Contents, efficacy and liability of controls during the process of real estate ownership variation or modification – a comparison between the notary’s examination and the examination carried out by the public authority in charge of keeping the register
Contents, efficacy and liability of controls during the process of real estate ownership variation or modification – a comparison between the notary’s examination and the examination carried out by the public authority in charge of keeping the register
di Federico Tassinari
Notary in Imola, Italy

1.  Introduction: real estate publicity in the European Union.

In the 28 member States of the European Union there is no single body of legal rules that governs real estate rights, their transfer and public land registers.

Each Country retains its own legal tradition and its own specific rules, both as far as the so-called substantive law is concerned, that is the rules covering real estate rights and contracts suitable to determine the changes to these rights, and the so-called publicity rules, that is the terms whereby an interested party may learn the exact description of each property and the rules covering its taxation (land register), as well as the owner/s of the rights related to each property (real properties and land register).

Indeed, real estate law is perceived by European people and institutions as a matter strictly for the sovereignty of each national state and therefore to be kept under national law and authority.

Real estate law is typically the expression of local law; therefore up to now the European Union has refrained from dictating uniform rules or even minimal harmonization rules in this field.

Despite the substantial differences between the various national systems, it is however possible:

-  first of all, to identify “legal families” to which the various national systems belong, thus making a distinction between the systems that are of British origin, that historically escaped the Napoleonic conquests of the 19th Century and the consequent “exportation” of the French revolution principles; and the so-called continental systems that were deeply affected by this process. From the point of view of their system of real estate publicity, the latter can be split into systems of French origin where publicity relates to the title that confers the right, and systems of German origin where publicity relates directly to the transferred right, albeit through the title;

-  secondly, despite the complexity and the diversity of the various national systems, to identify a common feeling that unites all 28 members of the Union, according to which the State must create and keep the necessary registers to guarantee legal certainty and the possibility to know the legal details of each property. Indeed, this is an essential prerequisite if every interested party is to obtain legal identification of the owner of every property so that this identification can be used for purchases or real security.

In the light of the above, I would like to emphasize that the European experience taken as a whole, including therefore also Great Britain and the Scandinavian Countries (that is the Countries that do not have a tradition of the civil-law notary), is profoundly different from the experience of the United States of America.

In the USA, for specific historic reasons related to the wide availability of free geographic space, legal rules governing publicity, which would require time and the investment of financial and human resources, were not introduced so as not to hamper the colonization of the Frontier. Rather than guaranteeing legal certainty for the identification of real estate ownership, the US leave the safeguard of the right to know with legal certainty the owner of each property to the private sphere. Therefore, irrespective of the different value a trial before a judge might have in that system, purchase deeds and professional examinations of the titles of each property, that are kept individually, are left up to the opinion of legal specialists.

At a time when the colonization of empty spaces is long gone and what is needed most is reliable legal instruments to regulate claims on the same property made by more than one party, because the resource that is scarce now is not men but land, it is obvious that the North American solution, given its historic peculiarity, is to be considered an exception hardly exportable to those areas even outside Europe, that have never known the experience of the frontier, and certainly won’t in the 21st Century.

It is therefore possible to say that the need for the State to have legally valid instruments to guarantee the ownership of every property on national territory is a fact in the European Union and is unlikely to be challenged by any new evolution in this field and in this area: it should indeed be an objective for all those Countries that have different legal traditions.

The need for a source of legal certainty such as a land register will therefore be the starting point of this paper.

2.  The control carried out before entering data in public land registers.

In all European Union countries, ownership details as well as details on other real estate rights, be these life estate or real security, are left up to the free market and therefore they are usually the result of an agreement reached by a buyer and a seller, or a creditor demanding real security and a debtor willing to cede it.

Within the limits laid down by the law for the sake of contract validity, everyone is free to enter into any type of real estate transaction.

However, for public land registers to carry out their fundamental task, which as defined above, consists in offering legally valid information on ownership, the deeds and the rights must be reviewed and filtered prior to being made public (in the form of an entry, a registration or a file).

