ELECTRONIC CONVEYANCING: WHERE ARE WE NOW?

By Peter Rosier

Peter Rosier is an accredited specialist (property law) and the principal solicitor of Rosier Partners Lawyers.

Snapshot

• From February 2015, electronic conveyancing will be available to all members of the profession through the PEXA platform
• The NSW Land and Property Information (LPI) has embarked upon a project intended to make the process of undertaking an electronic conveyancing transaction as similar as possible to a paper one
• Solicitors using the 2014 edition of the standard form of contract for sale and purchase of land (which is available only electronically) will notice a new clause – Clause 30 – that will operate if the parties elect to proceed in electronic conveyancing. Part of the clause is intended to be instructive; to assist practitioners to understand what is expected of them in the course of an electronic transaction

The move to electronic conveyancing has been called a journey. On 10 November 2014, the journey continued when the second release – referred to as Release 2 – of the electronic system PEXA went live.

This increase in capability allows the online preparation and electronic lodgment of transfers and caveats, as well as the associated financial settlement. Readers will remember that mortgages and discharges were the subject of Release 1, which went live on 13 October 2013.

Since then, over 3000 discharges and mortgages have been prepared and lodged through PEXA. (PEXA – Property Exchange Australia Limited – provides the electronic platform that parties use to conduct electronic transactions.)

Release 2 permits practitioners to conduct transactions in PEXA, while Release 1 allowed participation only by banks and financial institutions. Whilst the immediate availability of the system to the legal profession will be limited to selected firms in Sydney and Wollongong, from February 2015 it will be available for use by the profession generally.

It is thus an appropriate time to update the article that appeared in the Journal in December 2013, E-conveyancing – A new age. A series of subsequent articles to be published in the LSJ will investigate more closely some important aspects of the system, such as verification of identity, client authorisation, preparing your practice for e-conveyancing, and the alignment of electronic conveyancing with paper conveyancing and, in particular, priority notices.

Joining PEXA – all aboard!

We’ll start on a nautical note – the process by which solicitors can become representative subscribers in the PEXA system. PEXA calls this “on-boarding”, and the participation rules made by the Registrar General pursuant to the Electronic Conveyancing National Law (ECNL) require the identity of subscribers to be verified, so the identity of sole practitioners, or those in larger firms who will be using PEXA, will need to be verified. The on-boarding process requires execution of a number of documents – including a participation agreement – which are then processed before an ABN-DSC. A digital signing certificate, based on an Australian Business Number, is issued to the subscriber. This is called the “adult” certificate. If the firm has other signers, child certificates will be issued. These identify the subscriber and the signer and cannot be transferred to another subscriber if, for instance, the signer moves firms.

The participation agreement

The development of this agreement – the contract between PEXA and the subscriber – took place in consultation with the Law Society of NSW and a number of other stakeholders. The Society’s major concern was that of liability of subscribers in the system.

Readers will recall that a signal principle in the development of an electronic conveyancing system was that the system should mimic the paper system as closely as possible, including insofar as liability was concerned (that is, practitioners should be exposed to no greater risk when using the electronic conveyancing system than they are now). On the other hand, PEXA, as a neutral party in the platform, did not want to assume liability that was properly of another party. The result is that, generally speaking, the liability of a party for loss to another party (or to PEXA) is to be determined in accordance with the general law.

Nonetheless, execution of the participation agreement involves the assumption of significant responsibilities and it should be read with care.

Cost

In December 2013, PEXA had not set its prices – we now have these. Whilst it costs nothing to join PEXA, there is a cost associated with using PEXA. The pricing schedule can be found on the PEXA website, but the most common transaction, a transfer, is $104.50 per title for each party. This is quite an additional disbursement, but it does include title information to enable the population of the electronic documents as well as the title activity checks, which will largely eliminate the need for a final search.

If account is taken of the elimination of much of the time on the telephone presently required to arrange a settlement, of having an employee attend settlement (or the fee paid to an agent to do so), and the speed of lodgment, registration and the transfer of funds, the price for the service appears much more reasonable. The present position is that the fee is success-based, so if a transaction reverts to the paper environment, PEXA will not charge a fee.

