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24 Jun

The Disruptive Power of Blockchain from a Legal Perspective: Part 1: The Ontario Land Registry System

Thursday, June 24, 2021Aaron Pearce, Khalid KarimCorporate Law, Real EstateBlockchain, Blockchain Technology, Ontario Land Registry System

Introduction

Outside of the real estate sector, you would be hard pressed to speak to the average person about land registration unless they are buying or selling a property themselves. However, land registration is an integral part of real estate markets and plays an essential role. The dollar value of all home sales in the province reached $24.3 billion, more than double the levels from a year earlier, rocketing up 187.2%  from the same month in 2020. It’s no wonder that all aspects of the real estate transaction are being evaluated to see if they can be improved or digitized. Enter Blockchain.

What is Blockchain Technology?

In short, Blockchains are permanent, unchangeable digital ledgers that are used to record transactions in “blocks” of computer code that are time stamped and linked together. The idea is that at any moment in time, simultaneously, each member of that network holds an identical copy of the blockchain database on their computer. Blockchains function as decentralized networks that transparently reveal the history of transactions for digital assets, making it impossible for recorded digital assets to be pirated, modified, or deleted.

Application to the Ontario Land Registry System

Recently, the real estate industry has explored the applicability of blockchain technology to improving all of its current processes – we would argue that this should include Ontario’s Land Registry system (the “LRO”).

In Ontario, all private property ownership records (title, deed, mortgage and other land documents) are registered with the government. Historically, land registries were based on paper documents but have since transitioned to largely digital systems (such as Teraview, Ontario’s land records digital database). In theory, land registries simply maintain records of ownership, recording each transfer as they occur. However, this “simple” job can bring a number of challenges.

With the number of parties involved in real estate transactions (owners, tenants, purchasers, sellers, agents, financial institutions, investors, developers, etc.) and the volume of documentation changing hands for proper registration, errors remain frequent and are not always easy to correct. LawPRO, Ontario’s professional indemnity insurance provider for lawyers, states that its real estate claims made up its largest segment of claims at 27% in 2020, with an average cost of $34,000 per claim. To date, the cost of real estate-related claims submitted to LawPRO per year totals an average of $21.5 million. Corrections involve a request made to OnLand, the Ontario Land Registry Access portal, where a representative in the applicable Land Registry Office reviews and then implements corrective action. Navigating multiple Land Registry offices (53 offices in Ontario), combined with an inefficient and often costly process can exacerbate the issues encountered on typical real estate transactions, whether commercial or residential. Additionally, if a Land Registry central server or archive is hacked, it can have disastrous consequences for all involved.

Ontario’s Land Registry and Blockchain

Blockchain has the potential to provide increased accuracy, transparency and efficiency for all users who must interact, one way or another, with the LRO. As a simple database solution, the blockchain would allow the ownership documents to be recorded and assigned to a specific or registered owner. Subsequent registrations, such as mortgages or other instruments, can be easily added to the blockchain and when the property is sold, the ownership documentation can be transferred to the new owner instantaneously. This would provide each owner with the secure knowledge that any documents created and stored on the blockchain are legitimate and tamper-proof. In effect, Blockchain would eliminate the threat of hacking by disaster-proofing the entire land registry system.

Additionally, the entire real estate transfer process which used to take days can now take minutes to complete. For example, according to the Blockchain in Commercial Real Estate report by Deloitte’s U.S. Center for Financial Services in 2017, the distributed and encrypted nature of blockchain can make it difficult for perpetrators to commit fraud related to liens, easements, air and subsurface rights, titles, or transfers. A more digitized and transparent process speeds up title transfer execution, use of title as a collateral, and reduce overall transaction time. Automation on the blockchain would be an additional benefit as transfers may no longer require manual input, with “smart contracts” becoming increasingly sophisticated the more they are used and successfully implemented as well. Together, these benefits may create a “Blockchain Community” within the real estate industry and streamline any deficiencies between the LRO and its counterparts.

Looking Ahead

The real estate industry continues to explore the benefits of new technologies, including blockchain, with promising developments forecasting its potential success. For example, the HM Land Registry’s Digital Street Project has created a prototype digital register to improve the Land Registry System in England and Wales, with their team continuing to explore its findings for how to best implement and scale the system to new heights. The prospect of success for projects such as these may lend some optimism for those ready for change within the real estate industry in Ontario, particularly with respect to the LRO and its processes. Blockchain technology continues to garner attention in the media but particularly with respect to business practices and applicability – marking a great opportunity for the LRO to innovate and help drive Ontario’s real estate market forward. It will be exciting to see how our government and real estate professionals embrace, or resist, the significant potential of blockchain technology. A PDF version is available to download here.

Khalid Karim

For more information please contact: 

Khalid Karim at 416.865.8258 or kkarim@grllp.com or Aaron Pearce at 416.865.6619 or apearce@grllp.com or Siraat Mustafa.

 

 

 

Aaron Pearce

 

Aaron Pearce
Associate
T 416.863.6708
E apearce@grllp.com

 

 

Siraat Mustafa
Articling Student
T 416.865.4015
E smustafa@grllp.com

 

(This blog is provided for educational purposes only, and does not necessarily reflect the views of Gardiner Roberts LLP).

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