Commercial property

Coronavirus: commercial property transactions during lockdown

UPDATED 13th May 2020

Lockdown has shown how much we take for granted and rely upon our ability to see each other, whether in a social or professional context.  For commercial property transactions there are procedures we routinely follow to satisfy the formal requirements for entering into and concluding transactions.  How can these now be done?

Execution of deeds

On 7 May 2020, the Law Society issued a statement updating its position regarding the use of virtual execution and e-signatures during the Covid-19 pandemic, which can be found here.  In summary, the current legal position remains as it was prior to the pandemic, namely as set out in:-

  • The Law Society’s practice note from 2016 permitting electronic signatures; and 
  • The Law Society’s practice note from 2010 permitting the execution of deeds and documents in accordance with the decision in Mercury Tax Group (and another) v HMRC [2008] EWHC 2721 (Mercury).  This allows documents to be sent to clients in their final form to print, sign, scan/photograph and then return by email. 

Up until now, the main issue with adopting the Mercury procedure, is where the document (a transfer, leases charge etc.) required registration at the Land Registry.  When submitting a document for registration, the solicitor must confirm that they hold the original and that the document being submitted is a certified copy of that original.  This will not be the case if the document in question was completed on the basis of a scanned copy of the wet signature page, as the solicitor will not have the original signed page in their possession.

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Due to the ongoing restrictions in place due to the COVID-19 pandemic, the Land Registry have temporarily agreed to accept deeds that have been signed using the Mercury procedure, provided that the signature page has been signed and witnessed (if necessary) in pen and then returned by email with the final agreed copy of the document.  The signature page can be captured by scanning or using a camera, so either PDF or JPEG formats are acceptable.  The Mercury procedure is set out below:-

  1. Make sure all parties' and their lawyers have agreed to the proposed arrangements for the virtual signing/closing before execution.
  2. Make sure the final execution copies of the documents are e-mailed as a PDF or Word attachment to all absent parties and/or their lawyers, as agreed. You may attach a separate PDF or Word document containing the relevant signature page for convenience.
  3. Each absent signatory prints and signs the signature page only (there is no need to print off the full document).
  4. Each absent party then returns a single e-mail to their lawyer or to the lawyers co-ordinating the signing/closing, as agreed, and attaches both the final version of the PDF or Word document and a PDF copy of the signed signature page. For a deed, you must either make clear when delivery is to take place or that it has not been delivered merely because it has been signed and the steps set out above followed.
  5. At or shortly after signing/closing, you may wish to evidence the execution of the final document. A final version of the document, together with copies of the executed signature pages, may be circulated by one of the law firms.

The PDF or Word final version of the document and the PDF of the signed signature page will constitute an original signed document and equate to the 'same physical document' referred to in Mercury. 

You may create one or more additional originals by printing off the final execution copy of the document and attaching it to the PDF copy of the signed signature page. 

The position regarding the physical witnessing of documents remains unchanged.  This must be done in person.  It is not acceptable to virtually witness someone signing a document using video calling. For those who are shielding or having to socially distance themselves from others (i.e. those living alone), a practical solution is for someone to witness the signature of a document through a window and then for the document to be left outside for the witness to sign and insert their information.

Signing a commercial property contact

Where there is a sale contract, for example, this would normally be signed in two separate copies by the buyer and the seller. They would then give their signed copies to their respective solicitors to hold until exchange of contracts is ready to take place.  Usually the solicitors agree on the phone to follow a Law Society formula in order to achieve legal exchange of contracts during that phone call, following which they post the signed contracts to each other.

But what if any of the above steps are not possible?  Maybe there is time pressure to exchange, or maybe one of the parties cannot physically sign the contract, or cannot deliver it to their solicitor – or we’re in a lockdown situation. One thing to be aware of is that whilst contracts dealing with property need to be signed, it is permissible for the contract to be signed on behalf of the parties to it.  Somebody can therefore sign the contract on behalf of the buyer or seller as their agent (so long as they have clear authority to do so), and this is most commonly the solicitor his or herself.  

Can commercial property contracts be signed with electronic signatures?

