Land Registration Act 2002: System for E-Conveyancing

Introduction

When Lord Irvine of Lairg, the then Lord Chancellor, introduced the Land Registration Bill 2002 to the House of Lords, he stated that the reforms sought to ‘make home buying and selling quicker, simpler and cheaper’^[1]. The legislation was passed with considerable speed as the Government sought to fulfil its manifesto pledge to improve house buying^[2] but also on account of the politically attractive nature of e-conveyancing, in line with policy drives towards modernisation and the increased use of technology. It has been suggested that without e-conveyancing, the vast piece of legislation would not have been enacted at all^[3]. At any rate it is clear that e-conveyancing was the driving force behind the legislation. Consequently it is possible to analyse the principle changes that the Act brings about in terms of providing the necessary structure in preparation for e-conveyancing.

Land Registration Act 2002: A Framework for e-conveyancing

Universal Registration

Essential for the implementation of e-conveyancing is the drive towards universal registration. The triggers for compulsory registration contained in s123 of the Land Registration Act 1925, already extended by the Land Registration 1997 have therefore been further increased by the Act. Leasehold estates granted for more than 7 years must be registered^[4] bringing business leases onto the register. The Lord Chancellor is given the power to alter this section to allow for leases of a lesser time to be compulsorily registerable^[5]. Moreover there are increased occasions for voluntary registration with the incentive of a fee concession. Profits à prendre in gross, rentcharges and franchises are registerable but dealings with manors, and grants of and dealings with PPP leases are not. The Crown is given the power to grant itself a fee simple out of land held in demesne in order to register the title to it by LRA 2002 s79, (as well as specially extended powers to protect land by lodging a caution against first registration, s81). This goes someway towards disposal of the feudal system. However unregistered land in the absence of any disposition or dealing concerning it is to remain unregistered. It is apparent that if all unregistered land were to be subject to the same incentives to register there would be too much strain on the system. “It is clear that the pursuit of phasing out all unregistered land will be an active one and tempered only by the capacity of the Registry.”^[6] Moreover the changes to the law on adverse possession which set about ‘squatter proofing’ registered land no doubt will be a huge incentive for proprietors to voluntarily register their land.

Overriding Interests

The Law Commission saw the existence of overriding interests as a ‘major obstacle’ to its reforms^[7] but the desire for the register to be a complete and accurate reflection did not lead to overriding rights being abolished all together^[8]. Instead they have been significantly reduced with more to be phased out over time^[9]. ‘Interests which override’ (as they are now called) come under Schedule 1 and 3 of the Act, those which override first registration and those which override a registered disposition respectively. Rights that override first registration are broader in scope, the rationale being that the act of registration should not of itself increase or reduce rights. Rights include leases of up to seven years, easements and profits and interests of persons in actual occupation. ‘Actual occupation’ under Schedule 3 will not produce rights that override in two circumstances: – when enquiries are made of the right-holder, and he fails to disclose the right when he could reasonably be expected to disclose it, or when actual occupation is not obvious on reasonable inspection of the land, and the person bound by the right does not have actual knowledge of the interest at the time of disposition^[10]. Some commentators have expressed concerns about the potential for imaginative interpretation from a results-orientated judiciary regarding what might be a reasonable circumstance for not disclosing, or what constitutes a reasonable inspection of the land^[11], but it is hoped that the Law Commission report and its explicit objective of minimising occasions when interests can override will keep in check such tendencies as this will be vital to attaining a universal system of e-conveyancing as set out in the Act. It has been stated that “(the) guiding principle on which [the Act] proceeds is that interests should be overriding only where it is unreasonable to expect them to be protected on the Register.” ^[12] A balance is therefore struck, protecting the needs of parties in such circumstances.

Mirror principle

The major reforms to registration, adverse possession and overriding interests therefore set about alleviating the so-called ‘crack in the mirror’ so that the register is a more accurate reflection of the interests in land. As such the Act sets out to assuage the complexity arising from the law of property’s piecemeal development and its inadequacies in terms of extensive overriding interests and in dealing with the registration gap, whereby we find different effects of completion depending upon whether land is registered or unregistered and with the former the potential for overriding interests arising in the period in between completion and register of transfer. The Act thus seeks to enable a smoother transition into electronic conveyancing.

