Mandatory Use of Landonline to Lodge all Survey and Title Transactions Electronically by 1 July 2008

Regulatory Impact Statement

Statement of the nature and magnitude of the problem and the need for government action

In 1997 the Government agreed to a programme (Landonline) to convert all frequently accessed survey plans and certificates of titles into integrated digital data. Landonline was developed over the period 1997 - 2003 at a cost of $140 million, including data conversion, software development and the provision of facilities management services.

All survey and titles transactions are now processed using Landonline in Land Information New Zealand (LINZ) processing centres. Remote access to survey and titles information in the Landonline database is provided for subscribers via the internet (e-search). Routine land title transactions are able to be lodged remotely by conveyancers and are processed in real time without manual intervention from LINZ (e-dealing). The most common conveyancing transactions are "Discharges", "Transfers" and "Mortgages" (known collectively as e-dealing transactions). These transactions account for about 60% by volume of all title transactions lodged with LINZ. Survey data is able to be lodged electronically for validation by LINZ staff (e-survey) and territorial authorities are able to endorse planning consents on survey plans remotely (TA certification).

Many practitioners (especially conveyancers) anticipate that Landonline will become mandatory in the near future and have indicated that they will not introduce electronic lodgement business practices until this occurs. As e-dealing transfers require two conveyancers to participate in the transaction, practitioners using Landonline can only lodge their such transactions electronically when the second conveyancer is using Landonline as well. The learning curve and the investment in time required to learn to use Landonline is a barrier that is blocking practitioners' migration to the electronic service delivery environment. In the year to date (as at 30 September) only 15.5% of e-dealing capable transactions and 33.6% of survey transactions were lodged electronically. LINZ has provided a range of incentives to encourage practitioners to use Landonline. These include discounting fees for electronic products and services, providing one-on-one training for practitioners and working actively with stakeholder groups to establish user groups to assist in prioritising system enhancements. While these initiatives have had a positive effect, practitioner reluctance to use electronic lodgement is a barrier that neither LINZ nor the public can influence while the paper delivery option is available.

For the year ending 31 October 2005 the number of firms lodging transactions electronically with Landonline were:

• 156 out of 356 survey firms used e-survey for survey transactions
• 428 out of 1195 firms used e-dealing for conveyancing transactions (the 1195 firms are overwhelmingly law firms but also includes other types, for example, specialist conveyancing firms or search agents).

Practitioners that have not introduced business practices to use Landonline do not make efficiency gains for themselves or pass any of these on to their customers (people subdividing and developing and buying and selling property). The barriers prevent economic benefits from being realised such as:

• lower fees charged by surveyors and conveyancers resulting from time savings made from reduced administration and paper handling in an electronic environment;
• lower LINZ electronic lodgement fees not being passed on to customers by practitioners still using manual lodgement practices (for example, bundling together all the titles in a subdivision, mortgages can be discharged from each title for a total of $21 as an electronic transaction. If these mortgages were discharged manually each title would need to be dealt with separately and would cost $50 per title); and
• interest payment savings resulting from shorter business cycles for developing and subdividing land into properties and issuing titles for these (by processing e-surveys in conjunction with the issue of new titles LINZ can reduce the time to issue new titles from 35 working days to 12 working days).

This is also having an adverse impact on LINZ's business. LINZ has had to retain more staff than provided for in its baseline to process a higher volume of paper transactions than was originally forecast. This, together with historically high levels of demand in the property market means that LINZ's baseline is insufficient to continue maintaining both paper and electronic channels. LINZ used a risk based funding model to quantify the impact of identified risks that exist in the proposal. The most likely shortfall in LINZ baselines in retaining the status quo is $61.7m (at the 50th percentile level) over the duration of the 15 year business case until 2019/20. These costs would need to be recovered from people who use survey and titles products and services through fees and charges.

Statement of the public policy objective(s)

To enable the savings from lodging transactions electronically in Landonline to be realised by end users of LINZ's survey and titles products and services.

Statement of feasible options (regulatory and/or non-regulatory) that may constitute viable means for achieving the desired objectives

Status Quo

Under the status quo, voluntary uptake of Landonline is retained until at least 70% of e-dealing transactions are lodged electronically. All transactions that are not lodged electronically must be lodged in paper form. Customer training is retained to encourage and assist practitioners who want to transition to electronic lodgement. Processing staff numbers reduce over time by attrition and as positions are made redundant, in line with the uptake of Landonline. Numbers of helpdesk staff to support practitioners, however, will increase in line with uptake of Landonline.

