this product is unavailable for purchase using a firm account, please log in with a personal account to make this purchase.

Select from any of the filters or enter a search term
Calendar
Calendar

Farewell to paper: Electronic conveyancing to go national

Farewell to paper: Electronic conveyancing to go national

By Murray McCutcheon

Caveats Conveyancing Duties Real Property 

0 Comments


With much anticipation, the national scheme for electronic conveyancing, based on the Victorian model, is gearing up  to go live in 2014.

Electronic conveyancing has been the goal of many property lawyers and Land Victoria (formerly the Titles Office) for at least a decade and a half. Those awaiting its actualisation with baited breath have been left gagging, notwithstanding that Victoria has its own state-based system but without adequate take-up. However, the Victorian model has been a building block on which the design of the national system has been developed, but with significant changes.

With considerable trepidation, I am able to report that the anticipated national scheme is now sufficiently close to commencement that property lawyers should start preparing for its implementation.

This article assumes that readers have a general knowledge of both conveyancing and the proposed new electronic system. This article is only able to provide an extraordinarily brief overview and analysis within the constraints of this publication despite the complexity of the issues. Further information will be available to property lawyers from a variety of sources.

Defining “electronic conveyancing”

The purpose of the national “electronic conveyancing” scheme is to enable the electronic lodgement of data with the titles offices in each Australian state and territory, to replace the lodgement of paper documents. The data will authorise the respective registrars of title (however named) to change the titles offices’ registers to reflect a change of registered proprietors or changes to legal estates and interest in land. The scheme provides a means for the simultaneous financial settlement of conveyancing transactions.

In summary, it will be principally a land title transfer and mortgage registration lodgement and settlement system. It will include the equivalent of:

  • the transfer and mortgage documentation
  • rates and outgoings payments
  • receipt and payment by and to financiers
  • state revenue payments
  • notification of change of ownership to revenue and rating authorities.

It will not involve all the other aspects of conveyancing such as:

  • property, title, planning and encumbrance investigation
  • contract negotiation
  • contract signing, or
  • vendor disclosure.

However, it is anticipated that new and existing conveyancing software providers are likely to integrate their systems with the new lodgement and settlement system.

The major conceptual differences from the current paper-documented procedures are that the new system will include:

  • a formalised client identification process to replace the paper certificate of title in those jurisdictions that currently require or provide them on request
  • a facility for the subscriber (being a qualified lawyer, licensed conveyancer or financial institution that is recognised by the system) to electronically “sign”1 the data – the equivalent of the paper documents known as the transfer of land, mortgage,2 discharge of mortgage, caveat and withdrawal of caveat on behalf of the principal or client.

The system will be closed to everyone who is not qualified and accredited by the system operator. This is similar to the way that share trades must be conducted through stockbrokers authorised by the relevant stock exchange. The only classes of people qualified to be recognised by the system as subscribers are:

  • lawyers entitled to practise
  • conveyancers who are licensed to practise (this means that conveyancers will not be permitted to operate in Queensland under current Queensland laws)
  • financial institutions that are regulated by the Australian Prudential Regulation Authority (APRA)
  • government authorities.

Subscribers will need to meet a number of requirements in addition to holding a practising certificate, a conveyancing licence or being regulated by APRA. In particular, lawyers and conveyancers will also need to hold professional indemnity and fidelity insurance.

The subscribers will either represent clients or act in their own right. This means that lawyers and conveyancers will generally act in relation to transfers of land, and financiers will generally only act in respect of mortgages and discharges of mortgages on their own behalf. However, the titles office will register the financier’s discharge of mortgage or mortgage, from or on their customer’s land title without reference to the customer, provided that the financier, or the financier’s lawyer or conveyancer, certifies that the financier holds a signed mortgage from the customer in the same terms as the electronic version of it. I understand that the PEXA system is not currently designed for a lawyer or conveyancer subscriber to represent a mortgagor.

A client’s written authority to their subscriber lawyer or conveyancer for a transfer of land is expected to include any necessary direction in respect of the client’s related financing transaction. The anticipated ancillary or implicit authorities are likely to include matters such as the lawyer being allowed to authorise the settlement and adjustment statements with the other party and the client’s financier.

The legal structure

A national electronic conveyancing law has been developed. It is set out in the appendix to the Electronic Conveyancing (Adoption of National Law) Act 2012 (NSW)3. Its purpose is to override any existing state law so that there is no uncertainty as to whether there is power to conduct electronic conveyancing, and to help ensure that the rules are the same across each jurisdiction. The national law is intended to be the same in each state jurisdiction although it does allow some wriggle room among jurisdictions. However, there is likely to be strong resistance from national users, especially the largest banks, if any jurisdictions make idiosyncratic changes.