LRA 2002: e-conveyancing provisions

Part 8: Electronic Conveyancing

The Act lays down the framework for the switch over from paper conveyancing, but it does so on the basis that it will be gradual. The provisions come under Part 8 of the Act and are enabling rather than implementing provisions. The practicalities are dealt with on a basic level, section 91 sets out the formalities for electronic dispositions, disapplying some of the formal requirements of conveyancing^[13] and building upon previous legislation^[14] to enable deeds to be signed electronically. Section 92 bestows the power on the Registrar to set up an electronic communications network for the purposes of e-conveyancing and registration. Schedule 5 provides more detailed provisions for this land registry network, predicting some of the security issues that might arise with regards to access. For example, the schedule sets out that a non-member of the registry will need to be conferred authority by the registrar in order to access the network to communicate, post or retrieve information, to make changes to title or cautions, to issue search certificates or copies or for other conveyancing purposes. The registrar’s powers over access are outlined in broad terms without specific detail. He may allow such conveyancing purposes and on such terms as he ‘thinks fit’. He has a duty to provide such assistance to do-it-yourself conveyancers ‘as he thinks appropriate’; he may delegate his functions for monitoring information ‘to such conditions as he thinks fit’. Clearly the provisions are skeletal and are designed to be fleshed out by secondary legislation, when more of the practicalities have been considered through the consultation process (which has been ongoing since before the Act went through Parliament.)

Section 93 grants the Lord Chancellor, subject to consultation and the approval of Parliament, the power to make rules to require simultaneous completion and registration of a transaction, a ‘red button’ provision that will activate compulsory electronic conveyancing. This provision encompasses contracts as well as dispositions. Section 94 states that “the registrar may take such steps as he thinks fit for the purpose of securing the provision of a system of electronic settlement in relation to transactions involving registration”, very much again a loose rather than elucidatory provision, anticipating but not defining that further action will be required. Section 95 is a supplementary provision suggesting that further rules may make provisions about the communication of documents in electronic form to the registrar and the electronic storage of documents communicated in electronic form.

Essentially the provisions in Part 8 identify but do not dispense with the practicalities of e-conveyancing. It was clearly envisaged that secondary legislation was to provide the detail and that the crossover from paper to electronic media would be gradual. The transfer of records to electronic format has indeed already been taking place over a number of years.

E-conveyancing will be introduced initially as an alternative to traditional conveyancing but it is anticipated that its simplicity and speed will encourage its uptake. The Act’s explanatory notes^[15] admit that some of the benefits that it will provide can only be maximised when it is used universally. Consequently the Act gives the Lord Chancellor power to make the use of electronic means for conveyancing compulsory. Practitioners are reassured that this will only be the case when electronic conveyancing has become much the most usual way of effecting transactions.

The plan for implementation

Various elements of e-conveyancing technology are necessary to supplement the broad framework provided for by the LRA 2002, in particular provision for electronic signatures and electronic funds transfer (EFT) which will enable automatic and simultaneous transfer of funds when all funding is confirmed as being available for payments between buyers, sellers, lenders and conveyancers as well as Stamp Duty, Land Tax and Land Registry Fees.

These have been the subject of extensive consultation and consideration. The timescales envisaged in the 2003 Consultation were optimistic and the pilot scheme has only just now come into force^[16] without the availability of EFT at present. The Land Registry has proceeded with caution, particularly in light of the concerns expressed about potential dangers arising from the new system as voiced by both practitioners and academics. It is clear that it is regarded as essential that the infrastructure for e-conveyancing is as robust as is possible, before it is activated on any appreciable scale.

The first major technological implementation came with the launch of Land Register Online in March 2003 which is an internet based service for the general public to access information from the Land Register. This is a purely informative piece of software that does not enable users to make alterations, but is indicative of the progress that has been made in transferring the register to a computerised format. Additionally the Land Registry has been running an ‘e-lodgement’ service which allows lodging electronically for applications for simple updates to the register.

The next stages in implementation are the Tranche projects, the first of which is underway at present in Portsmouth, Fareham and Bristol ^[17]. It is a limited prototype service which is essentially “to test its usability, appearance and how it behaves for a conveyancer using it as part of his or her day-to-day activities”^[18]. The main part of the pilot that is up and running is the Chain Matrix – a web-based notice board tracks the progress of a chain of residential property transactions^[19].