The status quo option projects that it will take ten years before conveyancing practitioners lodge 70% of e-dealing transactions electronically.

The development of Landonline and its on-going costs are met by users of the services through fees and charges. Any revenue over and above LINZ's operating costs is held in a memorandum account and is currently being returned to users through a discount applied to fees. Currently LINZ fees for selling a house are $150 if done manually compared to $108 if the transaction is lodged electronically. If up take of Landonline remains voluntary, fee increases will be necessary to maintain both paper and electronic channels. By continuing with the voluntary take up of Landonline the manual fees associated with selling a house are expected to increase from $150 to between $162 and $168 and the electronic fee would increase from $108 to between $117 and $123.

Both the Land Transfer Act 1952 and the Cadastral Survey Act 2002 contain provisions to make Regulations by Order in Council. These existing provisions could be used to regulate for mandatory electronic lodgement of all title and survey transactions.

The status quo is not preferred because it does not meet the public policy objective.

Option 1 (Current Landonline functionality)

This option makes electronic lodgement mandatory for e-dealing title transactions and for 100% of survey transactions. These are the transactions that can currently be lodged electronically if Landonline retains its current functionality without enhancement. The mandatory "go live" dates for the lodgement of e-dealing transactions would be "Discharges" on 1 May 2007, "Transfers" and "Mortgages" on 1 August 2007, and 100% of survey transactions on 1 September 2007. The remaining titles transactions (non e-dealing transactions, for example, "transmissions" which is the process of removing the name of a person who has died from the electronic register) would continue to be lodged in paper form indefinitely.

To prepare practitioners for the mandatory "go live" dates, training would continue to be provided at current levels. Significant numbers of additional helpdesk staff would be employed to support practitioners at the point of lodgement. This option has a corresponding risk for LINZ in that untrained practitioners may require far more helpdesk support at the point of lodgement than is provided for under this option. As the volume of work processed through electronic channels increases and volume of paper lodgements declines, a number of LINZ's front counter and data entry positions would become redundant.

Making Landonline mandatory under Option 1 means that 60% of title transactions will be lodged electronically. The remaining 40% of title transactions will continue to be lodged in paper form indefinitely which will create additional costs for LINZ. While LINZ would require fewer staff to process paper transactions because more work would be done electronically, LINZ would need to maintain both paper and electronic channels and these costs would be ongoing in the long term. Once conveyancers make their transition to electronic lodgement, however, continuing to lodge up to 40% of their business on paper will become an issue that many practitioners will want LINZ to address by providing the functionality in Landonline to allow a wider range of transactions (eg caveats) to be lodged electronically.

LINZ used a risk based funding model to quantify the impact of identified risks that exist in the proposal. Of the given range the most likely increase in appropriation required for Option 1 (that at the 50th percentile level) is $59.4m over the duration of the 15 year business case until 2019/20.

This option is not preferred because of the cost, the fact that it would involve insufficient conveyancer training, and because it does not fully meet the public policy objective.

Option 2 (Enhanced Landonline functionality)

The key feature of Option 2 is enhancing the functionality in Landonline to enable 100% of title transactions to be lodged electronically (ie current e-dealing transactions as well as other transactions such as "transmissions"). The proposed mandatory "go live" dates for e-dealing are the same as the "go live" dates in Option 1. Making the remaining titles transactions mandatory would happen eleven months later on 1 July 2008.

By making electronic lodgement possible for a wider range of transactions, all titles transactions (in the vicinity of 80% of all titles transactions) will be able to be registered automatically in the land transfer system without manual intervention from LINZ staff. (Registration is different from lodgement. Approximately 20% of LINZ's most complex transactions will still require some manual intervention to register them in the Land Transfer Register). This will mean fewer staff are required to process transactions under this option than under Option 1. Under Option 2, all front counter and data entry positions will be redundant. Customer training will be increased above current levels to enable all customers to be trained prior to the dates when Landonline becomes mandatory and the number of helpdesk support staff would ramp up with demand, to assist practitioners at the point of lodgement.

LINZ used a risk based funding model to quantify the impact of identified risks that exist in the proposal. Of the given range the most likely increase in appropriation required for Option 2 (that at the 50th percentile level) is $49.9m over the duration of the 15 year business case until 2019/20.

