The Australian property industry is in the process of converting from the 150-year-old Torrens title physical paper system of exchange and settlement of property transactions to an online electronic conveyancing system. The introduction, and in some cases, mandatory use of the Property Exchange Australia (PEXA) platform for electronic property lodgment is gearing up to make the traditional, paper-based settlement process a thing of the past.
However, as with the introduction of any industry-disruptive technology, there can be associated risks and property buyers, sellers, and financiers should be aware of these risks as they enter into the new era of electronic property transactions.
What is PEXA?
The PEXA platform was launched in 2010, providing for the digital settlement of conveyancing and other land transactions in an electronic workspace. Conveyancers can use the PEXA platform to liaise with the property buyer or seller's bank, digitally sign and lodge documents and transfer funds, removing the need for bank cheques and physical exchange of documents. At settlement, PEXA automatically releases the balance of the transaction funds to the seller and electronically distributes other payments, including loan repayments, stamp duty and GST. PEXA automatically lodges the relevant registry instruments for registration with the land authority in the state where the transaction occurs.
Benefits of PEXA
- Cost and time savings
There are well-known time and cost inefficiencies associated with physical paper settlements as a result of delays which may arise due to inaccuracies and mismatching information in the paper documents and processes and, on occasion, documents being misplaced or lost. PEXA aims to prevent this by providing pre-lodgment verification of documents processes. It also reduces the time taken for preparation and attendance at settlement, by providing electronic signing, real-time electronic settlement and immediate registry lodgment of documents, as well as streamlining the post-settlement tasks.
- Certainty of property title
The PEXA platform automatically alerts the parties to possible disputes around competing interests in the property, for example where a caveat or writ is lodged over the property title by another party in the period between settlement and registration. With PEXA, final title searches are carried out minutes before settlement, reducing the registration gap so the chance of a post-settlement conflict over title will disappear.
- Sellers receive settlement funds quickly
For sellers, PEXA provides them with the proceeds of sale more quickly than a paper settlement, immediately depositing the settlement funds electronically in their account allowing access within half an hour of settlement. Electronic settlement also removes the need for bank cheques and the associated fees.
Since its roll-out, Australian state governments and land registry offices have begun mandating that eligible transactions be lodged through PEXA. In Western Australia, New South Wales and Victoria, all eligible transactions must be lodged electronically through the PEXA network. It is anticipated that by 2022, the industry will be operating from a 100% digital lodgment and settlement platform. The use of electronic conveyancing through PEXA is expected to save numerous hours per transaction, and is expected to contribute an average AUD89 million to the conveyancing industry per year.
While the industry prepares to reap the expected efficiency and cost benefits from PEXA, parties involved in property transactions should be aware of the risks associated with jumping on the (mandatory) bandwagon.
A primary concern is the lack of account verification in PEXA's e-conveyancing process and risks associated with fund movement at settlement. In the middle of last year, several scammers hacked into emails between conveyancers and sellers, amending account details to redirect settlement funds without the buyers being aware. PEXA's response was to clarify that the hack occurred through emails and not through its platform, and maintained that it was for conveyancers and practitioners to run their own checks before digitally signing for a transaction to proceed. While this may be the case, it is a legitimate concern that the amendments to the account information were not detected or flagged for the conveyancer prior to settlement on the platform. The potential for cybercrime highlights the need for those using PEXA to be vigilant, and to avoid placing undue reliance on the PEXA platform as a one-stop-shop for possessing all of the correct party details to be used at settlement.
Another reported incident included a situation where the PEXA platform erroneously authorized the transfer of monies after a settlement was cancelled. As the transfer of funds occurs electronically, parties do not have the benefit of cancelling or retaining cheques paid in settlement before these cheques are cashed. It is incumbent on PEXA users to closely monitor the transaction and to make any necessary queries to ensure that the transaction monies and electronic certificates end up where they belong.
Currently, PEXA is Australia's only mature provider of electronic conveyancing services, and the wider industry has been critical that the lack of competition might lead to a price monopoly or innovation stagnation in electronic conveyancing. An alternate platform known as Simpli is in the process of entering the market, but at present it is new and untested. In some quarters, criticism has been levied at PEXA for effectively having a monopoly on digital conveyancing and this has led some commentators to remark that in the absence of a proper regulatory framework, PEXA is free to do what it wants.
In response to these issues, PEXA has expressed its commitment to implementing more robust security measures on its platform, including:
- security with multi-factor authentication;
- increased monitoring of unusual activity around password resets or changes to BSB and account numbers;
- algorithms to detect suspicious or abnormal activity; and
- workspace timestamps to enable users to monitor when the financial settlement schedule was last updated, and by whom.
It has also introduced a maximum AUD2 million residential seller guarantee on residential property; however, there is no similar guarantee for commercial property.
In the face of susceptibility to potential cybercrime and system errors on both the PEXA platform and other services interacting with PEXA (such as each party's associated email accounts), we are yet to see how the PEXA amendments and the residential seller guarantee will assist with reducing the risks on the platform. It is also unclear how liability will be apportioned for who is responsible when mistakes or disputes emerge from the PEXA settlement process.
What does this all mean for parties looking to buy and sell property in Australia?
For most conveyancing transactions in Australia, all buyers, sellers and financiers will have no choice but to use PEXA. While more improvements are expected to the platform as the electronic conveyancing technology advances, in the interim you should be aware of the risks involved with electronic conveyancing and you should understand how your legal advisors can take steps to mitigate these risks.
DLA Piper is experienced in conducting electronic conveyancing matters in PEXA and implementing strict risk management processes throughout a transaction. We can guide you through the process to ensure your electronic settlement proceeds smoothly and does not produce any unexpected results.