The agreed national electronic conveyancing law has been adopted by reference into Victorian law by the Electronic Conveyancing (Adoption of National Law) Act 2013 (Vic)4 from the corresponding NSW Act. The legislation has also been passed in Queensland and the Northern Territory. South Australia has its legislation currently in parliament and is expecting this to be passed later this year. Western Australia is currently drafting their legislation changes including their ECNL (Electronic Conveyancing National Law) Bill for introduction into parliament later this year. Tasmania is expecting to introduce their legislation into parliament in October. There is a complex, intergovernmental agreement regulating the manner in which the national law can be changed.

The national law recognises the appointment of the Australian Registrars’ National Electronic Conveyancing Council (ARNECC) as a peak body of registrars of titles to regulate the administration of the electronic conveyancing system across all participating jurisdictions.

The actual electronic conveyancing system is being set up and will be owned and operated by National e-Conveyancing Development Limited (NECDL). NECDL was originally incorporated by or on behalf of Victoria, New South Wales and Queensland as a not-for-profit corporation limited by guarantee. Western Australia subsequently became a member. NECDL changed its status to a public company limited by shares in which the equity contributed by the original members was the value of the intellectual property they transferred to the company. Additional cash has apparently been raised from the large banks, including Macquarie Bank and a non-bank investor, in exchange for equity. I understand that the government shareholders retain a majority of shareholding.

NECDL has been developing the electronic infrastructure and many of the business rules for electronic conveyancing, and will operate as Property Exchange Australia, known as “PEXA”. PEXA will create electronic work spaces in which the relevant data is provided by the subscribers and the titles offices, and through which the financial settlement will be authorised. On completion of a conveyancing transaction, the electronic data is delivered to the titles office in the relevant jurisdiction for authorising the change in the titles office register and authorising the transfer of funds in accordance with the agreed adjustment and settlement statements. The government regulator will be ARNECC which has also been involved in the development of many of the business rules and will require that it approve them.

PEXA gains its authority to provide the electronic conveyancing system, processes and transactions through contracts with the respective titles offices, ARNECC, the subscribers, the operators of the financial system and the state revenue offices. The subscribers can only operate the system if they have a written authority from their client or customer. The authority can be for a single transaction, a batch of transactions or an indefinite general authority.

The subscribers will need to certify that they are reasonably satisfied with the identity of their client or customer. Subscribers may also need to certify that they are reasonably satisfied that the client or customer has the authority to deal with the land. In other words, the subscriber needs to be reasonably satisfied that the persons the subscriber represents are Jack and Jill Jones, as well as being the same Jack and Jill Jones described on the registered title or in the mortgage documents.

The way PEXA will operate the system is shown in the following diagram.


Simplified diagram for a standard transaction

Current issues

The client authorisation document is the means by which the client or customer will authorise the subscriber, (being the client’s lawyer, conveyancer or financial institution) to carry out the conveyancing transaction using the PEXA system. This is a fundamental difference from the current arrangements. In electronic conveyancing, the subscriber signs the “instrument” or “document” which is the equivalent of the transfer of land or the mortgage.

The extent, manner and responsibilities regarding certification of client identities are currently being negotiated. ARNECC is proposing that the identity certification be “technology neutral”. This means that certification of client identity will be required for both existing paper and electronic transactions. The titles offices in Queensland, New South Wales, Western Australia and recently South Australia currently have verification of identity (VOI) requirements. Each of them is different but they are planned to become consistant and national.

There are a considerable number of issues involved with client authorisation and certification of identity that are still to be resolved.

Paper certificates of title

In the current system, the paper certificate of title operates as an official statement of the state of the register at the time the certificate is published by the titles office. Possession of the certificate is also presumptive evidence of the proprietor’s identity and the possessor’s authority to deal with the title. This is similar to the way that possession of a house key is presumptive evidence of the possessor’s entitlement to occupy a house.

The New South Wales Land Registry (NSWLR) commissioned a number of reports in relation to the role of the paper certificate of title which NSWLR currently uses. The New South Wales certificate of title has a number of security features. They include a Certified Authentication Code (CAC number) to assist with the mitigation of fraud.

The final NSWLR report recommended that the certificate of title with the CAC number be retained where the transaction was being conducted by subscribers who are lawyers or licensed conveyancers in respect of transfers of land and mortgages, but not where financial institutions were registering transfers of land or mortgages.

Most, if not all, of the other jurisdictions are either strongly opposed to having any form of a paper certificate of title, or are at least neutral in respect of it. It would be unfortunate if the system became more jurisdictionally diverse with some states adopting separate paper certificate of titles for some transactions.

