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Land registration and blockchain

Blockchain was originally conceived for cryptocurrencies but has a far wider application in areas which similarly need to be protected from corruption, human interference or human error. And that's where land registration comes in.

October 2018

What is blockchain?

Blockchain is a digital network. It allows digital information to be distributed (on the "distributed ledger"), but not copied. The same information is held across a network of computers – meaning that it isn't stored in one location. This means that the information is less vulnerable to corruption or to human interference or error. Every computer on the network has to accept every new addition of a new piece of information (or "block") to the chain.

The benefits of blockchain in terms of secure asset tracking are clear so it's no surprise that it is being considered as a possible solution to some of the issues with the current land registration system in England and Wales.

Application of blockchain to land registries

How is land transferred?

It is worth a quick recap of how land is transferred. This varies across jurisdictions, but the principles are broadly the same.

Imagine that a seller is marketing their property in England or Wales. The prospective buyer looks at the seller's title to that property, as well as at other publicly available information and its physical survey, to carry out its due diligence and ascertain whether the property is indeed worth buying at that price.

The solicitors acting for the buyer and seller negotiate a contract to buy that property, and complete a Land Registry form of transfer, which will transfer the title to that property.

On exchange of contracts, the buyer and seller sign and date the contract, and the deposit is paid. On completion, the buyer and seller sign and date the Land Registry form of transfer and the full purchase price is transferred. At this point, beneficial title passes to the buyer, but legal title to the property remains with the seller.

The buyer's solicitor must then register the Land Registry form of transfer at the Land Registry. When the registration is completed, the buyer's name is entered onto the register of title to the property, and the seller's name is removed. The buyer is now the registered proprietor, and holds the legal and beneficial interest to the property.

Problems with land registration in England and Wales

Although the registration documents can now be submitted to the Land Registry via an online portal, registration itself is not automated, but is carried out by a team of people at the relevant Land Registry office.

This is a tried and tested formula, but it is not without its problems. These include:

  • Time delays – it is taking an increasingly long time for the Land Registry to complete title registrations. There can be a gap between completion and registration (the registration gap) of several months. During this period, legal problems can arise: for example, what if a landlord's notice needs to be served to break a lease where the property has recently been sold? Does the seller of the property (who is still the legal owner) have to serve the notice, or does the buyer of the property? The buyer may be justifiably surprised to hear that it is the seller/previous owner, as legal owner, who has to serve the notice (unless appropriate provision has been made in the sale contract). If the buyer/new owner serves the notice, the break will not be effective.
  • Fraud – there have been instances of imposters posing as the seller of a property. If an imposter successfully poses as the owner of a property, and sells it, then that imposter may receive the full purchase price at completion and abscond with the funds. There have been cases where both the seller's and buyer's solicitors were unaware of the fraud until identified by the Land Registry as part of a spot check exercise.
  • Human error – with increasingly tight budgets, the Land Registry is trying to achieve more, often with fewer people. Updates to the title register are made manually and the accuracy of updates relies on the experience and attention to detail of individual people. This means, the register is becoming more vulnerable to human error.
Blockchain – a solution?

Could these problems be solved by a blockchain-based land registration system? Yes, in part:

  • Time delays – changes to the information contained on the distributed ledger are almost instant. There would no longer be a registration gap of weeks or months. Equally, blockchain technology could enable title to the property to be transferred to the buyer immediately funds are received into the seller's solicitor's account.
  • Fraud – each transaction on the blockchain is made by a party with a "private key", which is a digital signature and provides mathematical proof that the transaction has come from the owner of that key. Would this stop fraudsters posing as the real owners of property? Perhaps not at this stage. But, if law firms' client due diligence and customer verification were undertaken using the blockchain in the future, this would add an important layer of security to property transactions.
  • Human error – transactions on the blockchain are significantly less vulnerable to human error. Each change to the information on the ledger is continually examined by millions of computers on the network – each computer has to accept every change.
What next for the Land Registry?

