Ontario Consults on a Potential E-Signature Regulation for Real Estate
The Ontario government is consulting on whether to make a regulation under the Electronic Commerce Act to govern electronic signatures to be used on agreements of purchase and sale of real estate.
Draft Regulation
1. For the purpose of subsection 11(4) of the Act, the following class of documents is prescribed: agreements of purchase and sale of land in Ontario.
2. A legal requirement that a document of the prescribed class be signed is satisfied by an electronic signature only if the method of signature used:
a. Is reliable for the purpose of identifying the person who signs;
b. Ensures that the electronic signature is permanent and cannot be removed from the signed document; and
c. Is accessible so as to be usable for subsequent reference by any person who is entitled to have access to the document or who is authorized to require its production.
Here is the Regulatory Registry posting, with a link to the full consultation document.:
Here is the news release
Should Ontario make a regulation to govern e-signatures in agreements of purchase and sale, and if so, is the proposed draft a good one to make? Read the full consultation document before responding…
John G
It might make sense to disclaim a preference for something that’s changing rapidly. The “user decides” rule should suffice until such time as the computer industry catches up to, say, 1977.
The theory of those who are asking for a regulation is that the user is at significant risk of deciding to use an e-signature method that exposes the transaction to fraud. A regulation of the kind described above would guide the user toward a more secure signature, and one that would be more likely to leave evidence for an investigator or prosecutor.
The draft regulation describes the required signature method by generic functions, not by technology. The functions are not changing; any technology that performs the functions would satisfy the regulation.
What in your view is the computer industry ‘catching up’ to, and why does it matter for this discussion?
The Canadian Lawyer magazine has a pretty accurate article about the e-signature consultation.
They have found a real estate lawyer who is not very interested in doing e-signatures in her practice. She is quoted as saying, “We really do not live in a paperless world when it comes to real estate.”
Is she right, or is she missing the paperless boat, as it were? Certainly the Law Society’s rules and FINTRAC’s rules about knowing your client would continue to apply. But once you have established the client’s identity, would it be convenient from time to time to have documents signed remotely, on a sufficiently reliable system?
A good deal of the debate is whether there *is* a sufficiently reliable system – or one that places the risks and liabilities in the right place, at the right level – and whether the discussion draft regulation describes it adequately – and of course whether things would work fine with no regulation, given the parties’ other obligations.
The E-Commerce Act allows for electronic equivalents of writing and signature but does not require anyone to accept them, so it would apply to support the legal validity of transactions only where the parties agree to use e-documents.
Hello John,
Can’t resist chiming in given the topic of your consultation. ;) Apologies for the lengthy introduction I wanted to set the context for my feedback. Readers familiar with electronic v. digital signatures can skip ahead to the last para below.
Disclaimer. I work at Notarius, a Canadian-based supplier of digital signature solutions and partner to 23 professional associations across Canada. Over 13,000 professionals use our digital signature services. I offer the following comments as a member of the Quebec Bar and passionate advocate of document security.
Common semantic ground. Let’s agree that electronic signatures is a very large, all-inclusive category of anything in electronic media that fits the following description: “A signature is a permanent mark affixed to static information that is associated to a specific individual, personal to that individual and reflects an intention”. There are thus 6 teleological ingredients to a signature (mark is permanent, linkage between mark and signed information, signed information is static, mark is associated to a person, mark is personal to a person, mark reflects an intention) and the extent to which these ingredients are present will determine the reliability of a signature. Let’s further agree that digital signatures are the subset category of signatures reinforcing with cryptography the link between the author of a signature and the information signed.
