Online systems are convenient, as tenants will not have to visit your office. They could also save time. But are they possible?
There was quite a lot of interest in my earlier post signature of documents in an electronic age. Here we look at taking things a bit further.
I have been involved in setting up two online systems. Neither are perfect, but so far as I am aware, they have worked.
The legal problem and the law
The problem is that a tenancy created at any time other than at the time the tenant goes in (ie by the tenant signing the tenancy agreement at the time they are given the keys) must be by deed.
This is set out in the 1925 Law of Property Act (s52), which says that all conveyances of land must be by deed. A tenancy agreement is a form of conveyance as it is transferring a legal interest in land / property.
However this rule is relaxed in s54 for leases of under 3 years at a market rent which take effect immediately. So under s54, if you go into a property and start living there and paying rent, that creates a proper valid tenancy. Even though there may be no tenancy deed, or just a tenancy document which is not a deed.
The first solution – total remote dealing
This was a system I helped set up a couple of years ago for a company which provides student accommodation. Its a while ago now so I can’t remember the exact details. I know it took ages to work it all out.
As the students never see the properties before signing up (many of them are coming from overseas), the contract is subject to the distance selling regulations and we had to incorporate all the notices regarding that in our procedure.
++ Note – the Distance Selling Regulations no longer apply to tenancies (although they did when this post was written) ++
The students had to navigate through an online procedure, make payments online, and then accept and agree to the tenancy contract by ticking a box and pressing ‘enter’ (or something similar). The system included taking a guarantee.
I explained to the clients that although a contract could be created online, this could not create an actual tenancy agreement as this needed to be created by deed if the agreement was made in advance.
However a tenancy would be created anyway when the students went into possession under LPA25 s54 and so far as I could see, this would be governed by the terms of the contract they had already accepted (which would probably take effect in equity).
As a tenancy is this weird mixture of land law and contract law, I don’t see why the tenants should not be bound by the terms of the contract even though this was not set out in any actual tenancy deed.
My advice to them was that they should get the students to sign a proper tenancy agreement at the time they picked up the keys, but apparently this is not practicable.
The second solution – the multiple counterpart deed
Here a landlord / letting agent wanted tenants to be able to download and sign tenancy agreements, without having to do this in the agents office.
In all cases (I was assured) the prospective tenant (or at least one of joint tenants) would have been shown round the property and so the distance selling regulations would not apply here.
The system we worked out was that the tenants would be given a special login to a place where they could download the tenancy agreement (which would be created by information given by them online). They would all need to sign their own copy of this, as a deed (ie by getting their signature witnessed), and then send that off to the agent.
The tenancy agreement contains a counterparts clause which provides that the tenancy agreement can comprise a number of different counterparts which taken together will form the agreement.
Once the signature pages have come in from all the tenants, these are then checked and collated. Once they are all present, the whole agreement is scanned and a pdf sent out to all parties.
Conclusion
These are two solutions. There are probably others. If you have any other ideas please do share them.
To the nay sayers, I would say that online procedures is what people want. They are going to start doing this whatever the lawyers say about it. So I think that we should try to work creatively and find a solution which fits in (more or less) with the law we have. Rather than wag out heads and say “no, no, no” which is just going to irritate people.
But it would be nice if this situation could be addressed at some time by our law makers and if the current system, created nearly 100 years ago, could be brought up to date.
Great topic Tessa & one that interests me from a business point of view. I have been looking at ways of doing as much online as possible in particular the tenancy paperwork side of things.
We already take online payments via a Worldpay plug in & also use Echosign for signing our Tenant Terms of Rental which works very well.
We also have a remote reference application which our tenants really like as there is no extra paperwork to fill in.
Adding log-in to sign a Tenancy agreement seems to be a obvious move for us and one I will be looking into this year in greater detail.
Thanks for your comment Kevin and I agree that this is where may landlords and agents will want to go.
However I suspect that abandoning all human contact altogether is probably a bad idea (not that I suggest you are doing this!) as a face to face assessment of potential tenants is often as useful, or more so, than taking references.
The student lettings situation is probably a special case.
Morning Tessa, as you know I follow your articles and find that common sense always prevails 🙂
The reader may or may not know, but with our website all our landlords and tenants are able to login and get all their paperwork which we have scanned in – The reason we have done this is because we wanted to make it as accessible and as easy as possible for them.
As you say:
a face to face assessment of potential tenants is often as useful, or more so, than taking references.
…and this is written about here
http://pierceandco.co.uk/Press-Room/Entry/landlords/2011/11/19/is-your-gut-a-substitute-for-due-diligence.html
Like Kevin, we want to move to more online systems, but for us we have to draw a line in the sand at some point and I think at the moment the line is drawn. My main reason for saying this is because if the “tenant” is not who they say they are (ID fraud), or they have cloned card details, we are at risk of putting a tenant into a property with a deposit and rent paid by some other poor unsuspecting soul who suddenly finds themselves with a huge credit card bill, claims it back from the bank, who in turn claims it back from us and we have to pay it back.
Also, until it is tested I am not sure how well it will stand up to scrutiny if challenged having a tenancy agreement signed online.
Apart from anything else, there is nothing better than getting the agreement signed, handing over the keys, shake the tenants hand and say “congratulations, welcome to your new property” – The personal touch is essential for us for a lot of reasons but the main one is we can look them in the eye 🙂
Thanks for your comment. Like you I think a tenancy agreement signed just before the tenants go in is best for all sorts of reasons.
However I can see that this may not always be practical. So these ideas need to be explored. But all situations are different and different companies have different requirements
My main concern is that raised by Mark over ID.
Also I think there is a risk on joint tenancies where there is a falling out one or more may deny agreeing the terms.
I do agree with you Tessa that this is the way to go. These issues are not insurmountable and it may be for some agents and landlords these risks already outweigh the benefits. I suppose it is just a case of being aware.
Of course there is no reason why the two can’t be combined – subject to stringent checks and due diligence – and of course being fully compliant with the law 🙂
But for us at the moment and for the foreseeable future, we are unlikely to go to online tenancies because I have no doubt it will throw us “when has the tenancy started” type of questions which of course leads on to the deposit protection legislation, which of course leads to…I think think you get the picture 🙂
These types of systems are worth it and save cash but until the bones have been picked out of it and a tested system is in place….as they say on Dragons Den “I’m out and I wont be investing” lol 🙂
I would be quite happy to get Landlords signing Terms of Business online. In fact we’re looking at this now. Agreements are created online all the time. Got an iTunes account or bought anything online? Then you set up an electronic contract.
Considering an AST can be created verbally, I would think that a digitally signed agreement is infinitely preferable and perfectly acceptable in court. It’s worth making sure that the system you use can demonstrate secure and properly encrypted processes and procedures.
Our tenancies are usually long term and have to be created by Deed. The current concensus in legal opinion seems to be that there will need to specific legal support to enable Deeds to be signed electronically.
If our agremeents were less than three years I would quite happily implement a system of digital or electronic signatures.
I found this article to be very useful when I researched this topic a while ago:
http://www.fipr.org/publications/newsig.html
I notice that Foxtons have just launched a service where tenancy agreements can be signed online…presumably with an electronic seal of some sort? I guess they would have had their lawyers looking over it to make sure it’s compliant?
Link to their press release is here: http://bit.ly/xSbCji
Nigel