Signing on the dotted line has taken on a new meaning in recent years due to the proliferation of electronic signature software that makes signing and sending legal documents possible from mobile devices, tablets and computers. Fortunately for the commercial leasing industry, the law governing e-signatures has kept pace with these technological advances.
Casey Sobhani and Ryan King of Liner LLP discuss the growing trend toward using electronic signature and digital transaction management software in commercial lease transactions.
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The Applicable Law
In 2000, Congress passed the Electronic Signatures in Global and National Commerce Act (more commonly known as the ESIGN Act), which establishes the validity and enforceability for electronic signatures. All 50 states have passed their own version of the ESIGN Act, and such laws establish the same principle that electronic signatures are equally as valid and enforceable as so-called "wet" signatures.
The Lease Signing Process: Then and Now
Efficiency is the primary driver in the shift toward e-signatures. Traditionally, when a commercial lease is ready to be signed, the landlord will circulate an execution version of the lease to the tenant, along with detailed execution instructions.
Often the lease will be returned with missing signatures, initials and dates, leaving the landlord scrambling at the eleventh hour to track down the missing signatures. Even if the lease is executed without issue, the routine process of mailing signed documents — even with overnight delivery services — creates some delay. For landlords whose spaces remain empty as a result of these delays and for tenants trying to move in quickly, time is money.
The use of e-signature software such as DocuSign helps solve this problem by reducing the chance of human error and delay. When using e-signature software to sign a lease, a tenant is emailed a link to the final lease. The tenant is then guided through each signature, initial and date required, and the final agreement containing the tenant signatures is saved and sent back to the landlord.
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E-signatures are not always preferable to “wet” signatures. Some landlords and tenants may not have easy access or be willing to use e-signature technology. The name and email address of the individual signing on behalf of the tenant is often required to distribute the execution version of the lease. In these cases, institutional landlords accustomed to signing multiple documents a day may find the process of chasing this information more cumbersome than proceeding the old-fashioned way.
To mitigate this potential pitfall for institutional landlords, such landlords may consider obtaining the names and email addresses of all potential signatories at the beginning stages of lease negotiations, instead of waiting until the lease is ready for signing.
The use of e-signatures is here to stay. A 2016 study by P&S Market Research found the worldwide e-signature market is expected to expand by 39.2% by 2020. Mediated, third-party and internal e-signatures represented over half of the overall e-signature market share in 2015.
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