By Russell Cocks, Solicitor

First published in the Law Institute Journal

Proof of ownership of land has traditionally been linked to a document. Prior to the advent of the Torrens system of land ownership, proof of ownership depended entirely on possession of all prior documents establishing a chain of title and transfer of ownership was achieved by the addition of another document to that chain. The Torrens system simplified that process but still relied on documentary evidence to establish ownership.

The Transfer of Land Act is the statutory foundation for the Torrens system and that Act created an official record of ownership, being the ‘original’ certificate of title retained by the Registrar as a folio of the Register Book and a copy or duplicate certificate of title held by the owner as proof of ownership. The Land Titles Office has been moving away from this paper based system progressively over 20 years and whilst the fundamental principles of Torrens have been retained, reliance on paper has been diminished.

A major signpost in this change was the conversion of the original certificate of title from paper form to a computer based record and the consequent removal of reference to the ‘duplicate’ certificate of title. The document held by the owner to establish ownership was thereafter simply known as the certificate of title but the Act still required production of the certificate of title before the great majority of dealings could be registered. The production of the certificate of title was therefore part of the process of ‘making title’ that harked back to the obligation to produce the chain of title in pre-Torrens days.

Electronic conveyancing has now progressed to the stage that the need to produce a paper title as part of that process cannot be accommodated. To undertake an electronic conveyancing transaction the paper title (pCT) must be converted to an electronic title (eCT) and once that conversion has occurred the Registrar is not required to produce a replacement paper title unless requested to do so (s 27B). Ultimately, all paper titles will be replaced by a digital record in the Register and proof of ownership will be established by a printout of the Register. Hence the need for a strict Verification of Identity protocol.

What then of the requirement to ‘make title’? The relationship between a vendor and purchaser is principally governed by the contract of sale of land and most sales have adopted the standard contract. This in turn has adopted many of the principles developed by the Common Law; such as the doctrine of fixtures and principles relating to misdescription and liability for notices. The requirement to ‘make title’ in previous versions of the standard contract was reflected in conditions that required the vendor to ‘produce all documents necessary to allow the purchaser to become the registered proprietor’ but the current contract requires the vendor to ‘do all things necessary to enable the purchaser to become the registered proprietor’, thus removing the need to produce a document.

To fulfill this contractual obligation where the title has been converted to an eCT the vendor must ensure that the eCT will be available at the Titles Office for the purpose of registering the proposed transfer of land and associated transactions. This is achieved by an Administrative Notice undertaken in the electronic environment whereby the eCT is nominated by the party in control of the eCT to be available for registration of the forthcoming instruments.

A Register Search Statement obtained by a purchaser prior to settlement will confirm this nomination and that the vendor has thus fulfilled the contractual obligation to ‘do all things necessary’ to allow the purchaser to become registered. If the transaction is being conducted as a paper settlement, the RSS will note that the eCT has been nominated to a paper instrument and the stamped Transfer is lodged at the Land Titles Office in the normal way after settlement to meet up with the eCT and be registered. In the ordinary course, a paper title will not issue after registration of that dealing and the title will remain an eCT under the control of the registered proprietor or mortgagee.

Electronic conveyancing has been a long time coming, but it is now coming with a rush. The bulk conversion of some 2 million titles held by the major banks in October 2016 means that many more transactions will involve eCTs. Fundamental principles have been massaged to accommodate the digital world and practitioners will need to understand the changing landscape to be able to continue to service the needs of their clients.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

By Russell Cocks, Solicitor

First published in the Law Institute Journal

The much anticipated arrival of electronic conveyancing, at least in relation to settlement, is upon us, with PEXA (Property Exchange Australia) providing a platform for firms to engage electronically. The authors of the Law Institute of Victoria contract of sale of land – Murray McCutcheon, David Lloyd and Russell Cocks – have therefore drafted a special condition that may be added to the general conditions to facilitate electronic settlement.

A more detailed explanation of how conveyancing will be conducted in the electronic environment and the significance of the special condition will follow early in 2015 but the following summary will allow ‘early adopters’ to feel comfortable with the special condition.

The condition is referred to as special condition 2 as the LIV contract already has special condition 1, which deals with the consequences of release of the deposit. This condition is designed to follow that condition. The condition adopts the established practice of providing a ‘tick box’ format to signify that the condition applies to the particular contract.

Clause 2.1

Reference to the Electronic Conveyancing National Law means that the Model Operating Rules, the Participation Rules and the Participation Agreement underlay the contract and can be called into operation if required.

Clause 2.2

There may be occasions when the parties will not be able to proceed electronically. For that reason, the parties may choose to opt out of electronic conveyancing at any time without any penalty.

Clause 2.3

This clause makes parties responsible for ensuring that all participants that the party introduces to the transaction, such as a financier, are subscribers.

Clause 2.4

The vendor must open the workspace in PEXA. This is consistent with the vendor’s role of preparing the contract of sale. The subclause requires the vendor to do so as soon as reasonably possible.

The other important issue addressed in this subclause is the statement that the workspace is an electronic address for service of notices. This has significant legal and operational consequences for subscribers. A subscriber may miss a significant communication, such as a rescission notice if the subscriber does not diligently monitor the workspace.

Clause 2.5

Settlement date will be known to the parties well in advance. The workspace will need to be locked at some time on the settlement day, by which time the parties will need to be in a position to settle.

Clause 2.6

Settlement in a paper transaction is effectively that point when cheques are exchanged for documents. This concept has been carried into the electronic environment and settlement is defined as the financial settlement. Just like a paper transaction, financial settlement occurs before registration, but it is anticipated that the potential time delay between settlement and registration will be reduced from days or weeks to milliseconds.

Clause 2.7

Settlement in a paper transaction may be delayed by a computer failure or by somebody missing a tram. If that occurs, settlement must be rearranged. Likewise, an electronic settlement may be delayed by computer failure. This sub-clause requires the parties to attempt to conduct a failed transaction electronically on the next business day or as soon as possible by some other (paper) means.

Clause 2.8

Provision has been made for each party to assist any other party in the event of a mistaken payment. It is likely that this obligation flows from the general contractual duties owed by the parties to each other, but the opportunity has been taken to express the obligation.

Clause 2.9

Electronic conveyancing removes the need to exchange title for payment, but a paper settlement often involves the vendor physically handing over additional documents, such as leases. This sub-clause requires the vendor to confirm possession of such items prior to settlement and to give those items to the purchaser immediately after settlement.

The sub-clause also addresses, for the first time, the vendor’s obligation in relation to keys and requires the keys to be with the agent prior to settlement. As at present, the agent will be notified of settlement and then be in a position to hand over keys.

Clause 2.10

As payment of duty will be simultaneous with settlement, all requirements of the State Revenue Office must be satisfied prior to settlement. This will require the purchaser’s subscriber to certify via Duties Online that all documents are in order. To do so the vendor will need to provide to the purchaser any original document that is required for the assessment of duty, such as a Goods Declaration or Off the Plan Declaration and this subclause requires such documents to be provided 7 days prior to settlement date.

Systems failure

The advent of electronic conveyancing makes settlement more dependent on computers. The authors considered providing for the consequences of system failure, particularly in a time-poor environment such as rescission, but resolved to leave that issue for determination of the court in appropriate circumstances.

The special condition is available in print form via the LIV Bookshop, in electronic form from elaw publishing and for downloading from the LIV website.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.