronic signatures could be put beyond doubt by introducing a general provision (which it puts forward in the report) to 'codify' the law in this regard.

The Law Commission report is strong and persuasive. Its authors include a High Court judge and a leading professor of property law.

The proposal to set up an industry working group to consider the practical and technical issues associated with the electronic execution of documents is also welcome. However, given the political and legislative climate, this is unlikely to happen quickly, and as such, lawyers and businesses may need to continue to develop processes between themselves taking into consideration all the current law, when conducting e-signings.

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