Pulp fiction

16 May 2019

Have you ever been told a story about real estate contracts only being valid if they’ve been signed on paper?
Spolier alert: it’s a fictitious story perpetuated all too often by banks and some lawyers and conveyancers based on their misunderstanding of the law.

The law allows contracts to be signed and exchanged electronically

The legal framework permitting this has been around for nearly 20 years. The Electronic Transactions Acts in each jurisdiction essentially say that a transaction is not invalid merely because it took place by one or more electronic communications.
Whilst there are some legal requirements to be met for electronic signatures to be valid, these are in practice relatively easy to meet. These include sending it in an appropriate form or medium to an identified person (e.g. to a person’s email address) and that consent is given (which can be implied by the person communicating in that medium or if they have relied upon the communication).

What are the exceptions?

Documents that legally require witnessing may not be suitable for electronic signing unless they are printed, signed and witnessed, scanned and returned by email.

Contracts do not legally need to be witnessed despite traditional practice in doing that.

This is in contrast to deeds which do need to be witnessed as they are a more formal document, usually for no consideration, e.g. a deed of rescission or a deed of guarantee and indemnity. NSW has recently passed laws to allow deeds to be signed and witnessed electronically.

Whilst the Electronic Transactions Acts does not apply to the Corporations Act, a company can sign by any method authorised by the company. So, a company can sign a contract electronically, ideally by recording minutes of meeting authorising a nominated person to sign electronically on behalf of the company.

Some objectors to electronic signing (i.e. dinosaurs) point to cases that have questioned the enforceability of electronic signatures. These, however, have been cases with very specific and unusual circumstances, e.g. fraud (which could have been done equally in a paper environment).

While there have been isolated issues relating to fraud in electronic transactions since 2013, in the same period of time in NSW more than $7 million has been paid out via the Torrens Assurance Fund for fraudulent paper transactions.

Why issue and sign real estate contracts electronically?

The benefits for us and our clients are obvious:

  • The time taken between issuing a contract for signing and exchange is significantly reduced which means less likelihood of losing a deal;
  • Cheaper admin costs – no printing and postage;
  • Clients and stakeholders can see where the signing process is up to and who might be holding things up;
  • Negotiated changes can be made easily and contracts reissued quickly;
  • Using some electronic signing technology, there is arguably better evidence that it has been signed by the correct party.

How do you sign electronically?

The most common methods we use to have contracts signed and exchanged electronically, are:

1. At the most basic level, by emailed counterparts: We will usually arrange for the contract signing pages to be printed, signed, scanned, reviewed and collated by our legal advisors and then sent by email to the other party for countersigning and exchange.

2. Docusign: We are experienced users of the Docusign signing platform. It is a cloud based platform and very easy to use. The seller’s solicitor would usually initiate the signing process and set out who receives the contract to sign or a copy to review.

A signer does not need a Docusign account to sign a contract. They just receive a link by email and follow the prompts to apply their electronic signature to the tagged signing pages in the contract. A 2 step authentication can be used if desired, e.g. a pin number sent to the signers’ mobile phone. The signer can then apply their signature using a mouse, a stylus, their finger on a tablet or mobile device, or the easiest way is to choose a stylised version of their name. Once the contract has been signed by each party, a complete version of the contract is usually received by the signing parties and their lawyers.

Docusign provides a certificate with details of the signer’s email address, IP address, geolocation and time stamping. This can be used as evidence if somebody claimed they did not sign the contract and is arguably more secure than the traditional way of signing a paper contract with a random witness who is rarely checked out. The fully signed contract also has a unique identifier on each page of the contract so that it is easy to identify which pages were in the contract when it was signed and would be easily detected if someone tried to alter or insert pages after it was signed.

If required, verification of the identity of each signing party can be done in a parallel process. Docusign is also integrated with our online platform called Rundl which brings together all the parties to communicate and share documents in a secure space with verified users.

Acceptance in the real estate industry

Electronic signatures and econtracts are now becoming much more accepted in the real estate industry but it has taken persistence to get to where we are now.
We started producing electronic contracts and exchanging contracts using Docusign at scale from August 2016. There were initially roadblocks and challenges; mostly from other lawyers, banks and government authorities.

Most objections had no legal basis and were often raised for the following reasons:

  • a blind devotion to outdated policies and procedures of the firm or bank;
  • the objectors not being aware of updated policies and procedures;
  • the counterparty having to print contracts out to keep in their paper file;
  • lack of awareness of the process for and security of some electronic signature software providers.

All the major banks have confirmed their policy is to accept electronic signatures on real estate contracts, and specifically using signing platforms like Docusign, but have acknowledged to us that despite this it will take years to train their thousands of staff about this.

Some law societies like the Queensland Law Scoiety have updated their standard form contracts to facilitate electronic signing and make it clear that contracts signed electronically do not need to be witnessed and initialled on every page.

Government authorities such as the state revenue offices also now accept electronically signed contracts for duty assessment or first home owner grant applications.

Developer pre-sale contracts

Developers are tired of delays and additional costs associated with paper contracts. It can take 2 weeks or longer to get off the plan contracts exchanged due to delays with the post. In a softening market this increases the chances of buyers changing their mind and developers losing the deal.

However there are still challenges when dealing with the lawyers acting for project financiers. We have found that many financiers or their lawyers as a policy do not accept contracts signed electronically using signing platforms like Docusign for the purposes of pre-sales.

Therefore, any developers who need to obtain pre-sales for financing their project and who are considering having contracts signed electroncially using a signing platform like Docusign should ask their proposed financier whether or not their policy is to accept them and if not, ask why. It is surely only a matter of time before it will be universally accpeted by project financiers and their lawyers. In the interim, in our experience, all project financiers have accepted the most basic method of electronic signing, i.e. exchange by email counterparts or counterparts exchanged on Rundl.

Electronic conveyancing

88% of Australians have a smart phone and 40% of consumers will walk away from a business that fails to offer them a high-quality digital experience. More and more consumers will expect a digital conveyancing experience as technology continues to improves.

We believe econveyancing should be a digital experience from start to finish. That means:

  • getting an instant quote on our website and ordering our service online;
  • receiving the econtract or contract advice on Rundl;
  • signing contracts electronically using digital signing tools integrated with Rundl;
  • having a digital step by step process to follow with videos at critical steps;
  • verifying your identity using a smartphone;
  • communicating and sharing documents on Rundl;
  • and the final part of econveyancing is electronic settlements.
Disclaimer This information is general in nature only and does not constitute legal advice. Lawlab accepts no liability for the content of this information. You should obtain legal advice specific to your individual circumstances. Lawlab’s liability is limited by a scheme approved under Professional Standards Legislation. Legal practitioners employed by lawlab are members of this scheme.
Richie Muir
Richie Muir
Legal Director

Richie is an experienced and commercially astute lawyer specialising in property law. He leads lawlab’s team of legal advisors and is the go-to problem solver for complex or unusual matters.  Having spent many years living and studying in Europe he now calls Brisbane home. Outside of work he juggles his time helping bring up his 2 young daughters, playing football and developing property.

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