Guest post by Richard Miller, Director, MV37
Can DAML — Digital Asset’s smart contract language — help solve the centuries-old issue of land conveyance in the UK? In this fourth of a series of guest blog posts by our partners, customers, and others working with the DAML SDK, MV37’s Richard Miller discusses how DAML is being explored to de-risk property transfers in the UK.
Considering that the last full survey of UK landowners was the Domesday Book of 1086, the process of purchasing land in the UK has been full of risk for the past millennium. To address this age-old pain point, Her Majesty’s Land Registry (HMLR) was created in 1862 with the intention of providing complete registration of all land in the UK to de-risk property transactions. In the 21st century, after 157 years of effort, the mission to make property conveyancing simpler, faster, and cheaper continues.
The HMLR Digital Street initiative, in its second year, is looking to expedite the mission using cutting edge technology to deliver real change in the conveyancing process by 2022. As part of this programme, Digital Asset and MV37 were invited to explore how Distributed Ledger Technology (DLT) combined with smart contracts can be used to make the goals of the initiative a reality.
Why DLT for property conveyance?
At a high level, a distributed ledger can provide an immutable record of how ownership changes through time and smart contracts allow trusted execution of business logic that updates that record. Together they can streamline workflows between multiple parties in an auditable and immutable way. These building blocks provide three significant advantages for this process:
A trusted golden source of data — Even though there is a definitive record of who owns the land at a given time, since the UK process relies on the use of a trusted central party there is the possibility of insider fraud or incompetence corrupting the record. If a distributed ledger is used to maintain records and smart contracts used to control access to the ledger then updates are transparent to all affected parties. In a country where someone’s home is their castle, building trust in the registry is a welcome enhancement!
Minimising settlement or principle risk — As anyone who has bought a house in the UK knows, the entire process is run through a pair of solicitors — trusted intermediaries — and the process to completion goes something like:
Risk arises from the fact that the whole transaction is susceptible to one of the parties or service providers involved failing, resulting in a partially completed transaction and leaving the buyer (usually) out of pocket (e.g. a solicitor goes bankrupt while holding a deposit and an escrow account was not used). If the transaction was atomic then it would either complete or not. DLT and smart contracts enable atomic transfer of value for an asset.
Streamlining property transactions — The UK conveyancing process suffers from at least two wasteful parts:
- Where there are multiple competing buyers there is duplication of effort where each potential buyer organises and pays for their own conveyance checks (the survey, ‘searches’ and legal fees in the diagram above) as they have no mechanism to share information with parties who they are competing with (more on why a potential buyer would be incentivised to do so later).
- The time between exchanging contracts and completion, and also the already mentioned time between completion and the updated land records.
By providing a secure record of the conveyancing checks that were carried out, DLT streamlines processes by allowing check once/publish many times models. It also allows atomically transferring property ownership for cash.
Why Digital Asset and DAML for this project
Property transactions are a classic case of where if we were starting today with a blank sheet of paper and today’s technology, we would have a radically different solution.
MV37 and Digital Asset engaged with HMLR to rethink what this process could look like and fill in that blank sheet of paper. DAML is designed from the ground up specifically to model any business process involving multiple untrusting parties. DAML excels at allowing you to define who has access to information, when they can see it, and what they can do to manipulate it. Two specific features of DAML when designing multi-party workflows that were useful in this exercise are:
- Static code analysis is continually performed in the DAML editor to demonstrate to the developer that all parties consent to their obligations. This means that it is harder to make logic errors in the flow which would have resulted in, for example, dead ends or gridlock.
- DAML enables rights to be delegated to others in a safe and complete way. This improves throughput once real life parties are involved.
A DAML solution was built on the DA Platform to demonstrate how the advantages of the platform could be used to realise the benefits described above. In this project, the value of DAML and the DA Platform shone through in several key areas.
