Propert-e
As the British government makes e-commerce not only more accessible, but also the preferred way of providing services to the public, the Land Registry has not been slow in looking to the future. By Steve Kelway, legal counsel to the electronic conveyancing task force.
A fully electronic conveyancing system was envisaged in the 1998 consultation document, Land Registration for the Twenty First Century, which was produced jointly by the Land Registry and the Law Commission. The ideas expressed in that document are well on the way to becoming reality. However, a fully operational system will take many years to come to fruition, as David Lock, a former junior minister in the Lord Chancellors Department (LCD), has explained:
“The Land Registry is planning for a decade or so of progressive change. Advances will be made incrementally as experience is gained and methods tested. We must not prejudice the security and integrity of the Land Register, or any other public register, through undue haste.”
But e-conveyancing is not so distant that we can forget about it. Each new Land Registry initiative has e-conveyancing in mind. Some of these are well established: Land Registry Direct (LRD) has been running successfully for some time, and the National Land Information Service (NLIS) has been launched, with three organisations now marketing their one-stop-shop services. We also have electronic notification of discharge, dematerialisation of charge certificates and real-time priority, all of which are essential if we are to move towards a fully electronic system of conveyancing.
Move towards full e-conveyancing
A fully electronic system can only be said to exist when paper-based procedures have become obsolete and all correspondence and communication is effected electronically. There is still a long way to go, but a start has been made and the government is looking at ways to enable the use of electronic documents in place of their paper counterparts. The passing of the Electronic Communications Act last year has given ministers the power to disapply, by secondary legislation, any statutory regulation that requires a transaction to be carried out in a specified way: for instance, the requirement that contracts for the sale of land must be in writing and signed by all the parties to the transaction, or the need for transfers and charges of land to be by way of deed.
In March the LCD produced a draft order disapplying the old conveyancing formalities. The aim is that, in due course, contracts, transfers, charges and other documents relating to land will be created in electronic form and signed electronically. But even this is just the beginning. Electronic documents will need to be submitted to the stamp office and the Land Registry in electronic form. Thus, until the Inland Revenue introduces legislation to cover the stamping of electronic documents, it is likely that we shall start with electronic charges (which do not require stamping). The consultation has now been concluded, and we wait to see whether the order under section 8 will be implemented. However, the Land Registration Bill is proceeding through parliament at a fair pace, and it is possible that the Bill could render the section 8 order unnecessary. Of course, this will depend upon the wishes of parliament. Remember, though, that once electronic documents replace the paper versions, it will, at least for the foreseeable future, be up to the practitioner to choose.
How will events move forward? The LCD and the Land Registry foresee the following progression:
1. Certain “non-dispositionary” applications, for example to note changes of address and the death of a joint proprietor, could be lodged electronically. The need to produce a death certificate or a statutory declaration could be replaced by certificates included in the electronic applications. The Land Registry hopes to introduce this service early in 2002. Subsequently, it would be possible to lodge other similar, but more complicated applications, such as cautions, using online versions of the existing forms.
2. Once electronic applications become viable, and once the order under the Electronic Communications Act is made (or if the use of e-documents is authorised under the new Bill), there will be no reason why solicitors should not make electronic applications to the Land Registry to register electronic dispositions. Indeed, it would be odd if an order under the Electronic Communications Act permitted the use of electronic documents, but the Land Registry then required that they be lodged in paper format. Hurdles need to be cleared before we can adopt electronic documents. In particular, there is the question of stamp duty. However, this problem has been overcome in the area of electronic share transfers, and the Inland Revenue is confident that it can include provision for the stamping of electronic documents in the 2002 Finance Bill.
3. Once all this has become possible, we can then turn to the conveyancing process itself and consider ways to re-engineering it so that it is electronic from start to finish. So far, the Land Registrys E-conveyancing Task Force has developed what can only be described as a concept model, but, like most models, the final version is unlikely to bear much resemblance to the original design. Moreover, a fully comprehensive system of e-conveyancing requires the new Land Registration Act.
E-conveyancing model
Under an electronic system, paper will effectively be banished and correspondence and documentation will be sent electronically. We could use the internet, but, for security reasons, it is more likely that a conveyancing intranet or extranet will be set up, accessible only by property professionals. Precisely who would have access, and to what, will be subject to debate. The Bill envisages a system of “network access agreements”, whereby the Chief Land Registrar will authorise practitioners to use the system. At this stage, we do not contemplate any changes to the process of conveyancing other than the replacement of paper with electronic documents. Nor does the Land Registry envisage creating and prescribing the documents to be used. Its thinking is that the government (in the guise of the Land Registry) merely needs to provide an electronic highway, linking practitioners to each others systems and to the Land Registrys databases.
The first real change in the process will come when the sellers solicitor submits the contract to the buyers solicitor. The base information in the contract will then be validated, probably automatically, by the Land Registry, so that basic contract details, such as property address, title number and the sellers name, can be compared with the information in the relevant register. Any discrepancies would be notified, and either explained or corrected, thus eradicating many of the routine requisitions that are now raised after completion of the transaction. If we are able to resolve most, if not all, such problems before completion, then, on the day of completion, we should be able to effect simultaneous registration and eradicate the so-called “registration gap”.
