This is our second post this year on e-signatures. Our first post on e-signatures and deeds can be read here.
In our previous post we discussed deeds and whether it was appropriate to sign them by way of e-signature. We are aware that agents and landlords are using e-signatures on contractual versions of agreements that ordinarily would be signed by way of deed. There is no doubt that e-signatures are convenient and less time consuming however there are problems with this approach which we will highlight in this post.
What is a deed?
A deed is a specific type of contract which requires a witness to observe a party signing it and to acknowledge that they have witnessed the signature by also signing the deed itself under the Law of Property (Miscellaneous Provisions) Act 1989.
Under the Law of Property Act 1925 with a few exceptions a legal interest in land cannot be transferred without a deed. One specific exception to this relates to tenancies of 3 years or less at the best rent available (which is why most assured shorthold tenancies do not need to be signed as deeds) which is beyond the scope of this post. Furthermore, agreements where there is a lack of consideration (no money exchanging hands) are also required to be executed by way of deed if they are to be enforceable.
Deed of Guarantee
This is a contractual deed where a third party to a tenancy agrees to guarantee the rent on behalf of the tenant. This is an example of an agreement where there is a lack of consideration because the guarantor does not receive payment or anything of value for agreeing to become a guarantor.
Deed of Surrender
This is a contractual deed where the parties to a tenancy agreement agree to the transfer of land usually from an outgoing tenant back to a landlord. A deed of surrender is usually signed where the parties to a tenancy agreement have agreed to end the tenancy prior to its expiry date. Again, the lack of consideration means that it needs to be signed as a deed. It also involves a transfer of an interest in land from the tenant back to the landlord.
Deed of Assignment
This is a contractual agreement between an outgoing tenant, an incoming tenant and a landlord. It is again a transfer of land from the outgoing tenant to the incoming tenant with the landlord’s consent and so should be done as a deed.
Contractual versions of deeds
Given that deeds must be witnessed we now need to consider whether simply removing the requirement for a witness will affect the validity of the agreement between the parties.
The general rule is that a simple contract can be electronically signed. However, where the document should be signed as a deed the rule is not so straightforward. Deeds need to be witnessed as explained above but this is difficult to achieve where the parties are signing electronically. In fact, the formalities for proper execution of deeds should be observed to the letter and administrative inconvenience should not be allowed to stand in the way of this strict compliance.
Put simply, failing to properly execute a deed by not having proper witnesses may mean it is not enforceable even if it is considered a simple contract. The full and proper execution of a deed is prescribed by law and is therefore an important element of a deed as compared to a simple contract. Furthermore, deeds are not supported by consideration (money changing hands) so it is difficult to infer the parties’ intentions which could help with the validity of the signed document.
It is important to think carefully about the nature of the agreement that is being signed and if it is suitable for e-signing. It may be possible to change the agreement to make it suitable for e-signing or to change the process to accommodate this method.