Why do real estate lawyers ask for deeds to be signed in “wet ink”?
The facility agreement is finally agreed. The execution versions of the ancillary documents have been deftly zipped and are ready for email circulation to the wider team. A real estate lawyer interjects that the charge needs to be executed in “wet ink” and the original document sent by post. The invariable incredulity arises as to what makes real estate different from other areas of law, requiring hard copy documents and original signatures.
The situation is even more particular on pure real estate transactions such as the sale and acquisition of property, the completion of leases, deeds and easements etc. Execution version documents, referred to as “engrossments” by real estate lawyers, are sent out in hard copy for signing in original (the part signed by seller or landlord) and counterpart (the part signed by the purchaser or tenant). A typical journey of the counterpart engrossment would take it from the hands of: (1) the seller / landlord’s solicitor, to (2) the purchaser / tenant’s solicitor, on to (3) the purchaser / tenant for signing or executing, back to (4) the purchaser / tenant’s solicitor so the document can be dated, and then finally back to (5) the seller / landlord’s solicitor to retain the document or pass it to their own client.
The reason for this relatively cumbersome process is that sellers historically would need to hold all deeds and documents relating to their property in order to evidence good title to a buyer. Although compulsory registration of land was gradually introduced in the second half of the last century across England and Wales, the Land Registration Act 2002 significantly expanded the types of transactions that would trigger compulsory registration. The number of registrations increased considerably thereafter and HM Land Registry required the original title documents and deeds (or certified copies of the originals) in order to register the land for the first time.
The system has remained largely unchanged in the intervening years for subsequent transactions. HM Land Registry has been slower than other bodies to permit the use of electronic signatures, but the impracticality of such a system in COVID-19 times hardly needs pointing out.
What changes has lockdown necessitated?
Before lockdown, when transaction timings were tight, parties might agree to circulate engrossments in soft copy. The authorised signatory would then print the engrossment for signing, i.e. skipping straight to (3) in the stages above.
Where it was urgent for completion to take place as soon as possible, the authorised signatory could send a scan of the signed document, and the document would be dated on the basis of the scan. On the completion call, the parties would agree to send the originals as soon as possible after completion. While this option did not do away with stages (4) and (5) above, it did at least delay them until after completion. This option, however, was only used in limited circumstances. Parties were unwilling to risk the originals not being received following completion when HM Land Registry still required originals or certified copies for registration purposes.
The voices of conveyancers persistently asking HM Land Registry to review its policies grew ever more urgent once lockdown was announced. Finally, HM Land Registry announced that, from 4 May 2020, not only would it accept documents signed using scanned signatures as above, but it would also accept certain deeds and documents signed using the “Mercury” signing approach as follows:
- STEP 1 – Final agreed copies of the deed / document are emailed to each party by a conveyancer.
- STEP 2 – Each party prints the signature page only and signs the signature page (in the case of deeds, in the physical presence of a witness who also signs the signature page).
- STEP 3 – Each party emails its conveyancer attaching the final agreed copy of the document (see STEP 1) and a PDF / JPEG or other suitable copy of the signed signature page.
- STEP 4 – The conveyancing transaction is completed and the conveyancer applies to register the transaction at HM Land Registry. The final agreed copy of the document and the signed signature page or pages in the form of a single document must be included with the application.
This process has the clear benefit of doing away with all stages (1) to (5) of pre-lockdown days, other than the requirement that someone has to sign in “wet ink” at stage (3). It further ensures originals never need to change hands.
Problem solved? Unfortunately, it is not quite so simple.
- Electronic Signatures
The Mercury signing approach only goes so far. It still requires the stage (3) “wet ink” signature, so will only work if signatories have access to a printer and scanner. In almost all circumstances, as matters stand currently, HM Land Registry does not accept electronic signatures. If a document does not need to be registered at HM Land Registry, this is less of a concern. The Law Commission published a report in September 2019 on executing documents using electronic signatures and this report was endorsed by the UK Government in March 2020. As a result, electronic signatures are now capable of being used in law, provided the person signing electronically intends to sign and be bound by the document they are signing, and provided also that any formalities in relation to execution are satisfied, for instance, if a signature needs to be witnessed. Different execution methods can also be used on the same document (for example, one party signs electronically and the other follows the Mercury approach).
Conveyancers should, of course, always be consulted if the signatory signing by electronic means is not an entity incorporated in England or Wales. There may also be difficulties where documents need witnessing. For this reason, though we have unquestionably seen an increase in requests for electronic signings, for the moment this has been largely limited to agreements and letters.
If a witness is attesting a signature, they need to be in the physical presence of the signatory when they do so. It is not clear whether presence electronically (e.g. on Skype / FaceTime or similar) is sufficient to satisfy the statutory requirements, so conveyancers are tending not to rely on it. It should be possible for a witness to attest the signature whilst still observing social distancing – the signatory can sign the document with the witness at an appropriate distance, put the document down and move away, allowing the witness to move in and sign the document.In most cases a witness can also sign the document separately, at a later time, as long as it physically saw the signatory in the act of signing. The witness cannot, however, sign in attestation of a signature before the signatory has actually signed.
- Statutory Declarations
Related to witnessing is the issue of statutory declarations. These are most commonly used in real estate transactions where a lease is to be contracted out of the security of tenure provisions contained in Part II of the Landlord and Tenant Act 1954. Unless the parties are prepared to wait for 14 days after an exclusion notice is served, a statutory declaration must be sworn before an independent conveyancer or a person authorised to administer oaths. The Law Society has said that, “in the absence of any prescribed requirements or case law, it remains the custom for the declarant to be physically present before the solicitor or commissioner of oaths at the time of taking the declaration“, so most landlords’ conveyancers do not accept statutory declarations sworn over virtual platforms.If timings allow, therefore, the straightforward declaration procedure should be followed instead. This requires only that the person authorised by the tenant sign a simple declaration, without any requirement for swearing before a conveyancer. If this procedure is followed, the landlord’s notice relating to the declaration must have been served at least 14 days before the declaration is signed, which needs to occur before the lease can be completed.
It is not yet clear whether the Mercury signing process outlined above will be permanent; HM Land Registry has said only that it will accept documents signed by this means “for the time being“. It is therefore likely that solicitors will continue to ask for the originals where possible and practicable, albeit they might only be sent once lockdown eases sufficiently for it to make sense to do so.
Given the relatively new adoption of electronic signatures, the fact that they are not able to be used on documents requiring registration and the complexities of deeds that require witnessing, it is also likely that, for the time being, most documents will continue to be signed in “wet ink”. As people grow more familiar with the process, however, we anticipate electronic signatures gradually becoming more widely used. HM Land Registry commented in a recent blog post that it is exploring electronic signature options to use for signing deeds and so we are hopeful that HM Land Registry will relax its policy on this as well.
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