All pre-contract procedures can be dealt with electronically, including the issue of mortgage offers. Some lenders enable clients to make basic inquiries about mortgages and to receive “in principle” offers. Searches will, of course, be carried out using LRD and/or NLIS. It will be remembered that the Homes Bill fell at the election, but the idea of the “sellers pack” is still being considered by the government. It is anticipated that any sellers pack would be in electronic form. When all searches can be made and returned instantly, the pack would become obsolete, but for the condition report.
We will need to look very carefully at how to effect an exchange of contracts electronically because, in essence, there will be nothing to exchange. I anticipate a method whereby parties will “commit” to proceed to completion. The question of signing electronic documents also needs to be addressed. A great deal of work is being undertaken on electronic signatures. By the time e-conveyancing comes into play, electronic signatures will, no doubt, be generally accepted, and a set of protocols will have been put in place for their use. What we do not want to do is to create a system of e-signatures solely for conveyancing.
It may be that exchange would be effected via the Land Registry: once everybody is ready to proceed, the Registry could complete the exchange automatically. This would radically change the status of the Land Registry. Instead of being a mere registration authority, it would become the overseer of the conveyancing process. Although I can see the need for such an authority, it does not have to be the Land Registry.
On exchange of contracts, we envisage that the register would be automatically frozen, and a note entered, again automatically, on the register along the following lines:
“Register frozen pursuant to a contract for sale in favour of& dated&”
This freezing process would replace the existing official search system, and would provide automatic priority for the relevant period. However, the contact would effectively also be noted on the register, thus achieving one of the aims of Conveyancing for the Twenty First Century, that no interest in land would be binding unless protected by registration.
After exchange, the existing procedures would still be carried out electronically, of course. An electronic transfer would be drafted and approved, as would an electronic charge. However, the contents of these documents could be compared with the electronic contract and the register to eradicate discrepancies. I should stress that the Land Registry would not wish to control the content of a document, rather it would merely ensure that no basic errors were to arise that would lead to requisitions and delay the registration. The Land Registry could also construct an “notional” register, so that parties to a transaction would be able to see beforehand what the register would look like if the transaction were to proceed to completion.
Finally, to completion. Again, we have to deal with the question of the execution of an electronic deed, but assuming we overcome that particular obstacle, we perceive that execution, completion and registration would be simultaneous. Funds would have to move electronically and immediately, and we would need a complementary banking system to support electronic conveyancing. On completion, as well as the funds themselves being moved electronically, stamp duty and Land Registry fees would also be deducted automatically.
The benefit of simultaneous completion/registration would be to eradicate the existing risk in the registration gap, where, if the application is not received within the priority period of an official search, other competing applications might slip in. Electronic fund transfer is already a reality in the CREST system of automatic share transfers. This system is able to deal successfully with complicated chain transactions and manages the transfer of vast amounts of money each day. A significant feature of CREST is that inbuilt safeguards ensure that title is not transferred to the buyer unless the money is simultaneously transferred to the sellers account.
Because the Land Registry would have an overview of each conveyancing transaction, it follows that it could provide other interested parties with a similar overview. It could therefore produce a matrix for a chain of transactions, showing the progress of each individual transaction. Again, such a matrix would not reveal confidential or financial information, but it could enable the parties in a chain to see the precise stage each transaction has reached, and where, if anywhere, a particular blockage is occurring. The idea is to make the conveyancing process more transparent.
One possible question is whether the Land Registry is extending its remit by attempting to develop an e-conveyancing system, rather than merely looking at e-registration. Obviously, under the proposed system, an organisation would be charged with overseeing conveyancing. But, again, although the Land Registry might fulfil this task, it is by no means a foregone conclusion. The Law Society, for example, must have some role to play in the process.
So where do we go from here? Of one thing we are sure: the model we start with will not be the system we end up with. We are equally sure, however, that conveyancing must move with the times, and an electronic system is inevitable. The aim of the task force is to build a basic model, and then to consult as widely as possible to ensure that we develop the best system in the world. Earlier this year, we showed our working model to around 1,000 practitioners. Following very constructive feedback, we are now fine-tuning the model. We aim to show the refined model to as many interested parties as possible in order to seek their views. We intend to do this next year, probably alongside a consultation document. This will help to ensure that the system we end up with is simple to use, robust, and, above all, acceptable to the public and the professionals, who make up the conveyancing community. One thing is clear. The government wants the vast majority of services to be available electronically to the public, and it will not allow conveyancing to be an exception.
All property professionals have a choice. They can bury their heads in the sand while an e-conveyancing system is constructed around them. But they would then have no say in its development. The alternative, and one that I wholeheartedly endorse, is for everybody to play a full part in the development of a modern electronic system. If you do this, I believe that we can create a system that is straightforward, secure and reliable, and one that enjoys the confidence of everyone engaged in the property market. And, of course, the client.