As a starting point, the ‘golden source of truth’ was created by representing each property title using DAML. Once listed on the ledger, DAML makes atomic Delivery versus Payment (DvP) transactions very straight forward to code (this blog entry gives a detailed explanation of the value of DAML for DvP). The process of allocation of funds to the transfer of title is instant and indivisible — it either completes or it doesn’t. On top of that, a large number of property transactions in the UK are themselves part of a ‘chain’ where the buyer of one property is the seller of another. Failures in a chain are more common, but DAML makes it easy to extend atomicity across the whole chain.
The DA Platform delivers a permissioned ledger which makes the controlled sharing of information between competing parties possible. This information transparency improves efficiency, minimizes cost, and reduces the likelihood of failure as relevant parties see the correct version of the truth. Unlike other DLT solutions, DAML and the DA Platform enable information sharing as the sub-transaction level — ensuring that information is very strictly shared only with those parties that have a right to that information (this blog entry describes how DAML enforces this security model).
The Conveyancing Deal Room
The solution introduces the concept of the Conveyancing Deal Room where the seller allows relevant parties to see all the information available. This allows the idea that ‘searches’ are carried out only once and the information made available to all parties. These ‘searches’ include checking to make sure the land is not contaminated, at risk of flooding, or has excessive covenants on it. Crucially this information can be trusted by each party as they can see the provenance of when a search was done and by whom.
A Conveyancing Deal Room is created when the owner of a property wants to sell it. This is represented as a DAML contract and various parties are ‘admitted’ to it by giving them access to the contract. These parties may be solicitors, estate agents, surveyors and of course potential buyers. Each party contributes information relevant to the sale through choices only they can make on the DAML contract. For example, the surveyor may add the survey report detailing the condition of the building or the solicitor may contribute the outcome of the searches. Based on the information provided, the buyers may choose to change their bid or withdraw completely — in which case they see no more of the information. Finally, the seller accepts the bid they like the best.
When the seller accepts a bid, the buyer allocates the money and the transaction completes immediately — the money is transferred and the title owner is changed.
As with all cross-party workflows, things get more interesting when you consider the cash flows. For example, who is paying for the survey or ‘searches’ above? DAML makes it easy to implement logic where, for example, the surveyor is paid by the eventual buyer but only on transaction completion — or if the property is not sold then these fees are paid by the seller. Either way, the DAML engine ensures that the service providers are paid.
However, this is only the beginning! Having properties registered on the DA Platform with standardised DAML-driven flows for transactions enables all sorts of other options. For example
- Incorporating other service providers in the ecosystem into the transaction process (e.g. mortgage providers, insurance provision or buildings maintenance).
- Creating more liquidity in the property market through fractionalisation and speedier transactions.
Using DAML on top of a distributed ledger allows us to reimagine the property transaction process. It has the potential to deliver
- A cryptographically secure record of all properties under consideration — building trust in our institutions.
- Atomic transactions — reducing the impact of failures.
- More information transparency between the seller and buyers — increasing speed.
- Reduced costs using a ‘check once publish many times’ model as multiple parties collaborate using the same golden source.
DAML specifically has the additional benefits of being
- Built specifically for cross-party workflow processes dealing with many of the subtle problems of distributed computing.
- Concise, and concerned only with the business process — making it easier to understand complex processes. One nice side benefit of this is that time to market is reduced, allowing tight iterations incorporating feedback quickly.
- Mathematically analysable — leading to fewer defects in the contracts at the end of it.
Although HMLR has not yet decided on how to proceed, the land records use case built in DAML is an excellent example of how DLT can be used to implement true digital process change and show that while Financial Services (FS) has been a natural home for DLT, use cases outside of FS can significantly benefit as well.
About the author
Richard Miller, Director, MV37
Richard has spent the last 20 years as an IT consultant in Capital markets. At MV37 Richard is building a DLT practice combining the best platforms with AI technology and Cloud partners to deliver transformative solutions for clients and consortiums.