It’s not written in law, but recent guidance from both the Law Society and the Law Commission suggest this is possible.  In 2016, the Law Society published a practice note, jointly with City of London Law Society, concluding that an electronic signature is capable of satisfying a statutory requirement for a contract to be signed.  In 2019, the Law Commission published a report on electronic execution of documents, concluding that an electronic signature is capable of being used to validly execute a document (whether or not there is a statutory requirement to sign) provided that the person signing the document intends to authenticate the document and that any execution formalities are satisfied.  

Assuming that contracts have been signed, the buyer and seller should be aware (and practitioners should remember) that it is perfectly possible to exchange property contracts where one solicitor is holding both signed parts of the contract (as opposed to just their own client’s).  The solicitor holding the signed contracts dates them both, and then posts the contract signed by its own client to the other solicitor.

What if signatures need to be witnessed during lockdown?

In order to be ready for completion, the parties need to have correctly “executed” any deeds which will give legal effect to the transaction.  Such documents require more than a simple signature from the contracting party.  In the case of an individual, they must sign deeds in the presence of a witness, who then signs themselves to confirm that the deed was signed in their presence.

During lockdown witnessing the signing of deeds may become problematic.  The view that an electronic signature may be used when executing a document applies to deeds as it applies to contracts. However this does not address the additional formality where that signature (whether physical or electronic) must be witnessed in order for the deed to be validly executed. 

Where a deed is being entered into by a company operating under the jurisdiction of England and Wales, the Companies Act 2006 provides that such a company may validly execute a deed by the signatures of two “authorised signatories” (i.e. either two directors, or a director and secretary).  Importantly, in the context of Coronavirus social distancing, there is no requirement that these two signatories sign at the same time or place.  

However where the party is an individual rather than a company, witnessing will be required, and the physical presence of the witness presently remains a requirement.  The good news, however, is that almost any other individual can act as a witness, and there is no requirement that this witness be independent, unrelated, or even an adult.  Good practice dictates that the witness should satisfy all of these descriptions, however where the party is affected by lockdown, the witnessing by a member of the same household could be the only practical option, which all parties to the transaction should understand.

Can a statutory declaration be made remotely under lockdown?

With most solicitors now working from home, the administration of statutory declarations has become more difficult.  The question of whether a statutory declaration can be administered “remotely” was considered by the Law Society before this pandemic arose. Then the Law Society stated that it remains the custom for the declarant to be physically present before the solicitor.  Whilst this particular statement was removed from the Law Society’s website following the outbreak of the pandemic, the safest practice (in terms of avoiding any future argument that a statutory declaration has not been validly administered) is to observe this guidance until new legislation or professional guidance is issued.  

What is a statutory declaration?

A statutory declaration is a legal document that confirms that something is true where there isn’t any evidence to prove it, such as documentation.  The statement is made to the best knowledge of the person making it.  It has to be signed in the presence of a solicitor (or commissioner for oaths or notary public). This person has to be a different person than the person acting for you, because a different person is impartial and this establishes the declaration’s validity as being accurate and true.

Statutory declarations are frequently used in commercial property transactions.  Here are two examples:

  • A seller may confirm by way of a statutory declaration that they exclusively occupied a piece of land (to which they do not otherwise have title) for a certain period of time.
  • In a business lease, the landlord and tenant may have agreed that the lease will be “contracted out” of the Landlord and Tenant Act 1954 (“the 1954 Act”), which usually involves the tenant signing a statutory declaration in front of an independent solicitor before completion.  

Completing new “contracted out” commercial property leases

Where it’s possible to use an alternative form of declaration or statement which do not have to be independently witnessed or administered, for example a “simple declaration” or a “statement of truth”, then these options should be considered for convenience at this time.

Here’s an example of this more pragmatic approach: it’s possible for a business tenant to sign a simple declaration instead of a statutory declaration as part of the process of contracting its new lease outside of the 1954 Act.  If the landlord and tenant agree to this method, then there must be a period of at least 14 days between the landlord giving the tenant the notice (warning that the lease being offered will be outside of the protection of the 1954 Act) and the date of the lease being entered into.  This contrasts with the method under which a statutory declaration is used, where there is no time period that the parties must wait after the warning notice is given, before the lease may be entered into.  At a time where landlords and tenants may be in no particular rush for the new leases to commence within the next 14 days, the use of simple declarations should be the preferred method when contracting business leases outside of the 1954 Act. 

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