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Registered Providers - Are E-signatures a valid option as a contingency for COVID-19?

For all those working in Housing & Regeneration, COVID-19 poses a concern not only for personal safety of family, friends, colleagues and partners but also for keeping Development Programmes running and 'on-target' and meeting Homes England's March deadlines. We are working with our clients to achieve such deadlines in these challenging times and so we explore in this article the legal and practical elements of utilising E-signatures for Registered Providers.

What is an electronic signature?

In legal terms, an electronic signature constitutes anything in electronic form that is incorporated into or logically associated with any electronic communication or electronic data and which is intended to be used by the person creating it to sign (section 7(2), Electronic Communications Act 2000 (ECA 2000)).

There are three types - simple, advanced and qualified. A simple electronic signature, the most common type may be created when the person signing "writes" or types his name directly into the electronic document. A simple signature may also include a scanned copy of a wet-ink signature or a signature applied via an electronic signature platform such as DocuSign. The more complex forms - advanced and qualified - may depart from the traditional approach and may not even take the form of a written name or symbol being instead ways of verifying who has electronically approved a document using public and private encryption keys

Whichever category of electronic signature is adopted, the fundamental principles of a person signing a document to create a legally binding contract remain, i.e. there must be a clear intention to create legal relations. Furthermore, the person signing the document must have intended to authenticate the whole of the document and be authorised to do so.

Are electronic signatures valid in contracts for the sale or other disposition of an interest in land?

This article focuses specifically on contracts relating to the sale or disposition in land where a signature is a requirement for contractual validity and does not consider other contractual arrangements, most of which do not require writing, let alone signatures.

The signature requirement in contracts for the sale or other disposition of an interest in land is governed by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (LP(MP)A 1989). However, the Act does not explicitly deal with the extent to which electronic signatures will satisfy the signature requirement.

In legal proceedings, the ECA 2000 deals with the admissibility of electronic signatures but remains silent on whether such a signature can satisfy a formal requirement such as that contained in section 2 of the LP(MP)A 1989. Statutory instruments have also been used to amend legislation to enable electronic communications e.g. for companies communicating with stakeholders, but there is no such statutory instrument yet in relation to section 2 of the LP(MP)A 1989.

There have been contrary arguments in relation to an electronic signature satisfying the signature requirement under the Act. In July 2016, a joint working party of the Law Society and the City of London Law Society published guidance on the execution of documents using electronic signatures. The guidance provides that the signature requirement can be satisfied using an electronic signature so long as the signatory inserts the electronic signature in the appropriate place in the document, with the intention of authenticating it.

The Law Commission also published a report on 4 September 2019 which concluded that an electronic signature is capable in law of being used to execute a document provided that the person signing the document intends to authenticate the document and satisfy any execution formalities.

However, in the absence of leading authority on the signature requirement under section 2 of the Act, it is important to ensure that any contract that needs to satisfy this requirement is signed using handwritten wet-ink signatures and not printed or typed signatures[1]. The contract must contain the original signature rather than photocopied or scanned versions[2]. Given this uncertainty - is a Deed the answer?

Can electronic signatures be used in executing transfers and other property deeds?

In order to create a deed, the document must be executed as a deed. This means satisfying the statutory requirements either with section 1 of the LP(MP)A 1989 for an individual or section 44 of the Companies Act 2006 for a company or the equivalent for Community Benefit Societies and Limited Liability Partnerships, etc. The statutes do not specify what the statutory requirement for a signature is.

In instances where an individual executes a deed, they are required to sign the deed in the presence of a witness. Likewise, when a company/RP executes a deed, one director can sign in the presence of a witness or two directors need to execute the deed. A number of RPs still utilise a company seal for execution of deeds, which again needs to be witnessed and recorded in the seal register and is not capable of being applied electronically and needs to be physically witnessed. This raises further questions in relation to electronically executing a deed as to whether both parties need to sign/seal the same electronic version (if the deed is signed by two parties) and if the deed is being witnessed, does the witness have to be physically present in the same room as the signatory or can he virtually witness the signature.