Option 2 would be regulated under existing provisions in the Land Transfer Act 1952 and the Cadastral Survey Act 2002. Regulations will be needed: to extend the class of instruments that can be lodged electronically, to specify who (ie which party) has to certify the new instrument types and to prescribe the form of the required certification (if any additional or special certifications are required). In addition, it will be necessary to put new standards in place under the authority of the Land Transfer Act specifying: acceptable forms for all additional instrument types able to be lodged/registered via the e-dealing system (ie everything beyond the DTMs we already accept), document retention requirements for the new instrument types and statutory compliance requirements.

The Regulations will also have to provide for exceptions to allow individual people to undertake their own conveyancing on paper, as making them do this electronically would essentially revoke their right to do this as provided under the Land Transfer Act. Moreover, some organisations such as LINZ's accredited suppliers have the ability to lodge transactions involving the disposal of Crown owned land, directly with LINZ. It is proposed that transactions of this nature also be exempted from being lodged electronically. It is also intended that the registration of Māori Land Court Orders lodged by the Ministry of Justice will continue in their current form and be exempt from using Landonline.

This option is not preferred. Compared to the volume of work processed in each centre it will become more expensive on a "per transaction basis" for LINZ to maintain five processing centres. This is because fewer LINZ staff are needed and after the mandatory dates are reached, the volume of work processed in each of LINZ's five processing centres will reduce.

Option 3 (Enhanced functionality and flexible dates for office closures) Preferred option

Option 3 is the same as Option 2 (enhanced functionality in Landonline to enable 100% of titles and survey transactions to be lodged electronically) except that all five of LINZ's public counters can be closed and three of LINZ's five processing centres would be wound down and closed (with flexibility over closure dates depending on business need).

At the time of the announcement of moving to mandatory electronic lodgement LINZ will announce its intention to reduce from five offices to two over a period following the implementation of full electronic lodgement. All staff in existing centres with the required capability will have the opportunity to apply for roles in the new mandatory electronic lodgement environment; however, external recruitment going forward will only occur in the locations that will remain. From the date of mandatory electronic lodgement staff who obtain roles in the new environment but are currently in centres which have no long term future will be encouraged and assisted to move to one of the locations where a centre will remain. The future of the three centres which will close will be reassessed prior to the expiry of their current leases and depending on the business need to retain some of the staff remaining will either close entirely, move to space shared with another entity, or continue for a further period.

Customer training will be increased above current levels to enable all customers to be trained prior to the dates when Landonline becomes mandatory and the number of helpdesk support staff would ramp up with demand, to assist practitioners at the point of lodgement.

As a result of implementing Option 3, it is estimated that the current fee for electronic transactions will increase from $108 to somewhere between $123 and $129. There will be no manual fee, however fees for electronic transactions under Option 3 will continue to remain cheaper than the fees for manual lodgement (under Landonline remaining voluntary) by more than $30 for selling a house.

LINZ will also complete an investigation of the usage of its core paper records and develop a strategy prior to 1 July 2008 that will ensure ongoing access to its records is maintained. Regulations will need to provide for limited exceptions to electronic lodgement - for example, individuals to undertake their own conveyancing on paper, as the cost of undertaking "one-off" transactions electronically would essentially remove their right to do this as provided under the Land Transfer Act.

Statement of the net benefit of the proposal, including the total regulatory costs (administrative, compliance and economic costs) and benefits (including non-quantifiable benefits) of the proposal, and other feasible options.

Government

Increasing the functionality in Landonline would solidify the investment that has already gone into Landonline and demonstrate the Government's ongoing commitment to pursuing further opportunities for electronic business. The proposal is consistent with LINZ's strategic direction for Landonline whereby with further growth the system has the potential to become the hub for government held land information and will enable other participants in the sector to build onto the system and transact with it in real time. The proposal is also in line with the benefits Government sees resulting from its e-Government Strategy, Digital Strategy and Growth and Innovation Framework.

The functionality in Landonline is enhanced to enable 100% of titles and survey transactions to be lodged electronically before Landonline is mandated. In the longer term, rationalising offices along with a reduction in staff positions and savings to practitioners is sufficient to justify the additional investment in Landonline to support a wider range of electronic transactions.