Legal ramifications of using electronic v. digital signatures. Quebec legislation, not unlike other Canadian Federal, Provincial and Territorial jurisdictions, has legislation promoting the principle of neutrality when it comes to technology. See in particular An Act to Establish a Legal Framework for Information Technology. Electronic and digital signatures are not, however, equal. For example, in the previous cited statute in Quebec, art. 5 makes it clear – about the legal value and integrity of documents – that “A document whose integrity is ensured has the same legal value whether it is a paper document or a document in any other medium, insofar as, in the case of a technology-based document, it otherwise complies with the legal rules applicable to paper documents” (emphasis mine). Failing the integrity test does not bar the document from being adduced into evidence, it means the document can only serve as commencement of proof. Under the current state of technology, only some digital signatures ensure the integrity and origin of electronic documents. An electronic document with a copied / pasted .jpeg image of a manuscript signature can be too easily forged, for example.
When are digital signatures optimal? Digital signatures are optimal when the individual signing (or server in some cases) routinely signs documents for which there exists a high need to be sure about the following:
– Origin. Is is important to be sure of the origin of the document, i.e. the identity of the signer, his or her professional credentials, the date/time stamp, etc.?
–Integrity. Is it important the document has not been tampered with? Or, if an annotation has been made, for the reader to be aware that a portion of the document is an annotation made after the signature?
– Long-term preservation. Is it important that this document be readable, reliable and authenticated in 5, 10, 20 years? If so, PDF/A and long-term validation (LTV) may be requirements; and
– Authenticity. Also dubbed “portability”, this requirement reflects the need for a document to travel on its own and still remain authentic. A digitally signed document retains its authenticity whereas most electronically signed documents do not as they are deprived of Electronic and Document Management System evidence inherent in a closed system.
What of real estate transactions? Ok so now on to your request for feedback and opinions. Here it goes:
– Lawyers and notaries (for BC and Quebec) finalize real estate transactions. Inasmuch the law requires them to ascertain the veracity of information stated on real estate documents (including the identities of parties involved), I hardly see how they could or should be coerced into accepting any authentication method, simply because the onus and responsibility is on them, as you rightly point out in your comment;
– This means that even if legislative environments allow electronic signatures, their reliability may be deemed insufficient for certain classes of transactions and documents. I am of the opinion that real estate transactions fall in that category;
– In addition, with regards to the proposed regulation Considering the security of electronic agreements of purchase and sale: Electronic Commerce Act, Possible e-signature regulation in which I see “Just as with handwritten signatures, it is up to the person relying on them to decide if they are sufficiently reliable”, I submit that for real estate transaction a notion of public order intervenes. As opposed to purely private transactions, a public interest exists (certainly in Quebec under civil law) in maintaining a reliable real estate registry. This means government is rightly so positioned to provide a framework of acceptable signatures as opposed to solely relying on the judgment of parties relying on signatures; and
– So, this brings us to the $1M question: how can real estate transactions take advantage of delocalized / electronic / digital signing? Until the Digital ID & Authentication Council of Canada answers that question, I believe the answer to that question lies in a technology mix. For example, legislation permitting, a lawyer or notary that is satisfied of the veracity of declared information on real estate transaction documents could digitally sign & seal real estate documents with a high reliability digital signature. This mix takes into account the fact that high reliability digital signatures, although they can be subscribed to by professionals, are rarely used by consumers (unless they are state provided).
Feedback on Regulation. There currently are three requirements at para 2 of the proposed regulation (a, b and c). I suggest to add and rephrase these requirements as follows:
– Is reliable for the purpose of identifying and authenticating the person who signed;
– Provides a reliable date/time stamp associated with each signature;
– Is reliable in ensuring that no information in the document signed has been altered;
– Allows for the document to be annotated after signing only if such annotations can be removed to view the document as it was originally signed; and
– Allows for the document to be read and authenticated over the life cycle of the document by any person who is entitled to have access to the document or who is authorized to require its production.
I appreciate the time Patrick has taken to comment in detail – and his expertise. Is there general acceptance, however, that a real estate transaction in Ontario needs the full apparatus of a digital signature (i.e. one based on public key encryption) to be valid in law?
We recall that both lawyers and real estate agents (and financial institutions) are bound by federal law (via FINTRAC) to very detailed know-your-client rules. Once they have identified their clients under those rules – which have different standards for people whom one meets personally and for those whom one does not – then would some other authentication mechanism be satisfactory? And do we need to impose a regulation on people already subject to such detailed rules on the topic?