In other words, the titles and rights must undergo a series of public examinations prior to access to the public register.

Tradition on this point is extremely varied in the single Countries, however there are basically two systems that can be defined respectively as “minimum control systems” and “extended control systems”.

In the minimum control systems, the main concern is to limit State intervention in the area of individual liberties, by introducing specific compulsory procedures.

In these systems, if the title or right to be entered in the public register can be traced to a known person, that will suffice and the Authority in charge of the examination will, in principle, just check that the title refers to a property located in the area under the jurisdiction of the public register being applied to for publication and that it actually comes from the person indicated on it, by simply authenticating the person’s signature.

Whereas in the extended control systems, it is felt that, through the public land register, the State should offer a further guarantee: it should ensure that the title or the right whose publication is being requested is in conformity with the law and that the description of the property is correct and complete.

Entering data relating to invalid or defeasible contracts, or data with an approximate or incorrect description of the property in the public register would in fact represent, from this point of view, an inadmissible offence against the trust and the certainty that the public register itself intends to protect. This cannot be combated simply by setting things right thanks to mechanisms that safeguard custody in hands of a third party (correcting all entries already officially made in the public register and found to be invalid under certain conditions, safeguarding the effects of publication whenever the property can actually be identified, etc,), what is needed is “preventive" measures to avoid invalid or incomplete deeds being entered in the public register wherever possible.

These latter systems, though very different from each other when it comes to the exact contents of these more detailed checks, have seen the establishment of the figure of the civil-law or Latin notary, as the official who represents the Sovereign State and who, in order to meet the needs of the market and also to ensure the State’s need to guarantee the more extended control prior to entering deeds or rights in the public registers, carries out a liberal profession. This means the notary is chosen and paid by the interested parties to carry out the operation, however he is directly responsible for carrying out his duties accurately and correctly both to the parties (according to private law rules) and to the State (according to public law rules).

It is difficult to say in abstract terms which of the two types of control is more suitable for a modern State.

Maybe, given its absolute character, the question is badly put.

It is a fact however, that at European Union level the so-called extended control entrusted to notaries prevails by far since it applies in different ways to 21 of the 27 States and covers more than 350,000,000 of the approximately 440,000,000 European Union inhabitants.

In most of the 21 Countries in which it exists, the notarial profession has acquired very considerable social recognition, having gained recognition also for having increased quality and security in contractual relations, unrelated to public register needs, as well as for services rendered in the initial phase of real estate transactions (the so-called preliminary contract), even where there is no rule of law that obliges the parties to turn to a notary in this phase.

Finally, in many Countries, this increased recognition of the notarial profession has allowed the State to use the notarial deed also to enforce specific public law obligations concerning for example the respect of construction laws, the safeness and healthiness of buildings, even checking on the absence of harmful materials in buildings. This is done by conferring liability to the notary and by laying down that the notarial deed include all necessary certificates.

It is clear, therefore, that the prerogatives of the notary in the real estate field, or rather the “field of competence” of notaries as defined by the law, includes keeping the public register but that is not all, it covers a much broader range of tasks.

It follows therefore that the notary and the legally recognized field of competence of notaries could well coexist also with a minimum control system for access to land registers and therefore, that the “cost” of the notary and of notarial services should not be considered as related exclusively to extended control systems, since this profession also, to a greater or lesser extent, carries out a liberal profession and this, in abstract terms, is perfectly compatible with the minimum control solution.

3. The examination carried out by the public authority in charge of keeping the public register.

The extended control system has developed and asserted itself, though to a varying extent, in many member Countries of the European Union not as the result of a conscious legislative policy choice, but rather as a result of the historic evolution of a process in which the role of the controller has slowly shifted from the public sphere to the private sphere, following the natural trend of various sectors of the legal system of the main European Countries over the last twenty years.

We will come back to this issue in the final part of this paper.

