Written by Leonard A. Gangbar, Jane C. Helmstadter and Sandra Geddes
Over the last 20 years, since the introduction of the electronic land registry system, real estate in Ontario has slowly been making its way into the electronic age. On July 1st, 2015 another step was taken. All real estate documentation may now exist and be signed electronically as the result of an amendment to Ontario's Electronic Commerce Act, 2000. The fundamentals of real estate transactions will not change, but parties will now be able to sign documents electronically. This may be as simple as copying or scanning an "original ink" signature or it may involve electronic signature technology that provides various security features to ensure that the signature was attached to a document by the proper party. There are many providers of electronic signature systems, and many different systems available on the market. Parties to a real estate transaction may need to adjust their document management processes to ensure their electronic documents and signatures will be considered authentic and reliable by others. Even with the amendment to the Act, parties are not required to deliver or accept electronic signatures unless they agree to do so, especially with public bodies. Paper documents with ink signatures continue to be equally acceptable. As with physical documents, care must be taken to ensure proper execution of electronic documents, that all parties are signing a copy of the "same document," and that no changes are made to the document after execution.
Effective July 1, 2015, electronic documents that create or transfer interests in land and require registration to be effective against third parties may be used in real estate transactions, and those documents may be executed electronically as well. The provision of the Act that prevented it from applying to those documents, section 31(1)4, has been repealed. Documents that create an interest in land, such as agreements of purchase and sale and leases, may now exist and be signed electronically, with statutory confirmation that the electronic documents satisfy the writing and signature requirements of the Statute of Frauds (s. 5 of the Act).
How will this Change Real Estate Transactions?
They may not change much, depending on the circumstances of the parties, their solicitors, and the nature of the transaction. The change made by the July 1st amendment to the Act relates only to documents that create or transfer an interest in land and require registration to be effective against third parties. All other documents and signatures, whether real estate related or not, have fallen within the ambit of the Act since it came into force in October, 2000. The Act still does not permit electronic wills, codicils, powers of attorney, or negotiable instruments. Ontario's electronic land registration regime continues to apply to the actual registration of documents in the land registry offices.
To the extent any documents contemplated by federal legislation are involved (for example, under the Canada Business Corporations Act or the Bills of Exchange Act), the Personal Information Protection and Electronic Documents Act and the Secure Electronic Signature Regulations apply. Their threshold for the use of electronic signatures is narrower than the Act's threshold is, and their technology and process requirements are more detailed.
No one is required to use, accept or provide electronic documents or electronic signatures; each party must consent, explicitly or implicitly, except for public bodies, which must consent explicitly (ss. 3, 14). Use of electronic documents and electronic signatures in real estate transactions will depend on the circumstances and the comfort levels of the parties, and the technology in play.
Parties and their solicitors will want to be assured that the right people have executed the proper version of a document, and that the document has not been changed since it was signed. The definition of "electronic signature" in the Act is broad, and can be anything from a PDF signature block pasted onto a document to a highly secure digital signature like those required for registration under Ontario's land registry system. Some members of the legal profession in Ontario have expressed concern about how to satisfy themselves of the reliability of electronic signatures respecting the identity of the person signing and the association of that signature with the correct electronic document absent a very secure system. The degree of concern will likely increase correspondingly with the value of the transaction. There may be lawyers who continue to prefer physical execution of paper documents at their offices in some circumstances. Some lawyers and clients who have a large volume of routine documentation requiring execution may consider acquiring electronic signature technology.
Electronic Signature Technology
For those who are considering purchasing technology, many electronic signature technology and providers exist, facilitating electronic and digital signatures on different platforms with different advantages and disadvantages. Some provide their services through the Cloud, and some require installation on their customers' own servers. Some enable a "cursive" signature using a mouse or touchscreen, some use encrypted signatures and need public and private keys. Providers use many authentication methods and provide a range of related services, so it is important to consider one's needs, the compatibility of the products with one's existing systems, and the constraints imposed by any applicable regulatory bodies, as well as price, when deciding which product, if any, to use. Ensure that the technology is sufficiently secure and will provide an e-signature that is (i) unique to each user and capable of identifying the user, (ii) under the sole control of the user, (iii) linked to the underlying document and prevents tampering with it, and (iv) capable of being authenticated.
What does the Electronic Commerce Act, 2000 do?
It draws attention to the attributes of documents and signatures and reminds users to ensure that the processes they would follow to satisfy themselves respecting paper documents and ink signatures are translated into electronic processes.
The Act does not change any requirements for establishing legally enforceable documents, but rather establishes a set of "functional equivalency rules" for electronic documents and signatures. Electronic documents must still be authorized, executed and delivered, and a meeting of the minds must still occur for an enforceable contract to exist. Many of the terms in the Act are broad and not defined, leaving it up to the users of the electronic documents to determine if the standards are met to their satisfaction. Generally, the Act requires electronic documents to be accessible by the intended recipient, capable of being retained by the intended recipient, and there must be "reliable assurance as to the integrity of the information" in the electronic document, meaning there needs to be evidence that the document is complete and unaltered (ss. 6(1), 8(1), (2)), which is likely to come from the document management system containing that electronic document. Where a document has been signed electronically, the electronic signature must be reliable for both identifying the signatory and for associating the electronic signature with the correct electronic document (s. 11(3)). Additional rules apply when dealing with public bodies (ss. 14-17).
The Act also provides rules for determining when an electronic document has been sent, and the presumed time of receipt (s. 22), but it would be prudent to ensure these rules are practicable before defaulting to them. The parties may contract out of section 22.
Even though the parties may be satisfied with compliance with the Act on closing a transaction, parties should remember that should things go awry, the electronic documents must be proven authentic in court under section 34.1 of the Evidence Act and those requirements may be more stringent than those the parties accepted on closing. The person relying on an electronic document must prove that it is what it is claimed to be. To do this, the proponent must prove the integrity of the electronic document system where the document's contents were recorded or stored, or by proving reliable encryption techniques were used to support the document's integrity.
What does all this mean?
The fundamentals of real estate transactions will not change, but parties may need to adjust their document management processes to ensure their electronic documents and signatures will be considered authentic and reliable by others. Even with the amendment to the Act, and whether an electronic document creates or transfers an interest in land or not, parties are not required to deliver or accept electronic signatures unless they agree to do so, especially with public bodies. If parties agree to use electronic documents, the format must be accessible and not ephemeral, and the system producing the document and any electronic signatures must reliably protect the authenticity and integrity of the documents and signatures. As with physical documents, care must be taken to ensure proper execution of documents, that all parties are signing a copy of the "same document," and that no changes are made to the document after execution.
Please contact a member of our Toronto Real Estate Group if you would like further information.