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            Technology is the answer to modernising the land registration process

            Since the start of the 21st century, the whole structure of our economy has been transformed as a result of technological advances in information and communications technologies, and we now live in a world which is digitally connected and where time and geography have become increasingly irrelevant.

            Date: 12/07/2019

            Our economy has adapted alongside the development of these new technologies, and is now much more demanding for its participants. Information is transferred instantly and any delays in the processing of transactions can have significant financial implications.

            The land registration system in England and Wales has developed over the course of many centuries. The system was most recently updated by the Land Registration Act 2002 which brought in significant reforms with a view to modernising the system.

            Unfortunately, the sheer extent of the digitalisation that has taken place since 2002 could not have been foreseen when the Land Registration Act 2002 was enacted, and the changes that were brought in by that Act are no longer sufficient to cope with the greater demands which have been placed on the system.

            The Law Commission has recently undertaken a review of the Land Registration Act 2002 to identify if it is still fit for purpose. They published their findings in 2018, and concluded that some aspects of the act "are unclear, or inefficient, or have unintended outcomes" and that "technology has not developed in the way that was predicted". Whilst they acknowledged that the land registration system is not perfect, the recommendations that they have made focus on improving the operation of the technical aspects of the act, rather than altering the underlying principles. They have not "sought to reformulate the Act, but to improve specific aspects of its operation while leaving the general framework of Act intact".

            By their actions, the Land Registry appear to have acknowledged that the current land registration system is in need of modernisation, and in 2017 made a commitment "to become the world’s leading land registry for speed, simplicity and an open approach to data", looking at how technology will change the way they work. A core limb of the Land Registry's 2017-2022 Business Strategy is 'Digital Street'.

             

            What is Digital Street?

            Digital Street is the Land Registry's research and development project which aims to work with the property industry to identify innovative ways and technological solutions to solve some of the key problems with buying and selling land and property.

            The project is examining how new technologies such as blockchain and smart contracts could potentially be implemented by the Land Registry in the future to improve the services that they provide.

            The goals of the project are to be admired – the Land Registry aims to make buying and selling property "simpler, quicker and cheaper through data, technology and innovation". However, the Digital Street project will run until at least 2022, and as the focus of the project is more on research than on development and implementation of new technologies, it is likely to be quite some time yet before we see any of the fundamental changes to the Land Registration system which are needed to bring it up to date.

            The importance of an efficient and dynamic system of land registration to the property market, to businesses, and to the wider economy cannot be overstated. Land accounts for a large proportion of the UK economy – the latest figures released by the Office for National Statistics show that in 2017 land accounted for 51% of the UK's £10.2 trillion total net worth[1] and is typically the most valuable asset owned by a company or by an individual. Commercial property in particular plays a significant role in the economy – in a 2016 report by the 'Property Industry Alliance' found that the commercial property industry directly employs almost one million people in the UK[2].

             

            Tackling property fraud

            Land is a prime target for fraud and identity theft – the fact that it is valuable means that the potential gains are significant, and the complicated nature of the asset creates opportunities for fraudsters to take advantage of the system.

            Fraud is a significant issue for the Land Registry as they act as a guarantee of the register, and a key pillar of the land registration system is the indemnity scheme under which the Land Registry are required to compensate victims of registered title fraud who suffer loss due to mistakes in the register.

            While the Land Registry has prevented 279 fraudulent applications being registered since 2009 with a total property value of £133.4 million[3], the Land Registry has paid out in excess of £60 million over the past 10 years due to fraud taking place on a registered title[4]. Fraud has a financial impact on all users of the land registration system as the costs are ultimately passed on by the Land Registry to individuals and companies through higher fees.

            The development of new technologies and the greater availability of personal data has led to an increase in the amount of fraud within the land registration system. The Land Registry has had to deal with the increasingly sophisticated schemes that fraudsters have created by exploiting these new technologies. While the Land Registry has introduced a number of tools such as the Land Registry Property Alerts Scheme (under which the owner of a property can sign up to receive email alerts of any activity in respect of their property) to try to tackle fraud, expediting the adoption of new technologies could greatly assist in combatting it further.

             

            Is e-conveyancing a solution to property fraud?

            One potential solution to these issues is the introduction of electronic conveyancing. While all of the title information for a property is now held by the Land Registry in an electronic format, the actual registration system itself remains paper-based.

            For a property to be transferred, hard copy documents need to be signed (typically with wet ink signatures) by both parties, and then submitted to the Land Registry to be processed. There are inherent delays and vulnerabilities in the paper based system – the buyer's solicitor needs to wait for the original documents signed by the seller to arrive in the post before an application can be made to register the transfer, and it is only at the end of what is often quite a lengthy process that the electronic title register is updated to reflect the change of ownership.

            The period of time between completion of the purchase and completion of the registration is known as the 'Registration Gap', and the seller remains noted on the electronic title as the owner of the property during this period. The registration gap creates a number of issues - most notably for the service of certain statutory notices. Fraud detection in the paper-based system is heavily reliant on the solicitors acting for both parties carrying out proper identity checks, and in particular on the solicitor acting for the seller carrying out sufficient due diligence to be satisfied that the seller is the true registered proprietor of the property. Recent cases such as Dreamvar (UK) Ltd v Mishcon de Reya and others [2016] EWHC 3316 (Ch) highlight the inherent weakness of this system and the risks posed to buyers, sellers, and other stakeholders.

            The introduction of a fully electronic conveyancing system would help deal with these problems. Hard copy documents with wet ink signatures would no longer be required – instead, documents would be completed electronically and the identities of both parties to the transaction could be verified through secure digital means.

            The transaction would be submitted to the Land Registry immediately, and the transfer of the ownership of the property processed instantaneously. The digital identity of the buyer would be linked to the title register for the property, and the buyer would be required to prove their identically digitally when they come to sell the property in the future.

            While there will inevitably be difficulties and issues with the development of a fully electronic conveyancing system, a number of other jurisdictions, such as Ontario in Canada, have already implemented electronic conveyancing systems.

            When compared to other jurisdictions the Land Registry does not have it easy. They are custodians of an arcane and highly complex system of unregistered and registered land which goes back hundreds of years. In such a setting, innovation will never be straightforward.

            However, the potential benefits of doing so are significant. It would reduce the costs of conveyancing, speed up transactions, create greater security, simplify the conveyancing process, reduce fraud and identity theft, and close the registration gap.  So far the Land Registry have only taken a small step towards such a system with the introduction of electronic mortgages for some domestic properties.

            It should be noted that in England and Wales the law allows for electronic execution of documents in some settings, however this does not presently extend to documents which need to be registered at the Land Registry.[5] Furthermore, there is presently no functional common standard in place for electronic corporate (or individual) identity. These two fundamentals must be addressed before real progress can be made.

             

            Keeping up with tech changes

            The pace of technological change is not slowing down, and if anything is increasing. The 'PropTech' sector in particular is thriving, and over the coming years the companies in this sector will be producing new technological solutions to try to solve some of the problems and inefficiencies in the current system.

            In our view, by bringing forward plans for new technological solutions, in particular electronic conveyancing, the Land Registry could ensure it is keeping apace with the needs of the industry as well as with global developments in other jurisdictions. This would help maintain the attractiveness of the commercial property market in England and Wales to investors in the global property market.

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