Here, it is useful to stress how traditionally the keeping of land registers was envisaged and set up in connection with specific control tasks to be carried out by the public Authorities in charge of keeping the public register or by other public Authorities expressly involved in this procedure, often the judiciary authority.

The are two main basic reasons for this historic choice: the technical competence and the moral reliability of the Authorities concerned.

As for technical competence, Countries belonging to the sphere of French legal tradition appreciate the sound reliability of the so-called Registrator of land registers, that is the official who is personally in charge of keeping each register, whereas the Countries belonging to the sphere of Germanic legal tradition prefer a judicial Authority with territorial jurisdiction, that is one or more judges who therefore acquire an actual specialization in real estate and property rights, and who are known as land registry Judges.

I might stress that in the 19th Century, when the public land registers of the European States with more economic clout and legal tradition (starting with France and Germany) were created, the notarial profession had not yet asserted itself, and the notary had not yet been entrusted with high level legal tasks (some countries didn’t even require a university law degree in order to practice as a notary).

As for moral reliability on the other hand, the issue is rather more complex.

Until the 1980s, the most deeply-rooted idea in European historic tradition was that “the controller” absolutely had to belong to the State, the State administration or the judiciary in order to be free of the pressure that comes from being chosen and paid by the party to controlled.

More precisely, in the history of European administrative and procedural law, the figure of the private operator performing public functions was unknown, or in any case relegated to marginal activities, such as authentication or certification and to specific professional figures (lawyers’ citations, engineers’ projects, etc.) or the public notarial deed, only in a private enterprise and mainly formal dimension, thus linked mainly to the paramount need to ensure document conservation rather than to ensure the quality and completeness of its contents.

It must be stressed that this recourse to public Authorities for control (minimal or extended) produced good results since up to the 1980s at least, no Country envisaged reforming the system in order to entrust this control to private individuals.

The situation only changed towards the end of the 20th Century and for two reasons mainly: globalisation of markets and of the economy and the computer science revolution.

These two factors have become complementary to each other and foment each other, thus leading to the rapid obsolescence of the traditional conservation systems used for public land registers.

Progress in computer science has led to the need to keep public registers not with documents and paper archives, but with computerized archives. This transformation actually began to take place in the 1980s.

Indeed, especially these last few years, in Anglo-Saxon Countries, this revolution has created the need for even real estate trading to embrace the new computer technologies, turning a personal trading system into a system where it is in the interest of both parties to use electronic trading and to follow the rules governing e-commerce (e-conveyancing).

This new system not only leads to lower costs but also to increased information and contacts in cases of real estate purchases, by using the web to actually find property to buy and to obtain a comparative assessment with other properties.

Irrespective of any future developments that e-conveyancing may introduce to the real estate trading sector, which for the moment are difficult to forecast (especially for Countries where, from the sociological point of view, the purchase of property still usually takes place in the traditional manner and where the prime need to ponder and physically check out property prevails over the need for a wealth of offers and rapid negotiations), we must note that at the beginning of the 21st Century almost all European systems have already introduced or are about to introduce land register reforms whereby they will change from the paper to the electronic medium.

The result of this transformation is that the most important skills needed to manage the office in charge of keeping the public register are no longer those of a jurist but those of an electronic engineer, able to guarantee that the technical rules necessary to ensure a correct conservation of the electronic archive are respected, as well as the specific rules introduced by each national legislator and by the European Union itself to rule documents and electronic signatures.

The technical skills that have become indispensable to guarantee the introduction of this computer science revolution have, needless to say, meant that the head of the administrative office is now less suitable to carry out that typically legal role of he who checks the origin and the legality of the deeds to be entered in the public register and this has had an even greater impact on Countries where public control had been entrusted to civil servants rather than judges.

However, even where control was traditionally entrusted to judges, the legal profession was found to be less suited to carrying out the procedure of entering data in the public land register with the new computer technology, because it belongs to the State system and is therefore slower to invest in technology than the more organised and long-sighted professions and therefore often ends up slowing down and complicating the entire procedure.

