You can’t swing a church bell in South Australia without striking mention of Sir Robert Torrens. Blockchain real estate might not be in a South Australian practitioner’s lexicon just yet, but it soon will be.
That great state and its once (very temporary) Premier bear contested responsibility for the Torrens system of land title registration now gone global. Born from a crisis of land ownership in the then-colony in the 1800s, the Torrens system is ripe for disruption – if not outright revolution.
It’s reasonably foreseeable, if not yet likely, that blockchain is the next revolution in real estate (until then, there’s always electronic conveyancing…). A blockchain offers an immutable, time-stamped, distributed and distributable, public record of all transactions occurring on the chain – conditions precedent to any system of title record.
In part one of this two-part series, we explore the features that made previous revolutions in land law in Australia particularly efficacious, drawing lessons from the takeover of Torrens title and implementation of e-conveyancing. Part two, co-authored with Edwina Oliver, will explore how those same features are present in early real estate blockchain trials.
The Torrens system lawyers and conveyancers adore was born from the implosion of what we now call Old System title. There are a few reasons for the capitulation of Old System title in the face of a more certain, faster and cheaper alternative in the Torrens system.
In Old System, proving ownership of land is predicated on being able to establish a good root of title through a chain of deeds. In practice, many jurisdictions required you to tediously trace title backwards for a specified period (i.e. 30 years), because tracing back indefinitely was difficult to the point of being obtuse.
Old System title is inefficient, expensive, and loss and fraud prone. Notoriously, people are neither rational nor responsible with their possessions. Requiring people to keep copies of land dealings ad infinitum was bound to end poorly. Eventually, in South Australia, ending poorly is exactly what happened.
A deeds registry was one of the first methods implemented to combat the failings of people to keep sufficient control of their land dealings. But having a title document stored in a deeds registry isn’t an indication to the world of good title or a guarantee by a government of the same. It’s simply storing a copy of purported dealings relating to the land. Useful maybe, but hardly revolutionary.
Torrens was revolutionary in that registration of a transfer document with a central titles office was a source of indefeasible title, guaranteed by a government – categorically demonstrating that the most extraordinary ideas tend to be the simplest.
Rational jurisdictions gradually followed South Australia’s lead, with large parts of the British Commonwealth grandfathering-in the method. Unusually, the United States didn’t, and it remains predominantly in the dark ages.
In 2008, with somewhat remarkable foresight, the Council of Australian Governments embarked upon a process which would culminate in New South Wales becoming the first Australian jurisdiction to pass appropriate legislation facilitating the use of e-conveyancing platforms for land dealings. Sorry, South Australia.
With the passing of the Electronic Conveyancing (Adoption of National Law) Act 2012 (NSW) (Adoption of National Law Act), the state of New South Wales brought its legal professionals and conveyancers kicking and screaming into the information era. The Electronic Conveyancing National Law is no less deserving of the title revolutionary than the Torrens system.
Platforms such as Property Exchange Australia (PEXA) are presently dismantling a paper transaction system that has been alive and kicking since Torrens first came onto the scene. Thirty per cent (at December 2017) of possible lodgements in New South Wales are now electronic (shortly to be 100 per cent).
Like the registration revolution before it, the e-conveyancing revolution is enabling more certain, faster and cheaper delivery of services to parties engaged in land transactions – and it’s doing so at what counts in law as a cracking pace.
KPMG estimates a time saving for practitioners from e-conveyancing of around “65 to 70 per cent“. Perhaps the most remarkable feature of e-conveyancing is the dramatic increase in certainty for participants. In the same report, KPMG found that an “… electronic platform eliminates almost all risks associated with human error”. Neat.
Let’s flip the script: 30 per cent of transactions in one seemingly gung-ho Australian jurisdiction isn’t yet a sure sign of inevitable e-conveyancing adoption. However, it’s fair to conclude that parties transacting land in Australia will be increasingly nudged (read forced) onto electronic platforms by government, or the extensive benefits of the model may simply be too tempting to refuse.
While it’s difficult to extrapolate the direction of any market years into the future, particularly from a small sample, the savings and benefits in time and cost that made the Torrens system spread like a virus are present with e-conveyancing solutions – just as they are present with up and coming blockchain solutions.
The difference with proposed blockchain solutions are their ability to plug-in to existing e-conveyancing platforms. Something e-conveyancing solutions weren’t able to do as completely with paper transactions. Arguably, when New South Wales passed the Adoption of National Law Act in 2012, it was unlikely that blockchain would ever seriously be considered as a method of land title transfer or registration. Now, not so much. Blockchain-based land transactions are looking increasingly attractive.
If you’re a practitioner in a law firm looking at saving time and resources in 2018 or 2019, and you’re conducting some of the 70 per cent of transactions still on paper, then investing in learning and implementing e-conveyancing in your firm is probably the best bet.
However, if you’ve a discerning eye trained on the near-future of real estate transactions, keeping an ear to the ground for developments in the real estate blockchain space wouldn’t be time wasted, because the next real estate revolution may be closer than you think.
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