Costs

Anecdotal evidence received by the Law Council of Australia from a credible source indicates that electronic conveyancing transactions are likely to cost more rather than less, as far as lawyers and licensed conveyancers are concerned. This is due to:

  • fees payable in respect of accessing the PEXA system
  • the requirement of additional staff training, security administration and procedural steps including identity verification.

The experience in New Zealand is that apparently transactions will typically cost $300 to $400 more. However, there should presumably be some savings particularly in high-volume transactions such as financial institution mortgages where the new system can be better integrated into financiers’ existing systems. Further savings may also be achieved because there should only be one system across jurisdictions, instead of at least eight separate systems and potentially more where there is still old system or general law system land titles (although the PEXA system will not initially be able to handle leasehold estates as in the Australian Capital Territory and it will not include general law land).

PEXA has not yet provided either the Law Institute of Victoria (LIV) or the Law Council of Australia with a proposed fee structure. However, it has advised that it expects each participant in the electronic workspace will pay their own fees. In other words, a subscriber for a vendor and a subscriber for a purchaser are likely to each pay the same fee amount to PEXA. The fees for discharging mortgagees and incoming mortgagees are likely to be the same amount, but it is unknown at this time if it will be the same amount for vendors and purchasers, or if different fees will apply if there is a financial settlement.

Third party fees and taxes, fees for titles office registration lodgement, state government duty and land tax, outstanding council rates and other adjustments are all likely to be disbursed directly from the work space where the recipient is known to the system.


Schedule Timetable

Next steps to lift-off

The expectation is that the system will be available to subscriber lawyers from mid 2014. Firms that use conveyancing software packages should check with their providers to ensure that the providers’ software will be compatible and available for electronic conveyancing when it goes online. However, a conveyancing package is not essential to operate through PEXA, but it will be much simpler if firms know if and how their existing packages, systems and procedures will need to adapt.

There is a considerable amount of detail to be learnt and understood as the responsibility for the transaction primarily falls on the legal practitioner or licensed conveyancer. It will be a greater responsibility than at present because the legal practitioner or conveyancer signs on behalf of the client and is responsible for identifying them and ensuring that they have the authority to deal – but without the comfort of a certificate of title. Substantial training will be required and the lines of delegation between a practitioner and their law clerk or assistant are likely to change. For example, a subscriber will be able to authorize any employee to input the transaction data into a workspace, but only a qualified lawyer or conveyancer may be able to carry out the numerous required certifications, including as to cleared funds. It is still to be resolved if a person other than a principal of a law firm or conveyancing firm can authorise trust account payments through PEXA. These matters will need to be included in the law firms designs of their systems for e-conveyancing.

The LIV will be preparing a new version of the standard contract of sale of real estate or a special condition to accommodate the requirements of electronic conveyancing.

The new national system has commenced with a “soft” start in Victoria at one major bank with mortgages and discharges. However, other jurisdictions and other financial institutions will shortly also start using the system. The changes in the way conveyancing is conducted will be profound. It will be important that practitioners get to grips with the requirements of the system as soon as details are finalised.


Murray McCutcheon is a senior consultant at Hunt & Hunt in Melbourne, practising mainly in commercial property law. He is a member of several working groups advising the LCA and LIV on electronic conveyancing.

1. “Sign” means authorise here.

2. This is known as a “release” in Queensland.

3. Assented to on 20 November 2012.

4. Assented to on 14 March 2013.

5. Murray is a member of the Law Council of Australia’s (LCA) eConveyancing Working Group, the sub-groups working with NECDL and ARNECC, and the LCA’s eConveyancing Advisory Group and has been a consultant to the LCA on electronic conveyancing. He is a member of the Law Institute of Victoria’s (LIV) electronic conveyancing sub-committee, the LIV Property Committee and the LIV – Titles Office Liaison Group. Murray is the inaugural and current chair of the recently formed national Electronic Conveyancing Group, representing the Law Council of Australia (and its constituents), the Australian Bankers Association and the Australian Institute of Conveyancers as the principal.


Views expressed on liv.asn.au (Website) are not necessarily endorsed by the Law Institute of Victoria Ltd (LIV).

The information, including statements, opinions, documents and materials contained on the Website (Website Content) is for general information purposes only. The Website Content does not take into account your specific needs, objectives or circumstances, and it is not legal advice or services. Any reliance you place on the Website Content is at your own risk.

To the maximum extent permitted by law, the LIV excludes all liability for any loss or damage of any kind (including special, indirect or consequential loss and including loss of business profits) arising out of or in connection with the Website Content and the use or performance of the Website except to the extent that the loss or damage is directly caused by the LIV’s fraud or wilful misconduct.

Be the first to comment