Electronic execution: An essential updatePrint publication
The demand for modern, convenient methods of entering into binding transactions, combined with challenges presented during the COVID-19 pandemic, have rapidly led to electronic signatures becoming the standard method of executing transactions. However, where documents require execution as a deed (such as land transfers, charges, and some leases, for example) witnessing and attestation must be done in person, leaving the law in a curious position in which the efficacy of e-signatures hinges on the context in which their use is required.
Furthermore, while EU legislation and the UK courts accept electronic signatures as valid, and HM Land Registry is moving towards digital conveyancing as a matter of policy, the Electronic Communications Act 2000 does not expressly allow electronic signatures.
The Law Commission has sought to address the legal uncertainty surrounding the electronic execution of documents with a series of recommendations, the content and effect of which are outlined in this earlier Walker Morris briefing.
Even more recently (1 February 2022), an Industry Working Group on Electronic Execution of Documents has published an interim report, which explains the current situation in England and Wales (including how the formal requirements for some common documents can be fulfilled) and offers best practice guidelines based on existing technology.
In this article, Walker Morris’ Commercial Dispute Resolution and Real Estate specialists Claire Acklam, Louise Norbury-Robinson and Charlotte Spowage, summarise where we are now with electronic execution.
Electronic execution: What you need to know
• The Law Commission has confirmed that the law of England and Wales, as it stands, allows land contracts and deeds to be validly executed with an electronic signature.
• Section 91 of the Land Registration Act 2002 (which allows for certain electronic documents to be regarded as a deed) and Land Registry policy and practice together provide that certification of electronic signatures, which involves the stringent verification of the identity of the person providing the digital signature, can take the place of the traditional ‘wet’ signature and attestation process.
• In July 2020, HM Land Registry announced that it accepts dispositionary deeds (such as those transferring or creating leases and securing mortgages) that have been signed with a witnessed electronic signature. For these types of deeds to be accepted by HM Land Registry, all parties must agree to use electronic signatures and have a conveyancer acting for them who will be responsible for setting up and controlling the signing process through a suitable platform (such as DocuSign).
• In many cases, however, the physical presence of a witness is still required.
• The Company Law Committee of the Law Society published some Q&As in January 2021 on how to use electronic signatures and, in turn, how to complete virtual executions. Given that no substantive solutions have yet emerged which provide concrete clarity in the sphere of witnessing electronic signatures, the Q&As provide a transparent and interpretable reminder of the current position. Some of the more pertinent questions/answers include:
Does a witness need to be physically present at the location of the signatory? Can they witness via video link?
A witness must be physically present to validly witness the signature of a deed (whether or not the signature is electronic). If a person is isolating or social distancing, potential workarounds include witnessing through a window or in an outside public space.
Can a witness apply the electronic signature of a person entering into a deed to enable the witness to physically witness the application of the signature when not in the same place as the signatory?
Can a family member, solicitor or advisor witness a signature?
Yes. However, they may not if they are a party or the document explicitly requires the witness to be an independent person. It is worth noting that the same person can act as a witness for more than one signatory on a document, but two parties (such as a married couple) cannot witness each other’s signature. Where the witness is closely related to a signatory or is a minor, the evidentiary veracity may be diminished. A solicitor or advisor may also act as a witness.
What is the preferred method of electronic signature?
Parties should pay attention to the evidential weight of a particular method to demonstrate a signatory’s intention to sign. While different methods are considered to be legally effective, an e-signature platform is evidentially strong and less vulnerable to fraudulent activity.
Can a valid signature be achieved by attaching a contract to an email, and using the signature/agreement in the body of the email?
Yes. As long as the contract does not need to be executed as a deed, there are no other formalities for execution, and no requirement for filing with a registry. From a practical point of view, the email should contain a statement that it constitutes signature and include the signatory’s typed name or email signature, or, alternatively, the signatory can type their name into the soft copy.
Can one person apply another’s signature electronically (for example, a PA on behalf of a Director)?
Yes, provided the signatory is acting as an individual and had been given valid authority to insert the signature. For a deed, this authority can only be given by deed. In relation to simple contracts, written authority should come from the individual whose signature is being applied. This approach is not valid where a deed or document is executed by a company, however, as s44 Companies Act 2006 requires signature “by” and not “on behalf of” a company director or secretary.
Are signings using a combination of execution methods permitted?
Yes. English law-governed documents may be signed using a combination of different methods provided that each party uses a valid signature method. For example, a party could sign a counterpart with an image signature, while the other signs a counterpart in wet ink. There are a number of good practice recommendations around confirming originals.
Can you use electronic signatures on board minutes and resolutions?
Yes. It is worth bearing in mind, however, that where e-signatures are used to pass board decisions which have been made outside a physical meeting of the directors, the tax residence of the company and evidentiary weight should be considered.
Do articles of association or board resolutions need to authorise use of electronic signatures?
No. In fact, the drafting may make referring to electronic signatures more restricted than required.
Is it necessary for documents to contain a statement that electronic signatures are legally valid?
Is any additional evidence required of electronic signature or witnessing?
No. It is worth mentioning, however, that registrars may demand some degree of evidence of the validity of electronic signatures beyond those required for wet ink (as, for example, the Land Registry does with dipositionary deeds).
Industry Working Group best practice
As of the beginning of February 2022, the IWG has recommended further reform, including the creation of a cross-border database of permissible execution methods, and the ability for as many types of official documents as possible to be executed electronically (including, for example, Lasting Powers of Attorney and wills). In the meantime, the IWG has confirmed that key best practice includes:
• Parties should agree as early as possible that documents will be executed electronically and the procedure for doing so. (Where possible, multiple options should be provided so that all parties/counterparties can adopt a suitable method of electronic execution.)
• Parties should use a signing platform which provides at least minimum standards of security and functionality, including a strong audit trail and evidence of the parties’ intention to sign.
• In addition, parties should always consider whether additional evidence to record the signatory’s approval of the document is necessary or appropriate.
Following on from the Land Registry’s 2020 landmark move towards allowing deeds signed with an electronic signature to be registered, it recently began piloting the use of qualified electronic signatures (QESs). QESs do not need to be witnessed, which means that they could be a ‘game changer’.
QESs are created using sophisticated technology and meet higher standards of security, meet stricter validation criteria, and are supported by a detailed certificate . QESs allow signatories’ identities to be verified by a qualified trust service provider, in theory removing the requirement for individual signatures to be witnessed by replacing the assurance that a witness usually provides. QESs do not yet fall within the types of signatures accepted by HM Land Registry. However GlobalSign has now been approved by the Information Commissioner’s Office as the UK’s first qualified service provider, so the wide-scale adoption of QESs could soon be on the horizon.
How we can help
Whether in connection with e-conveyancing or the execution of any other legal documentation, electronic execution is ‘one to watch’. Law and practice in this area are currently very much in flux. Walker Morris will continue to monitor and report on key developments.
If you have any queries or concerns in the meantime, please do not hesitate to contact Claire Acklam or Louise Norbury-Robinson from our Commercial Dispute Resolution team, or Charlotte Spowage from our Real Estate department.
For further advice and information, please also check out Louise Norbury-Robinson’s short video guide to e-signatures.