We are talking about basic validity, not about ‘best practices’. We are also talking about possible transactions among people not represented by agents or lawyers. Is the risk of fraud so high as to invalidate any electronic transaction that is not done with this level of sophisticated (and not necessarily widely available) technology?
Or are the digital signature functions of Adobe Acrobat sufficient for the possible regulation?
The E-Commerce Act says that it does not require any person to use or accept information in electronic form. So anyone nervous about any e-document or about any particular e-document can refuse to accept it and can insist on paper or insist on a particular degree of electronic security.
The question is whether the government should impose a level of security on anyone who transacts electronically, and whether the proposed level is good enough. (Or is Patrick’s amendment preferable?)
It should be clear that the document we are talking about here is the agreement of purchase and sale only. The change to the Land Titles system is done separately by a very secure (and digitally signed) communication between a lawyer and the land titles registry. That will not change.
How prescriptive does the government have to be?
The following is my comment on the draft electronic signature regulation
Dear Mr. Gregory
Thank you for the invitation for comments on the draft electronic signature regulation and for the good points for discussion in the consultation document.
I am an Ontario lawyer with a strong interest in real estate law and land registration.
In my view, Ontario should NOT adopt a regulation to support the reliability of electronic signatures on agreements of purchase and sale of land. My reasons are mainly as follows:
– A regulation is neither needed or nor advisable.
– No regulation could realistically meet the requests of regulators of lawyers and real estate agents.
CONCERNS OF REGULATORS
The concerns of regulators of lawyers and real estate agents are misplaced, because:
– A person can’t in practice rely on a handwritten signature alone. An electronic signature is different, but it could in some ways be more reliable than a handwritten signature alone.
– In practice, other surrounding facts almost always show that the handwritten signatures are genuine, and would do so for an electronic signature.
– Regulators of lawyers and real estate agents can, from time to time, recommend good practices for lawyers or real estate agents, without needing a regulation.
– A seller or buyer can choose to use ways to ensure that a signature is genuine. If a buyer chooses not to do so, the buyer bears the risk of fraud.
– The concern about fraud is probably a concern about something else, for example, to ensure that people enter into sales of land wisely.
– The public is rightly ahead of regulators in having already accepted electronic communications.
REQUESTS OF REGULATORS
The regulators request detailed requirements for verification, an audit trail, access to information and retention. It would be unrealistic to meet the request because:
– The penalty for not having a good signature is that the land sale agreement is invalid. So the requirement needs to be simple and certain.
– Any rules that met the request would probably be far too complicated for anyone to be sure that a land sale agreement was valid.
– Any rules that met the request would probably be contrary to the purpose of the Electronic Commerce Act, 2000, which is not to rely on technology that will quickly become obsolete.
The draft regulation doesn’t provide rules that meet the detailed requirements of the regulators.
SOME REAL ESTATE LAW REASONS
Although the points for discussion in the consultation document are only that, one only needs to read them to see that a regulation is neither needed or nor sensible.
My reasons, which may partly echo the points for discussion, are as set out below.
The draft regulation raises a number of issues, with which real estate lawyers have long been familiar, for example:
– Apart from history, it isn’t important that the subject of the agreement is land. Even for consumers, other assets can have high value, for example, retirement savings. For a business, the land may unimportant.
– Except perhaps for realtors, it isn’t important that the land agreement is for sale. Even for consumers, other land agreements can be important, for example, a transfer or mortgage. (The electronic land registration system doesn’t prevent a person from entering into a valid transfer or mortgage outside the system.)
– It’s hard to be sure when a land agreement is for “of purchase and sale.” For example, would it include an option or right of first refusal? Would it apply to an agreement of purchase and sale that was only a part of a sale of a business or a partnership? If so, would its invalidity make the whole agreement invalid? Would it include a transfer that had effect as a sale agreement?
