Transforming real estate with blockchain technology
In 2016 HM Land Registry conducted a board-level sponsored review of its processes and published its strategy in an increasingly digital world. Among its ambitions was to “become the world’s leading land registry for speed, simplicity and an open approach to data.”
In pursuit of its ambitions, HMLR recognised the potential benefits of technology such as DLT and blockchain. HMLR established Digital Street, a dedicated R&D business unit focussed on exploring how HMLR might use technology such as buying and selling property simpler, faster and cheaper. Digital Street gives HMLR “a space to break away from the constraints and current ways of thinking about the home buying process as it stands today.”
The conveyancing process is: (a) slow – in the UK it takes on average between 10 and 12 weeks to complete; (b) expensive – the manual, repetitive and duplicative nature of many conveyancing steps contributes to expensive legal fees, combined with costly searches and surveys; and (c) stressful – the uncertainty and financial stakes involved in the conveyancing process makes moving house one of the most stressful events in an adult’s life, with studies linking the process to a variety of mental health problems including depression and anxiety.
The modern conveyance typically features a chain of conveyances that are each reliant on the others (and the resultant flow of monies) in order to complete. These chains mean that transacting parties may experience delays and uncertainty owing to issues in conveyances to which they have no visibility, compounding transaction parties’ frustration with the process. Currently, each conveyance operates in a siloed manner to the others in the chain, with no ‘single point of truth’ that can reveal the state of the whole chain at any time.
HM Land Registry wished to understand how blockchain technology might transform the conveyancing process.
MDRx led the technical development of a DLT-based prototype that would enable a digital transfer of the property that automatically updates the Land Register, as part of a wider consortium including Methods Digital and built on the R3 Corda blockchain.
We began by mapping the existing end-to-end process, interviewing key HM Land Registry team members and key industry stakeholders including lenders, lawyers, conveyancers and agents. We captured critical transaction timelines and existing friction points.
On completion of the mapping exercise, we rapidly prototyped a first iteration of a distributed application built on the Corda DLT (also known as a CorDapp) that demonstrated a basic end-to-end automated conveyance. We deployed this CorDapp across a private DLT system comprised of seven Corda nodes, all hosted within HM Land Registry’s cloud-based development environment.
Alongside the CorDapp, we also built and deployed other supporting applications including Corda-based remote procedure call clients and supporting applications to represent and act for other parties, systems and services participating in the conveyance. The CorDapp represented real-life land titles as digital assets that could be recorded and tracked throughout their entire lifecycle. In Corda, this type of asset is called a “LinearState” and is used to represent an evolving asset that changes over time. Additionally, we modelled legal agreements as LinearStates, for example, to represent the sales agreement that evolved through negotiations between the transacting parties. This legal agreement LinearState was shared only with the transaction parties and their legal advisers by leveraging Corda’s need-to-know basis sharing mechanism.
The internal prototype contained several states (in computing, the term used to describe a component designed to remember preceding events or user interactions) and smart contracts. These components enabled automated updates to be written to and recorded on the ledger based on data flows relating to: (1) the conveyance of land titles; (2) the removal and addition of charges and restrictions; (3) the drafting, negotiation and execution of legal agreements; and (4) the calculation and payment of tax liabilities. This initial prototype was based on entirely fictional buyers, sellers, conveyancers and lenders, with very minimal user interfaces. It was used solely to demonstrate the DLT systems’ functionality and end-to-end flow for our team internally, as the system continued to iterate and be finessed.
We then prepared for and delivered a replica conveyance proper. On 6th March 2019, the sale of a recently refurbished, semidetached house in Gillingham had completed. The entire process had taken 22 weeks to complete against an initial estimate of six weeks. We deployed our DLT-based proof of concept to the same transaction – the application ran the conveyance through, end to end, in less than 10 minutes.
We established the various transaction participants as nodes on the network, each of which was able to execute smart contracts pertaining to their role in the transaction to enact changes on the ledger. HMLR retained an important role in the process by providing the single source of truth for the CorDapp to rely on when determining land title ownership for the purposes of the conveyance process from time to time.
We used video conferencing to bring the parties in the transaction together for the final demonstration. The MDRx team were based in our Holborn offices in central London. The buyer, Peter, was at work in Medway and his conveyancer was in Manchester. The seller was in his partner’s home in Gravesend. The Digital Street team were in Plymouth, with representatives from other consortium members dialling in from as far afield as Malaga, Spain.
The CorDapp enabled real-time sharing of data that was made available to every authorised participant. This made it easier for transaction parties to see what was happening with the conveyance as each step was recorded on the ledger, providing a full immutable and undeniable history to all participants. Transactions were checked by all the participants involved including a notary node, which ensured validity in the exchange and prevented ‘double spend’.
Of course, this transaction existed in a perfect test environment, and it would be unrealistic to present the proof of concept as a solution that would practically deliver 10-minute conveyances. It did however prove that the technology was available to eliminate all information-based delays in the conveyancing process.
- A UK first: We delivered the UK’s first-ever end-to-end digital transfer of real estate.
- Speed and transparency: We proved that conveyancing could be quicker and more transparent, and therefore cheaper and less stressful.
- Heralded as a “success”: HM Land Registry were delighted with the project, publicly praised its execution, and published its key learnings.
- Innovation de-risked: We were able to leverage best-in-class lawyers from The Mishcon de Reya Group to bake legal into the system design and ensure it was fit for purpose from a conveyancing and legal perspective.