So what is happening to a greater or lesser extent in all major member Countries of the European Union is that the computer science revolution and the globalization of markets condition each other, since the former foments the latter and the latter, having increased the number of individuals who can participate in some way in the real estate market, contributes in turn to modify traditional trading techniques and, above all, the actual mentality operators have when dealing with public authorities. In fact, even though the contractors, as often happens in the real estate sector, reserve themselves ample opportunity to ponder over a transaction, they now expect the State to be agile, fast and able to perform its still fundamental function of guarantor of legal certainty and legality at ever lower costs.

4.  The examination carried out by the notary or by any other professional entitled to draw up contracts for the transfer of real estate rights.

The two factors described above have therefore contributed to privatize the control of documents to be entered in public land registers.

Indeed, the trend triggered by these factors is even more evident in the world of business and public trade registers (company registers, etc.), where globalization has an even greater impact on the competitiveness of the system.

Here, the Italian experience is all the more significant because the introduction of law n° 340 in the year 2000 suppressed the preventive legality controls of all joint-stock company and cooperative deeds by the Courts, which dated back to 19th Century codifications, and entrusted this task exclusively and directly to the notary who was already entitled by law to draw up all the memoranda of association and modifications thereto.

Law n° 340 entrusted this control to the notary but it also laid down penalties for those who violate the obligations introduced by this law, moreover it requires the notary to access the public register exclusively through electronic instruments he must set up and pay for himself. 

The Italian experience with public trade registers, where the control exercised by notaries has produced results deemed satisfactory by the public institutions, may be important in order to understand the likely evolution of land registers in the member States of the European Union.

We have already stressed that the computer science revolution is the contingent and most visible element that favoured this change.

However, we have also noted that the strongest impulse to make the change came, after the new technologies, from the globalization of markets and from the new mentality that this globalization generated (that spread rapidly from Country to Country) in all those operating in the sector, be they professionals or private consumers.

In a society of globalization, the State is allowed, in fact is expected to ensure adequate public control.

New computer technology as well as the new techniques of trading and remote transmission of documents have increased the need for legal security and effective prevention of possible abuse.

However, this mentality demands that public institutions be efficient, cut costs and speed up procedures but this is rarely compatible with administrative and judicial activities carried out directly by the State.

The key to this new process must be “competitiveness”, and it concerns each single State not only as guarantor of the rules governing the activities of its citizens and its companies, but also as creator of legal rules that compete with those created by other States, where the rule preferred by the market may shift huge flows of investments and may have an impact on the economic performance of all national economies.

The market also influences the real estate sector, and in particular, the rules introduced by each State to guarantee both security and efficiency in the related trading.

Indeed, in an ever more integrated economy, even the real estate market is more and more influenced not only by the choices of private citizens, but also by the choices made by institutional investors from other Countries.

It is therefore obvious that each single Country will have to take measures to guarantee the protection of the traditional values of legality and security in trading and protect them with new and more modern means that must be appropriate and indeed competitive. Indeed, neither information technology nor globalization have in any way tarnished these values, quite the contrary they have enhanced them.

When this preventive control of data to be entered in the public land register is entrusted to others, both the control we defined earlier as minimal and the other control we defined as extended must be subject to verification precisely in the light of these requirements.

It therefore ensues that the control must:

a)  first of all, be able to guarantee maximum speed, that is it must be carried out effectively without in any way slowing down the real estate transaction;

b)  secondly, be an integral part of the market in as far as possible and able to dialogue with the operators concerned;

c)  thirdly, go hand in hand with severe and effective liability for controllers who do not do their duty.

This is why at least in the European Union member States, the trend is more and more to choose a private operator to perform this public function, a Latin notary or any other professional, rather than have the public Authority carry out the control directly.

I must spend a few more words on the process under way.

a) The need for the property registration procedure to be carried out with maximum speed is the main issue in a recent report issued by the World Bank and entitled Doing Business 2005, that supplies circumstantiated details, Country by Country, on the time, the number of procedures and the cost needed for a real estate event to be definitively entered in the public register and this is meant also to influence the granting of support and financial loans by the World Bank itself.