For RPs the execution of Deeds and legal documents is covered in their constitution/Standing Orders/Scheme of Delegation - basically their governance rules. We would suggest checking with your Governance team whether the existing documentation and any Disaster Recovery/Business Continuity plans include contingencies for signatories being unavailable. However although we would anticipate there is some facility built into your documentation the proposal of a lock-down would no doubt not be anticipated when these plans were drawn up. If an RP acts in breach of its Governance rules, not only will there be consequences via the Regulator of Social Housing, but also the contract/deed itself may be deemed invalid.

In instances where the document is to be registered with HM Land Registry (HMLR), this also means complying with HMLR's execution requirements. In relation to a deed transferring land or granting certain leases out of registered land, this is not a mere registration formality. Therefore, for such deeds as to whether they can be executed electronically is dependent on HMLR accepting a deed in such a way. Practice Guide 8 on Execution of Deeds specifies at section 12 that HMLR "will not accept an e-document with an e-signature as a dispositionary deed for registration unless it complies with the provisions of the Land Registration Act 2002 and rules 54A to D of the Land Registration Rules 2003". The 2003 Rules deal with the application to HMLR itself while LRA 2002 specifies at section 91(3) that the conditions for a deed are:

• (a)the document makes provision for the time and date when it takes effect;
• (b)the document has the electronic signature of each person by whom it purports to be authenticated;
• (c)each electronic signature is certified, and
• (d)such other conditions as rules may provide are met.

The certification of the signature within the above is the element which could again pose practical difficulty at the current time. Whilst some e-signing platforms provide a certification service, it is important to make sure before using one that the results will be acceptable to HMLR.

What is the practical impact on Registered Providers?

Physical witnessing?

In relation to executing deeds, the Law Commission has concluded that in accordance with the current law, a deed must be signed in the physical presence of a witness. It is not clear if a deed can be validly executed in the physical presence of a witness in circumstances where the parties are using electronic signatures. In the current circumstances where there is a need to avoid contact with others, the requirement of a witness to be physically present may pose problems.

CFG 'secure legal interest'?

For documents such as contract for sale or disposition of an interest in land, where a cautious approach is to be adopted to preserve the validity of the contract, electronic signatures may be a risky option if the contract is specified to be signed 'under hand' rather than 'executed as a deed' (see below re. Governance on deed execution). Also, as the Capital Funding Guide requires a 'secure legal interest' in the property to draw-down grant at various stages it is clear that the minimum requirement is a 'binding contract' and given the lack of clarity on this point, where electronically signed, a solicitor might not be in a position to provide a 'Certificate of Completion' for draw-down purposes on this basis.

E-signature platforms?

Other practical considerations with utilisation of e-signatures is of course potential for cyber fraud and we would suggest checking with your IT teams the veracity of such before implementing such a scheme, additional security measures e.g. a pin number may be needed. This is also something your IT team will be keen to consider when looking at various e-signing platforms which tend to be cloud based. Some e-signing platforms provide a witnessing service although it is not always clear if these are sufficient - the witness needs to see the person sign and be physically present. Pre-identification is also required which can be time consuming and sometimes require provision of original documentation to do so. Please click here to read our more up to date article 'Executing deeds the 'Mercury' Way' following Land Registry's guidance update regarding submission of electronic signatures which assists with some of the concerns around these platforms but does not provide a solution to execution of deeds where witnessing is required in a lockdown situation.

Governance?

Authorisation and any specific requirements in Standing Orders or Rules will have to be reviewed carefully to make sure they allow for any different method being used to sign contracts or execute deeds. Going outside a specific rule which requires deeds to be sealed (for example), might cause additional obstacles and so we would suggest each is reviewed on a case by case basis. There may be required urgent amendment to existing Rules to enable e-signatures and also perhaps witnessing by a wider range of people. Please do get in touch if you would like our assistance with this and with the formalities needed to change Rules.

[1] (Firstpost Homes Ltd v Johnson [1995] 1 WLR 1567)

[2] (Butts Park Ventures (Coventry) Ltd v Bryant Homes Central Ltd [2003] EWHC 2487 (Ch))

For more information contact Jennifer Hankinson or Daniel Milnes. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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