News focus: Society unveils draft conveyancing protocol

The Law Society unveiled a draft conveyancing protocol on Wednesday to support residential and commercial solicitors in moving towards a digital process for exchanging contracts fit for the 21st century.

‘We know that you’re under pressure from clients to update the way you do business following technological changes and the impact of Covid-19. We know that the law isn’t entirely clear around certain aspects of using electronic documents in the conveyancing process,’ the Society said.

Exchange of contracts is a pivotal moment in a property transaction, making the agreement between the buyer and seller legally binding. If either party pulls out, they could be liable for breach of contract.

The draft code for signing and exchanging contracts is designed to remove uncertainty by allowing conveyancers to use new technology to conduct transactions. It contains three protocols covering the ‘hold to order’ of documents or deposits, immediate exchange and release of contracts.

The Immediate Exchange Protocol 2024 will replace formulae A and B, and the Release of Contracts Protocol 2024 will replace formula C of the Society’s formulae for exchanging contracts.

While the exchange of separate wet-ink paper original parts of the contract remains widespread practice, the Society said other procedures, such as PDF scans of a wet-ink-signed paper contract, electronic signatures or an electronic contract signed on a computer or other electronic device have become common.

However, ‘solicitors using such a form of contract should satisfy themselves that it meets the legal requirements for a property contract in section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 and are recommended to refer to the Law Society’s practice note on execution of a document using an electronic signature and practice guide 82: electronic signatures accepted by HM Land Registry’.

'This protocol will need to be developed further when we have smart contracts and fully digital qualified electronic signature, rather than electronic signatures, fully available'

Law Society

Satisfying section 2 is crucial, as Philip Freedman CBE KC (Hon), a member of the Society’s conveyancing and land law committee, explained this week. ‘To satisfy section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, the agreement must be in writing, be signed and either incorporate all the agreed terms in a single document, or, if each party signs their own version, each document must contain all the agreed terms and these contracts must be exchanged. If a contract for the acquisition of an interest in land doesn’t comply with section 2 the agreement will be void.’

Explaining the code, Freedman said: ‘Before exchange of contracts, the solicitors should address agreeing the text, agreeing the amount of the deposit and whether it is to be paid or “held to order”. They should also address whether the contract will be signed on paper or electronically and the method for signing such as wet ink, on screen writing or electronic secure signature. Also, the process for exchange, such as exchanging paper originals or dating on an electronic platform, should be agreed.

‘On signing electronically, there needs to be an agreement that no contract is made at the signing stage. An agreed arrangement needs to be in place before exchange as to how to agree the exact moment when the contract is entered into.

‘The draft protocol also provides some clarity around the status of deposit monies when they are “held to order”.’

Committee members have been working on the code for many months. Freedman said: ‘The [committee] has been looking at this subject since lockdown and developed a possible replacement for the Law Society Formulae for Exchange a while ago. While property lawyers were under pressure of volume of work – especially the residential lawyers in the heat of the stamp duty land tax concessions – it was not felt appropriate to introduce new facilitators. Now that the market is not so frenetic, and there is more acceptance of new technology, [the committee] is looking for your views on what we propose.’ The committee also determined any new exchange protocol should be suitable for residential and commercial property transactions.

However, while the code is designed to provide clarity right now, it will inevitably need to be updated. ‘This protocol will need to be developed further when we have smart contracts and fully digital qualified electronic signature (QES), rather than electronic signatures, fully available. The means of creating and exchanging contracts will change again but until then, [the committee] think this new protocol is the solution to assist you and your clients now.’

The Society said it will respond to consultation feedback in the New Year.

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