Alignment with the paper environment

The LPI in New South Wales has embarked upon (and nearly completed) a project intended to make the process of undertaking an electronic conveyancing transaction as similar as possible to a paper one. The major advances here require clients in all conveyancing transactions to enter into the client authorisation and have their identity verified in accordance with Schedule 8 of the participation rules. Vendors’ solicitors will be able to sign paper transfers on behalf of the registered proprietor (as they will do in the electronic workspace).

The changes also create a new fraud-mitigation tool: the priority notice, which will prevent registration of certain instruments for a fixed period following the contract for sale and purchase.

Then there is the process by which discharges of mortgages are dealt with when there is an electronic certificate of title (eCT). These provisions will operate in the near term. The phasing out of paper certificates of title, establishing a national standard form for mortgages, and some other processes, may take a little longer.

Settling a paper transaction where there is an eCT

The LPI now permits APRA-regulated financial institutions to opt for an eCT when they settle a transaction in PEXA. So far, about 300 eCTs have been issued. There have already been settlements where there was no paper certificate of title available to be handed over as the token of title.

The number of eCTs will increase as time goes on. In such cases, the LPI requires that the holder of the eCT – the discharging bank – provides a consent, and this in turn requires the vendor or discharging mortgagor to ask the outgoing mortgagee for their consent to use the eCT.

This document is called the Request for CoRD Holder Consent (Request) to the transaction. This means that the consent includes details of the transaction to which the bank is asked to consent. The discharging bank will not know this, and a procedure has been developed to ensure the information enabling consent to be completed is made available to the discharging bank.

The LPI has agreed to create a form for this purpose that will be available on its website. The website will also provide guidelines as to the form’s intended use.

Clause 30 of the 2014 contract provides for the purchaser to provide the purchaser’s information required to complete the form – that is, the identity of the purchaser and the incoming mortgagee.

The procedure for obtaining a CoRD Holder’s consent

Procedurally, a purchaser’s solicitor would then complete the relevant part of the form – “Dealings Requiring Consent” – then e-mail the partly-completed form to the vendor’s solicitor who would complete the balance of the form. Sadly, the banks require that the completed form then be faxed, rather than e-mailed, to their settlement departments. To facilitate this, the LPI has agreed to list the facsimile numbers of the banks. In the electronic environment, all of this can be done in the PEXA workspace, so completion of the form is a transitional procedure.

Practitioners should make themselves familiar with this process and remember its importance when the certificate of title is shown on a search as an eCT. Clearly, the information may not be available until the client has chosen a lender.

Discharge authorities

The Law Society‘s Property Law Committee takes the view that a discharge authority (DA) is not legally necessary. However, the banks and financial institutions continue to insist on receiving the DA before taking any step to discharge a mortgage. What makes the process difficult (apart from clients who don’t sign one and send it in when asked) is that there are more than 100 versions of the DA.

The Society has been in discussions with the Commonwealth Bank about the development of a single DA form. The CBA is acting for the major banks in this task. It is important that the form be as simple as possible, and the banks appreciate this. If a single form is developed, it is likely to be available on the Law Society’s website.

In e-conveyancing, the banks have made it clear that an outgoing mortgagee bank will not accept an invitation to join a workspace until they have received the DA. In time, the process may be simplified with a vendor’s solicitor being able to give an electronic DA.

Clause 30 and the 2014 edition of the contract for sale and purchase

Solicitors who use the 2014 edition of the standard form of contract for sale and purchase of land (which is available only electronically) will notice a new clause – Clause 30 – that will operate if the parties elect to proceed in electronic conveyancing.

Part of the clause is intended to be instructive; to assist practitioners to understand what is expected of them in the course of an electronic transaction. The other part is to deal with certain matters where the electronic nature of the transaction renders the existing provisions meaningless.

These provisions deal with the preparation of the transfer, service of documents and notices, provision of information, how the costs of using PEXA are to be dealt with, what happens to paper documents (for example, orders on the agent, notices of attornment) that are “outside the system”, and what happens if the matter reverts to paper.

There will be many seminars on the subject and practitioners should take the opportunity to become familiar not only with the new clause 30, but also with the 2014 edition of the contract generally.