The second Tranche is expected to take place later in the year and should include electronic signatures, notional register for seller and purchaser, precompletion requisitions and third party access through case management software^[20].

Dangers

Security and fraud

Concerns have been expressed regarding the security of an electronic storage system and the potential for a higher risk of mistake or fraud. The Law Commission has reassured critics that great lengths are being gone to in order to avoid this and that old-fashioned paper conveyancing is itself not immune to fraudulent transactions. Security will be a high priority when e-conveyancing is launched as the Registry guarantees title and hefty indemnities might otherwise be the consequence.

Security and the potential for fraud are concerns but electronic dealings have been taking place in the Stock Exchange under the CREST system without giving rise to serious problems.

Electronic signatures

One major aspect arises from the use of electronic signatures which under section 7 of the Electronic Communications Act 2000 have the same force of law as a written signature. Given the prevalence of identity theft and internet fraud, particularly as portrayed in the media, it is hardly surprising that this has attracted the interest of critics to the new system, given the high value of property transactions. The system proposed is that which has been used elsewhere in e-commerce, that of a public and private key system issued by a certification authority (CA) whereby a document is authenticated by a public key on the recipient’s computer via a mathematical calculation that unencrypts the private key, which remains soley in the possession of the sender^[21]. This provides a high level of security in terms of document exchange and interception from outside of the conveyancing network. Internally, there would still be the issue of who is granted access to the system and how the system will be governed internally. Security would be only as tight as the mechanism by which delegation of a private key is regulated. For these purposes, the use of a swipe card system has been proposed enabling the conveyancer to control use of the private key. This still however leaves scope for individual conveyancing practices permitting loose access among staff. It is hoped that the network access agreements (as conceived in Part 8 LRA 2002) –ensuring that the network only is accessible to contractually authorised solicitors, licensed conveyancers, estate agents or mortgagees will put pressure on practices to instigate internal security mechanisms for swipe card access. In terms of the actual register and external threats from hackers, it is envisaged that a secure intranet will link solicitors who are party to a Network Access Agreement with the land registry, an intranet not facing the same external threats as the internet does.

Reliability

The idea of completely doing away with paper records in favour of computerised records causes apprehension amongst commentators about the permanence of an electronic storage system. The concern is expressed by Jean Howell:

“It is difficult to imagine the computerised dematerialised records created in the 21^st century having the same authority in the 22^nd (or even 23^rd) century as documents which today still underpin title to land. Under the present system, if the register were to cease to exist tomorrow, title to a considerable proportion of property could be reconstructed from documents held by the parties.”^[22] This is a valid but overstated point. It assumes that computerised conveyancing will result in a completely ‘dematerialised’ process. It seems unlikely in the opinion of this author that conveyancing will ever become entirely paperless, as paper documents play a practical role in ease of access and duplication. Rather the paper document will no longer be proof of title, but merely an image of what is on the electronic register.

Correction of mistakes/fraudulent conveyances

A further concern arises from the small but anticipated amount of rogue conveyancers who seek to profit financially from fraudulent transactions, the effect this will have on the register and the effect of the entry for the proper proprietor given that transfer of title is effective upon registration. Schedule 4 of LRA 2002 provides for rectification of the register in these circumstances. It states that the court may make an order for alteration of the register for the purpose of correcting a mistake. The Law Commission’s explanatory notes (paragraph 630) state that a fraudulent transfer would come under this provision. The example given is that if X has forged Y’s signature on a certificate for transfer and has been registered as the proprietor of Whiteacre, the court could make an order for Y to be reinstated as registered proprietor.^[23]

Concern over liability of Land Registry

Further concerns have been raised over the issue of responsibility and liability for the register arising out of the fact that persons other than the registrar will be able to make entries^[24] and the repercussions for professional indemnity insurance. In the same vein it has been queried whether solicitors will bear the liability for fraudulent clients^[25]. The Law Society has supported the assertion that the burden of proof should be on the Land Registry to show that a practitioner has acted fraudulently or negligently before being liable for clients. ^[26]

It is apparent that there are still potential dangers that arise out of the government’s plans for e-conveyancing, but these are being addressed through consultation. It is likely that these will largely come to the forefront during the Tranches and any problems can be dealt with at this stage. While security issues from the use of Information Technology do arise, these may be overstated through a fear towards and suspicion of the unknown. In reality there is no reason, given the effort that is being put towards ensuring security that electronic conveyancing should be any less secure than paper conveyancing.