– It can be hard to know when a change to an agreement is only a change or amounts to a new agreement.
– Would an electronic signature of an agent be enough? If the seller or buyer authorized the agent electronically, would the authority need the required electronic signature?
– Would the courts try to prevent a person from unfairly relying on a technical defect to get out of a land sale agreement, for example, if the buyer had done something to perform the agreement?
CONCLUSION
The draft regulation is a best effort to meet the requests of regulators of lawyers and real estate agents. The effort shows that a regulation is neither needed or nor advisable, and that no regulation could realistically meet the requests.
I find the points raised by Mr. John R. Wood to be spot on.
A review of the real estate practices in other progressive legal jurisdictions may be a good starting point from which to compare best practices.
Yours very truly,
John Eric Pollabauer
The relationship should remain the same given, with the realtors, and end clients (Buyers & Sellers). The verification of IDs with the lawyers and financial institutions still takes place prior to any transfer of property. Thus the E-Signature stipulation for things like Purchase & Sale Agreements for Real Estate, is simply an opportunity to allow buyers, sellers & agents, the convenience to complete their transactions as do all others in the U.S., in other Canadian provinces and in other parts of the world. It is not really anything new.
There is technology, that allows for greater levels of transparency, insight into the the signing parties, etc., that can certainly be endorsed by the relevant industry. But nothing that should be dependant on additional legislative requirements. Why would it? There is nothing intrinsic in the digital signature that is more open to fraud than the chicken scratch that passes as initials currently.
Digital formats could capture things like ‘sequencing’ – who touched the document, when they touched, was in the order required, etc. Workflows could be built (and are available) so that compliance is developed as well as greater levels of transparency than currently exist.
The industry will have its winners in e-signature, by those who provide the best and most secure solution in the marketplace. Brokers and agents want to avoid fraud and spending time in court, so that they will ultimately pick the solution that offers the greatest security for their business and operations.
Great article, I am a real estate agent in the states, I’ve been using Sky Signature for the last few years. They have made my life so much easier.. I really hope it becomes a standard wordwide.
The government of Ontario has now proclaimed in force, as of today, July 1 2015, the amendments to the Electronic Commerce Act made in 2013. Those amendments do two things:
1. They remove the exception for land transactions, so the Act now applies to them. That means that the writing and signature requirements of the Statute of Frauds can clearly be satisfied by electronic documents and signatures under the Act.
2. They provide expressly that the Act applies to electronic documents (in fact to ‘information in electronic form’) whenever they were created, before or after the Act – or the amendment above – came into force. This Act has always been interpreted in this way, but there was some uncertainty whether the extension to land transactions would have that effect as well, so that such transactions done before July 1 could still benefit from the Act from that date. This provision confirms that they can.
The government did not make a regulation about the form or reliability of electronic signatures in real estate transactions. It was felt that the know-your-client rules that apply to lawyers, real estate agents and financial institutions would help ensure that parties would be appropriately identified in any event.
The Ontario Real Estate Association has licensed its standard forms and clauses to some providers of electronic signature systems.
John Gregory’s last post shows that the exception in the Ontario Electronic Commerce Act 2000 for land transactions was removed on July 1, 2015. We must thank him for wisdom in this and other laws relating to electronic matters.
The Electronic Commerce Act 2000 doesn’t remove the old legal formalities, but only allows us to meet them with an electronic functional equivalent. For example and as John said, it allows us to meet the writing and signature requirements of the Statute of Frauds electronically.
In contrast, the earlier section 21 of the Land Registration Reform Act simply removed all formalities for an electronic document, but only if it created an interest in land. So we have two regimes for land transactions, the first for an electronic document that doesn’t create an interest in land and the second for one that does. We should probably repeal section 21, so that the Electronic Commerce Act 2000 applies to all land transactions.
Section 11(6) of the Electronic Commerce Act 2000 allows a regulation to prescribe a functional equivalent for a seal, but we have no regulation.
Earlier Slaw posts by John and comments by me discuss the above in more detail.