It is a fact that the professional who is chosen and paid directly by the applicant is in principle more susceptible to heed the need for speed than a State department (especially in cases where the professional, as is the case with notaries in many European Union member States, is the only party accessible to the applicant, able to take the application through all the competent public offices).

b) The fact that the control under study must be ever more in tune with the commercial and operational needs of the parties is confirmed by the evolution under way in the private law of the European Union Countries as well as in European community law, where economic approaches and a professional mentality are preferred to the rigour of abstract theory and traditional legal dogmas.

The European Union chooses more and more professionals rather than academics among its free-lance experts; the law of the European Union is becoming more a question of empirically governing the existing complex society and less the expression of general principles imposed by philosophical reflection.

Undoubtedly therefore, the notary or other type of professional that performs notary duties, is more likely to understand this reality than a State department, because he is faced with it and operates in it every day.

One of the reasons for the afore mentioned Italian reform of the year 2000 that rules the control of company deeds is precisely that the controller must operate in a practical not a theoretical manner, must not level judgement but express, as far as possible, opinions, must not impose or reject anything, but wherever possible must talk with and convince the private operator including him in the process, and this is seen as the modern aspect, if we can call it that, of the public power of the State.

c) Finally, whether the private operator who trusts State control has to apply to a judge or an official, to a notary or another professional, he demands not only that the limitation of his liberties be proportionate to the social value of the activity of the controller for the transaction carried out, but also and more and more that it be possible to fully verify the activity carried out by the latter and that the professionalbe subject to adequate and effective forms of liability, also covered by forms of compulsory insurance that guarantee the solvability of the party who has to actually pay any damages.

Once again it is clear that the control entrusted to a party carrying out a liberal profession must be in principle covered by forms of liability (under private law and not public law) that are more in line with the qualities required, because these are easier to assert and to ensure.

Wherever this private control has established itself, public control limited its role in order to avoid useless duplication, which means that the public office simply makes sure that the documentation presented to it has been checked by the private party who, as we have seen, is the one who takes on complete liability.

5.  Conclusion.

In Countries where there is a civil-law or Latin notary, the notary feels and is generally considered as a representative of the Sovereign State, even though he carries out a liberal profession.

Consequently, the attitude of the notary by definition cannot be corporatist, as if he were promoting his product, instead he must take on the calm tone of detached and problematic reflection.

The notary does not want to be useful at all costs, he simply wants to explain the meaning of his function in the most complete manner possible, using his experience and sensitivity as a bridge and direct contact between the world of public institutions and that of private enterprise.

It will then be up to each State, having been duly informed and having assessed all the circumstances, to make the necessary decisions, taking into account its traditions, its specific situation and its prospects.

For these reasons, having given an initial series of arguments that explain first the importance of retaining public land registers that are able to guarantee legal certainty and public trust, second the trend towards privatizing the necessary preventive public control, illustrating its causes and its main reasons, I must underscore a further and conclusive aspect.

The establishment of preventive control entrusted to parties who carry out a liberal profession can not be achieved simply thanks to a law of the State, it must be based on reliable professionals.

In fact, private control by nature is more exposed to dangers such as corruption and conditioning than public control, and therefore requires professionals who are not only technically competent but also morally reliable, who have a strong sense of the State and its institutions, and this takes time and money.

A young notarial profession that is not yet mature could be damaged by reforms that, though proceeding in the right direction, do so too quickly (as we have seen, it has taken the European profession of notaries many years to build up the trust that people and the institutions have in them now).

If the prospects described in this paper are shared, this might induce certain Countries that feel they do not have a sufficiently experienced notarial profession, to prefer a certain degree of duplication during a transition phase, by retaining public control as well as the control carried out first by the notary, thus creating the premise to develop their own legal system taking into account the competitiveness that modern civil society seems to demand more and more even in the real estate sector.

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