Conclusion

The last major upheaval to the house buying and selling process occurred with the introduction of the 1925 legislation. It is worth recalling the suspicion with which it was then regarded -“an interloper, polluting the purity of the historic principles of property law”^[27]. Moreover it is ‘estimated that as many as 40% of all practising solicitors chose to retire rather than face the gradual removal of all that was familiar and comfortable’^[28]. It is unlikely that any one now would seek a return to the clutter and confusion of title in the nineteenth century. The attachment therefore among practitioners and academics alike^[29] once again to an outdated, cumbersome system may seem somewhat surprising.

The reaction to the proposals for e-conveyancing have highlighted the perceived dangers but have also appreciated the potential benefits. There are cost savings to be made for parties to the transaction. The process of house buying and selling will be quicker alleviating much of the stress associated with the timescale between when an offer is informally accepted and completion, currently an average of 13 weeks.^[30] Moreover it will be more transparent. Buyers and sellers will be able to access the progress of each transaction on the chain through a chain matrix. This will also enable chain management through the earlier involvement of the Land Registry in transactions. The terms of a contract for sale of a house can be sent electronically to the Land Registry and inconsistencies ironed out. It is anticipated that there will be a reduction in clerical errors, as currently around 50% of all applications lodged with Land Registry prove to be defective.^[31]

Of course, the main advantage that a universal system of electronic conveyancing will provide is that it will remove the registration gap. Completion and registration will be simultaneous, although this will be dependent on development of a simultaneous payments system^[32]. Once in place this will eliminate the danger of overriding interests arising without the buyer’s knowledge, and remove the gap between payment of money and acquisition of legal title.^[33] It is a benefit that cannot be overstated. The increased certainty thus afforded to buyer and seller, together with the potential for lower costs and moreover significantly faster conveyancing transactions are benefits which outweigh the initial costs to practitioners of updating equipment and software for electronic capabilities and the inconvenience of changing their practices.

Consequently, given the clear benefits and the potential for reducing the stress associated with what is commonly regarded as one of the most traumatic common life experiences, e-conveyancing should be embraced and not opposed on account of perceived threats associated with technology. It is time for the outdated 1925 legislation, rooted in medieval concepts, to be superseded, and replaced by legislation that reflects the technological advances of the twenty-first century, and the reality of title to land as it now exists^[34]. The present time is one of transition; e-conveyancing is now inevitable. Conveyancers can choose to upgrade their systems and become accustomed to the new methods or else risk falling by the wayside. Active involvement and experimentation with e-conveyancing will contribute to its implementation as a universal system being a smoother process. Dissent and inaction will not halt the development of electronic conveyancing.

Bibliography

Abbey, R. and Richards, M. (2002). Blackstone’s Guide to the Land Registration Act 2002, OUP.

Abbey, R. and Richards, M. (2004). A Practical Approach to Conveyancing, OUP.

Burn, E. H. (2004). Maudsley & Burn’s Land Law -Cases and Materials, OUP.

Bogusz, B. (2002). “Bringing Land Registration into the Twenty-First Century –The Land Registration Act 2002.” Modern Law Review 65(4) p556-567

Capps, D. (2002). “Conveyancing in the 21st Century: An Outline of Electronic Conveyancing and Electronic Signatures.” Conveyancer and Property Lawyer September/October: 443-455.

Chamberlain, L. (2005) “Early learning is key” Estates Gazette 0548, pp218-219

Chamberlain, L. (2006) “E-conveyancing Tranches” New Law Journal 156:7225 p 825.

Chappelle, D. (2004). Land Law, Pearson.

Clarke, I. (2002). The Land Registration Act 2002, Sweet & Maxwell.

Clarke, I. (2004). Wolstenholme & Cherry’s Annotated Land Registration Act 2002, Sweet & Maxwell.

Cooke, E. (2002). “Land Registration Bill 2001: Legislative Comment.” Conveyancer and Property Lawyer: 11-34.

Cooke, E. (2003). The New Law of Land Registration, Hart.

Dixon, M. (2003). “The Reform of Property Law and the Land Registration Act 2002: Risk Assessment.” Conveyancer and Property Lawyer:

Dixon, M. (2003), “The Land Registration Act 2002” Student Law Review 40 (Aut) pp 56-57.

