Fifteen months after the Land Registry’s historic decision to accept e-signed documents for registration, Katherine Crowley and Kathryn Oie chart their phenomenal success and consider their future direction of travel.
With offices closed and signatories working at home, e-signatures played a key part in keeping the deal pipeline flowing during 2020 and 2021. As we start to navigate our way cautiously back to the office again, will wet-ink signatures make a comeback? The clear answer to this question is no.
Paper versus online convenience
In the intervening months, clients have become used to being able to sign documents anytime, anywhere and have little appetite to go back to pre‑pandemic reliance on pens, printers and postage. After all, who wants to organise their hybrid commuting and work from home schedule around document signing when time in the office is now about connecting with colleagues, not processing paperwork?
A law firm favourite
For commercial and larger residential law firms, e-signature platforms have delivered significant efficiency gains and universal client praise. It has become the norm to see e-signatures used on transactions that these types of firms are instructed on and they have become an important tool in their digital offering. As we highlighted in our article, “Top tips for rolling out e-signatures”, earlier this year, there are limitations on the use of e-signatures, but when they are not suitable for one of the transacting parties it is common practice (and legally permitted) to take a “mix and match” approach, with one part being e-signed and the other signed in wet ink.
It is certainly now rare to be informed by the other side’s lawyers that they don’t accept e-signatures, but smaller law firms need more encouragement to invest in their own e-signature platform licences.
Electronic seals
Non-Companies Act 2006 bodies whose constitutions require the use of a common seal are most likely to wish to use an electronic seal. Where use of an electronic seal is being considered, we would recommend a review of the body’s constitutional documents or the Act of Parliament or Royal Charter that created the body to check whether they impose any restrictions on the use of electronic seals. As a matter of law, it is not clear whether electronic seals are a valid means of executing a document by a non-Companies Act body, however we understand that some local authorities have been relying on section 7(A) of the Electronic Communications Act 2000 in support of the validity of electronic seals. For the time being, it appears that the Land Registry may be willing to register documents that have been electronically sealed by a local authority provided a certificate is lodged with the application signed by a “conveyancer” (this is usually an in-house solicitor who has a practising certificate) stating that the documents have been duly and properly executed in accordance with the local authority’s constitution.
Some lenders remain cautious
While e-signatures have been enthusiastically embraced by most in the real estate sector, some lenders remain cautious, often due to concerns around witnessing. One issue is the legal requirement for the witness to be physically present while a signatory applies their e-signature on-screen. We believe this can be addressed by clear instructions being given to the signatory in advance of the electronic envelope being sent. There is also a concern that a witness, when applying their own e-signature to documents, is able to view them in full, but remember that the signatory can ask their witness to remain in the room with them and require them to input their details and sign under their supervision, which should militate against the witness scrolling through the documents. And, of course, these are issues that also arise in the wet-ink world.
The more sophisticated e-signature platforms that are generally favoured by law firms have already responded to concerns about witnesses receiving copies of signed documents and many of them have changed the workflow process so that this does not happen and are developing “document visibility” functionality that permits the witness to view only the documents that their signatory will be signing or perhaps only the signing pages themselves.
Are legal opinions a barrier?
Where one or more contracting party is an overseas entity, you can only proceed with the use of e-signatures if local counsel is willing to issue a legal opinion confirming that the e-signed document will be legally valid and enforceable in the relevant jurisdiction. With many investors taking advantage of the tax efficiencies offered by the Channel Islands, the Isle of Man, Luxembourg and other jurisdictions, our experience is that local counsel here have quickly recognised the trend for e-signatures and are usually comfortable issuing a supporting legal opinion for them.
View from across the border
E-signatures are not as widely used in Scotland as they are presently in England and Wales. While they are valid for execution of all documents other than wills and testamentary writings, there are some restrictions.
In Scotland, a signature must be witnessed to be valid and you must use advanced electronic signatures (AES) to comply with the Requirements of Writing (Scotland) Act 1995. This type of e-signature requires a key that uniquely identifies and links to the signatory that is solely controlled by the signatory. It is more secure than the standard or simple e-signatures currently used in England and Wales and is offered by many of the e-signature platforms for a slightly higher cost. However, real estate documents that require to be registered must be signed in wet ink to be registered in the Land Register of Scotland.
Clients who operate on both sides of the border will perhaps start making their voices heard on the need for digitalisation of the signing process in Scotland and question why Registers of Scotland will not accept AES when the Land Registry in England has changed its policy to allow standard e-signatures.
… and from across the Channel
In France and for French-law documents, e-signatures are valid so long as signatories can be identified (Article 1366 of the French Code Civil) and so long as they satisfy the requirements of integrity as set out in Article 1367 of the French Code Civil. While e-signatures were in use in France prior to Covid-19, their use took off after several consecutive lockdowns. Unlike in England and Wales, where most documents are signed using standard e-signatures, it is far more common in France to see the use of AES and qualified electronic signatures (QES), which are the most secure of all e-signatures currently available.
… and further afield
Although there were instances in Australia where e-signatures were permitted before Covid-19, those instances were relatively limited. While e-signing has been more broadly permitted since Covid-19 the legislative changes widening the use of e-signatures have been implemented on a temporary basis in direct response to Australia’s lockdowns and the physical impediments which that entailed. It remains to be seen where the law and practice will ultimately end up in a post Covid-19 world – bearing in mind that Australia has multiple different legal jurisdictions each with legislation and processes that are slightly different and apply in different circumstances.
Anecdotally, most Australian law firms are of the view that the temporary legislation permitting e-signing more broadly should be made permanent. PEXA – Australia’s e-conveyancing solution – is one example of e-signing being authorised prior to Covid-19. However, the e-signing that occurs (by the conveyancers not the parties) is supported by a “client authorisation” which itself is typically wet-ink signed by the parties to the transaction.
Is the future QES?
The Land Registry has, from the start of its e-signature journey in July 2020, expressed a desire to move towards the use of QES (effectively bypassing AES). As touched on earlier, QES require signatories to undergo additional ID verification checks and attracts a higher usage fee but removes the requirement for individual signatures to be witnessed. The Land Registry is currently seeking a small number of law firms that undertake residential conveyancing to participate in a QES trial to see whether they could be used in transactions between individuals. At the moment, the appetite for QES is limited, particularly in the commercial space, but this may change if the Land Registry shifts its position and banks start to support its use as a means of removing their witnessing concerns and further enhancing ID security checks.
Industry working group
This summer, as recommended by the Law Commission’s 2019 report – Electronic execution of documents – the Ministry of Justice set up an industry working group to improve standards, reliability and security in the use of e-signatures. While the group has been given wide terms of reference, we will be particularly interested in whether it can see its way to allowing video witnessing of e-signatures. Clients and lawyers alike will celebrate if the law is changed to permit this.
E-signatures are here to stay
“Unprecedented” has become an all too familiar adjective in Covid-19 times, but its use really is justified when describing the success story that is e-signatures. Ignore them at your peril because without them your competitors will leave you standing and as they continue to develop you will be left increasingly behind the digital curve.
Katherine Crowley is a legal director and practice development manager for the real estate business group at Womble Bond Dickinson (UK) LLP and Kathryn Oie is an of counsel who also supports the knowledge function within the real estate practice at Herbert Smith Freehills LLP