The Land Registry has identified electronic conveyancing as a priority. It is piloting a notional "digital street", where it is exploring new digital technologies and how these would work in practice. On 1 May 2018, the Land Registry said: "We should be ambitious. We should be bold. Technological change will only continue to accelerate. It’s important that we become an organisation that can respond to that change, and make best use of it."

On 24 July 2018, the Law Commission for England and Wales published its long-awaited report on the reform of the Land Registration Act 2002. This report places significant weight on electronic conveyancing. Although the original Land Registration Act 2002, provides the legal framework for electronic conveyancing, and the Land Registration Rules 2003, have been amended to allow execution of documents with digital signatures, the newly-recommended reforms pull back from this ambitious starting point. The Commission recommends that there should be a new power in the Land Registration Act 2002, to make electronic conveyancing mandatory, without also requiring simultaneous completion and registration of dispositions.

This is because the Law Commission considers that, at the moment, digital platforms are not able to provide satisfactorily for simultaneous completion and registration. It recommends that the legislation remain flexible, to enable the use of electronic conveyancing as technology develops.

The future?

Digital signatures were used for the first time in exchanging contracts for the sale of a residential property on 6 April 2017, and some heralded this as the start of electronic conveyancing. But it is clear that there is a long way to go. In this transaction, it was simply the case that the sale contract was signed by an e-signing process. The rest of the transaction proceeded as normal.

On 5 April 2018, the first digitally-signed mortgage was entered into the Land Register – a re-mortgage of a house in Rotherhithe, London. This was done using the "Sign your mortgage deed" service, which enables parties to sign the mortgage deed online. To use this process, the parties verify their identity using gov.uk Verify, which is a secure means of proving identity online.

It is tempting to think that these transactions herald the dawn of a new age of blockchain-based conveyancing in the UK, but neither used blockchain technology at all. The contracts were not smart contracts, but standard contracts that were electronically signed.

The Law Commission appears to have little confidence that adequate systems will be put in place any time soon to facilitate fully blockchain-based land registration in the UK in the short to medium term.

We're not quite there yet

Although there are clearly identified problems with land registration in England and Wales, and blockchain-based land registration offers solutions to some of these, practical implementation of a blockchain-based land registry is still some way off.

It is, however, encouraging that the government and law reform bodies are looking at electronic conveyancing and blockchain as a means of addressing these issues, and taking (very) small steps towards this.

Once blockchain-based land registration is introduced, there are myriad benefits for investors in property. It has the potential to increase liquidity, mitigate risk, and reduce costs, all of which would make property investment an even more attractive prospect. In England and Wales, at least, we still have some time to wait before these benefits are realised.

What are other countries doing?

The adoption of blockchain for land registration in the Ukraine, Georgia and Sweden has been widely reported.

Additionally, in the developing world, where there is currently no existing system of land registration, there are clear arguments for introducing blockchain-based land registries:

  • In some countries, the lack of reliable evidence of property ownership presents significant problems.  For example, it has been reported that following the 2010 earthquake in Haiti, recovery efforts face major problems to this day, because the ownership of large areas of land cannot be identified. 
  • A project is currently underway to establish a blockchain-based land registry on the Etherium blockchain in the city of Panchkula, in the state of Haryana in India.  If this works, it will provide valuable evidence to recommend the wider introduction of similar registries.

There are also clear arguments in countries where land registration has evolved recently, and in a piecemeal basis, and where there are extensive funds and appetite for innovation:

  • The Dubai Land Department has announced that it is using a blockchain system which records all real estate contracts, including lease registrations, and links them to the Dubai Electricity and Water Authority, the telecommunications system, and various property-related bills.  This also incorporates personal tenant databases, including identity cards and residency visas, and allows payments to be made electronically.  Dubai intends to be the first government in the world to apply all transactions through blockchain by 2020.

If you have any questions on this article please contact us.

buildings at an intersection
Katherine Lang

Is blockchain the solution to issues with land registration?

"Once blockchain-based land registration is introduced…it has the potential to increase liquidity, mitigate risk, and reduce costs, all of which would make property investment an even more attractive prospect."