Electronic Signatures for tenancies – looking at the law
Under the Law of Property Act 1925, all legal interests in land must be created by deed. ... The Law of Property does, however, make an exception to this in s54(2) ... "
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Tenancies and Leases
Let us start by looking at what we mean when we talk about a tenancy or lease.
Under the Law of Property Act 1925 there are two ways that you can own a legal interest in land (bearing in mind that technically the Monarch owns all the land and our ownership of / interests in land are subject to this).
1 An estate in fee simple absolute in possession
This is freehold ownership of land and is the nearest we can get in our system to absolute ownership of land.
2. A term of years absolute.
This is where someone takes a lease or property. During the period of the lease they ‘own it’ or perhaps it is better to say that they have a legal interest in it, subject to the payment of rent, the right of the landlord to recover it back at the end of the lease (the reversion) and various other rights or obligations which will depend on the legislation which affects the type of lease we are talking about.
A term of years or lease is ownership of land, but it is a lesser ownership than freehold, as it is carved out of the freehold interest and is subject to it, and is limited in time.
There are various types of lease but the one we are concerned about here is the short let, which is generally known as a tenancy. Note that a tenancy IS a lease, but it is convenient to use the term ‘tenancy’ to refer to a short let, which most commonly will be for a period of six months to a year.
Creating a lease
Under the Law of Property Act 1925, all legal interests in land must be created by deed.
A deed is
- a ‘wet’ signature
- where the parties intend the document to be a deed (which is normally evidenced by having words such as ‘this document is signed as a deed’ or ‘signed as a deed’ next to the signature area of the document), and
- where the signature is witnessed by an independent witness who needs to give their name and address on the deed.
The Law of Property does, however, make an exception to this in s54(2). This states
Nothing in the foregoing provisions of this Part of this Act shall affect the creation by parol of leases taking effect
- in possession
- for a term not exceeding three years (whether or not the lessee is given power to extend the term)
- at the best rent which can be reasonably obtained
- without taking a fine.
(my formatting). Creating a lease by parol means that it is created orally, or in writing but not under deed.
What that means is that a tenancy, provided it is for a term of not more than three years, can be created without a deed, and indeed without any written paperwork at all:
- from when the tenants move in
- provided the term is not more than three years
- provided the rent is reasonable, and
- provided there is no payment for the lease (as for example you have with long leases which typically have a large upfront payment for the lease and then a modest ‘ground rent’)
This is very important. What it means is that whenever someone moves into a property and starts paying rent – a tenancy will automatically be created.
The terms of that tenancy will either be implied or will be subject to any written terms set out in an accompanying contract.
How will this work in the context of electronic signatures?
We need to step back a bit here and consider that a tenancy consists of two elements:
- the legal ownership of the land / property (as a ‘term of years’)
- the terms and conditions under which the tenant will occupy that property
So far as 1. is concerned, a written tenancy agreement is strictly speaking not necessary as a valid legal tenancy will be created as soon as the tenant has moved in and started paying rent.
However so far as 2. is concerned, this falls under contract law and you do not need a written deed, or even a written document, to create a contract.
So the contractual terms of a tenancy will be equally enforceable whether they are created by deed or whether they are created under a document which is signed electronically. Provided always that there is no question as to the identity of the signing parties.
Let’s now take a look at how the creation of a tenancy will operate in practice.
Electronic signatures of tenancy agreements in practice
I need to start by saying that you cannot create a tenancy with a term of more than three years with an electronic signature.
This should not cause a problem in most cases, as the majority of tenancies are for a term of 6 or 12 months. However, if you do want to create a tenancy of over three years, you will need to do it the traditional way with a tenancy agreement drafted as a deed, signed physically with a ‘wet’ signature in front a witness.
Otherwise, it will work as follows:
1. The tenant will (hopefully) read and approve the document and will then sign electronically the tenancy agreement terms and conditions.
At this stage, he will not actually have a tenancy. He will, however, have a binding contract with the landlord (through his agent if the contract is issued via an agent) to be granted a tenancy of the relevant property.
So if he is not allowed in at the proper time, he will have the right to claim compensation and/or the right to go to court to request that the tenancy be granted to him as provided in the contract. If the tenant fails to pay rent the landlord has the right to claim this at court (provided the property was available for the tenant during the period of time rent is claimed and was not let to someone else).
2. The landlord will then issue the keys to the tenant and the tenant will move into the property.
It is at THIS stage that the actual tenancy, as in the legal interest in the property, will be created. The tenancy will be subject to the terms and conditions as agreed between the parties and signed electronically by the tenant previously.
In point of fact, the electronic document will have the same legal status as any other tenancy agreement which is not signed as a deed (which is probably the majority of tenancy agreements). A legal tenancy can ONLY be created
- By deed, or
- By the tenant moving in and starting to pay rent.
Conclusion
As a tenancy will be created automatically when the tenant moves into the property, there is no reason why the accompanying terms and conditions should not be signed electronically rather than with a ‘wet’ signature, as is more commonly done nowadays.
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Some Q&A
(These were questions asked by the customers of the client I did my advice for. If you have any more questions put them in the comments below and let me know.)
Q. Is an electronic signature as valid as a “wet ink” signature?
A. For the contract element of the tenancy, yes. However, it will not of itself create a tenancy as this can only be created by deed, save where s54(2) of the LPA 1925 applies.
Q, Is there case law for any contracts being concluded online?
A. I am not aware of any actual case law, but as technically no written document is required at all for a contract, an online agreement will suffice. For example, handing cash over to a shop owner for a bar of chocolate is a fully enforceable contract for the sale of goods.
Q. Should it be contested, will my online lease stand up in court?
A. It should do. However, it may be as well to remind the Judge (should he question this) that a tenancy is always automatically created when a tenant goes into a property and starts paying rent, under s54(2) of the LPA 1925. See also the next question.
Q.Is my online lease the same as a paper and wet ink Assured Tenancy Contract?
A. No. There could potentially be issues if the tenant refuses to go ahead with the tenancy saying that the electronic signature was not his act and was done (for example) maliciously by someone pretending to be him (or her).
With a paper agreement with a wet signature, the landlord or agent will either see the tenant actually sign the agreement in front of them, in which case the tenant cannot argue this, or if they sign it out of the office, you will normally be able to see from the signature whether it is a forgery or not.
Q. When is my online lease enforceable from?
A. The contract element will be enforceable from the time the electronic signature is done. The tenancy, however, will not be created until the tenant moves in and starts paying rent.
Q. Are there any cases of any type of tenancy agreement with an e signature being used in a court case relating to any tenancy related matters?
A. I am not aware of any.
Q. Are there any cases where an e signature has been refused by a court for tenancy related matters?
A. I am not aware of any cases where this has happened. There are many thousands of cases and most of them (particularly county court decisions) go unreported. However if there had been a binding decision on this point, I would expect to know about it. It would almost certainly have been widely reported as this is a subject of interest to many in the profession.
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