Harwood, M. (1991) “Law of Property (Miscellaneous Provisions) Act 1989 S2-S40

Howell, J. (2006) “Land Law in an E-Conveyancing World”, Conveyancer and Property Lawyer Nov/Dec pp 553-576.

Kenny, P. (2002). “The Conveyancing Revolution.” Conveyancer and Property Lawyer: 3-4.

Smith, R. (2003). Property Law: Cases and Materials, Longman.

Sparkes, P. (2003). A New Land Law, Hart.

E-conveyancing- A Land Registry Consultation, (2003), Land Registry

E-conveyancing- A Land Registry Consultation Report, (2003), Land Registry

Land Registration for the Twenty-First Century – A Conveyancing Revolution, (2001) Law Com. No. 271

Land Registration for the Twenty-First Century: A Consultative Document, (1998) Law Com. No. 254

Land Registry Launches Key Milestone for E-Conveyancing in Fareham, Bristol and Portsmouth, Land Registry Press Release LRP09/07 (3^rd March, 2007)

Minister Gives ‘Green Light’ to E-Conveyancing, Land Registry Press Release LRP08/04 (22^nd July, 2004)

The Strategy for the Implementation of e-Conveyancing in England and Wales: An e-conveyancing programme management paper, (2003), Land Registry

Housing Act 2004 Explanatory Notes www.hmso.gov.uk/acts/en2004/2004en34.htm accessed: 4th April 2007

Land Registration Act 2002 Explanatory Notes www.hmso.gov.uk/acts/en2002/2002en09.htm accessed: 4th April 2007

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Footnotes

^[1] 25^th June 2001.

^[2] Sparkes (2003) p 10

^[3] Cooke (2003) Ch 8

^[4] LRA 2002 s4(2)(b)

^[5] LRA 2002 s5(1) It is envisaged by the Law Commission that it will be reduced to 3 years : Law Com No. 271

^[6] Clarke (2004) para 2-009

^[7] Land Registration for the Twenty-First Century – A Conveyancing Revolution, (2001) Law Com. No. 271, para. 1.10

^[8] By necessity human rights had to be taken into account in reduction of overriding interests. (Law Com. No. 254 paras 4.27-4.30

^[9] LRA 2002 s174- mostly rights which can no longer be created such as manorial rights.

^[10] ‘Actual occupation’ as in both Schedule 1 and 3 reverses Ferrishurst Ltd v Wallcite –the rights of a person will override only to the extend that they coincide with the occupation.

^[11] Dixon (2003) 136; Cooke (2003) Ch 9.

^[12] Law Com No 271 para 2.24.

^[13] controlled by s53 LPA 1925 and the Law of Property (Miscellaneous Provisions) Act 1989.

^[14] Electronic Communications Act 2002 s8.

^[15] Explanatory Notes to the Land Registration Act 2002 –note 12.

^[16] Land Registry Launches Key Milestone for E-Conveyancing in Fareham, Bristol and Portsmouth, Land Registry Press Release LRP09/07 (3^rd March, 2007)

^[17] Chamberlain (2006) p 825

^[18] ibid

^[19] Land Registry Launches Key Milestone for E-Conveyancing in Fareham, Bristol and Portsmouth, Land Registry Press Release LRP09/07 (3^rd March, 2007)

^[20] op cit 16

^[21] Capps (2002) p 445

^[22] Howell (2006) p 557

^[23] Explanatory Notes para 630.

^[24] E-conveyancing- A Land Registry Consultation Report, (2003), Land Registry, para 4.3

^[25] ibid 4.15

^[26] ibid

^[27] Dixon (2003) p 136.

^[28] Dixon (2003b) p 57

^[29] Such as Martin Dixon’s reaction “It is with a tinge of regret (albeit transient)…” ibid.

^[30] ibid

^[31] The Strategy for the Implementation of e-Conveyancing in England and Wales: An e-conveyancing programme management paper, (2003), Land Registry p 9.

^[32] ibid p 14

^[33] Further advantages of universal e-conveyancing are the automatic resolution of the issue of priorities and the potential for facilitating chain management.

^[34] “The intention of the Law Commission was (and is) that future developments should grow from this reality rather than the historical position that existed in 1925 when, of course, the majority of titles were unregistered.” Abbey, R. and Richards, M. (2002) p2.