As more aspects of business move online, there is a drive to do everything digitally. The process of buying and selling property has always relied heavily on paper, but there has been huge change over the last decade and more can now be done online.
Commercial property investors want to take advantage of this, but the law on signing electronically is still in transition. Getting a signature wrong could mean a deal is void, so it pays to get legal advice on when an electronic signature will be valid.
‘In an increasingly digital world, business owners are sometimes surprised when they are asked to sign property documents with pen and ink’ says Andrew Little Commercial Property Solicitor with Ware & Kay in York & Wetherby. ‘This isn’t just lawyers being old-fashioned – there are still rules that mean some documents should not be signed electronically.’
There are more formalities for property documents than for many other types of contract, including that:
There has been much debate over whether an electronic document with an electronic signature, can satisfy either of these two requirements. To help businesses which want to embrace the efficiencies of digitisation, the Law Commission recently held a consultation and published some useful guidance on the current state of the law. The main conclusions were:
On that basis, it should be possible to create valid properly signed property contracts and deeds. Unfortunately, there is still one practical obstacle. To be fully binding and enforceable, leases and property transfers must be registered at HM Land Registry.
At present, apart from some mortgages, documents submitted for registration must still have a traditional wet-ink signature and not a digital one. This means that in practice, although a deed transferring property would be technically valid if it had been executed electronically, it would be rejected by HM Land Registry. So a business buying property or taking a lease still needs the seller or landlord to sign in the traditional way.
HM Land Registry is working hard on its digital strategy and it is only a matter of time before we get new rules and possibly new legislation, to make fully digital property deals a reality.
In the meantime, businesses buying, selling and letting commercial property should take particular care in the following situations:
It is vital that all the terms of a property contract are set out in writing, in a document signed by the parties. There have been cases where a court has held that a chain of emails satisfied that test and formed a binding contract. To avoid uncertainty, make sure your solicitor has produced a formal contract. The contract does not need to be formally registered, so it can be done electronically with digital signatures if the parties wish.
If a lease is for more than three years, it must be in writing and executed as a deed. Your solicitor will advise you about the extra execution formalities required for deeds. One point to note is that signatures on a deed must be witnessed. The Law Commission considered whether it was acceptable for a witness to see the document being signed via video link but decided that it was not. A witness must be physically present and see the document being signed, whether this is a traditional signature or a digital one.
The Law Commission has recommended that the law on this should change but the current position is now clear. If the lease is for more than seven years it must be registered, so it must have traditional signatures for HM Land Registry.
The transfer must be executed as a deed and witnessed in the same way as a lease. Again, the transfer must be registered so, even if the initial contract has electronic signatures, wet signatures are required on the transfer.
Property law is trying to adapt to the twenty-first century but the law is not quite keeping pace with the speed at which businesses want to digitise processes. Until fully paperless commercial property deals are possible, it is well worth getting legal advice to make sure that everything is binding and fully enforceable.