LINZ used a risk based funding model to quantify the impact of identified risks that exist in the proposal. Of the given range the most likely increase in appropriation required for Option 3 (that at the 50th percentile level) is $50.7m over the duration of the 15 year business case until 2019/20. This includes funding for a training programme prior to mandatory dates, change management costs associated with closing processing centres, and ongoing helpdesk support costs and to fund an enhanced application maintenance programme. The increase in appropriation is funded from third party revenue and has no impact on the Crown's fiscal position. No additional capital is required.

Given that raw Net Present Value (NPV) of all options (including status quo) is in the range $267m to $272m, the difference in NPV is considered immaterial given the duration of the 15 year business case until 2019/20. Therefore the need to base the final decision on cost alone is less significant.

It is proposed that most of the cost of the preferred option be met from the surplus in the LINZ survey and titles memorandum account. The stakeholder groups agree that the surplus in the memorandum account should be used for this purpose.

On current electronic fees in a fully electronic environment under Option 3, LINZ would recover only $41.1m per annum, $6.0m less than the $47.1m needed. It is expected that an average increase of 14% is required to recover this shortfall. This fee increase is needed becauses in a fully electronic environment, the volume of paper lodgements (which are more expensive than their electronic counterparts) reduces to nil. Although LINZ's fees for electronic products and services will need to increase, they will continue to be cheaper than the fees for paper transactions in a manual environment.

The capital cost of enhancing the functionality in Landonline is estimated at $6.6m to extend existing functionality to include additional types of titles transactions. This capital funding will be met from within departmental funds. There is a risk that the time and cost estimates for developing the functionality to enable all transactions to be lodged electronically cannot be achieved. To address this risk preparatory work has been undertaken to specify user requirements, ensure that the architecture is robust and obtain high level costings for the work that would be involved in developing functionality.

Electronic lodgement also has flow-on benefits related to territorial authority certification. As TA-certification becomes established, the resource consent certification process will become more efficient because surveyors will stop visiting local authorities to drop off survey plans and pick up their consent certificates (one territorial authority estimates that if the 51 survey firmss in its jurisdiction used Landonline, the number of public counter visits by surveyors would reduce by 2,600 per annum).

Option 3 is the preferred option. The public policy objective is met and business needs are also best met with flexibility over office closure dates. This option mitigates the risk of losing specialist staff needed to support the mandatory electronic lodgement environment.

Conveyancers and Surveyors

Practitioners will provide a more efficient service with faster turnaround times for their clients. Recent interviews with conveyancing and surveying practitioners confirm that the Landonline end-to-end electronic lodgement process significantly reduces administration and paper handling over the manual process.

Practitioners will need to take advantage of free LINZ training for electronic lodgement processes. Compliance costs include the training time required, software licensing and any required computer resources (indicative compliance costs for a single user are given in the Business Compliance Cost Statement below).

Conveyancers and surveyors who do not want to use Landonline themselves may chose to use e-dealing and e-survey registered practitioners to provide them with Landonline services while maintaining their own practitioner-client relationship. These services would involve the lodgement of transactions with Landonline. Conveyancers and surveyors will incur an increase in e-lodgement fees as a result of implementing Option 3. It is estimated that the current fee for an electronic transaction will increase from $108 to somewhere between $123 and $129. There will be no manual fee, however fees for electronic transactions under Option 3 will continue to remain cheaper than the fees for manual lodgement (under Landonline remaining voluntary) by more than $30 for selling a house.

Society

For members of the public needing land title or survey services, the proposal realises the benefits of: lower LINZ fees for electronic lodgement than LINZ fees for manual products and services under the status quo option, lower practitioner fees from time savings by transacting in an electronic environment, interest payment savings from shorter business cycles for developing and subdividing land and issuing titles.

Statement of consultation undertaken

Stakeholder consultation

LINZ has spoken openly to practitioners about making electronic lodgement mandatory and has formally sought the views of the New Zealand Law Society, the New Zealand Institute of Surveyors and the Institute of Cadastral Surveyors. With the exception of the Institute of Cadastral Surveyors (who represent approximately 30 of the 600 cadastral surveyors) each stakeholder group has responded that practitioners would not be averse to Landonline becoming compulsory so long as sufficient lead-in time is provided and that some form of assistance and practical support is available during the transition.

These concerns are to be addressed with a mix of one-to-one training delivered at practitioners' offices and group training. Group training is planned to take place at central locations for smaller firms which undertake conveyancing infrequently (over 600 such firms nationally). All training is planned to be completed well in advance of the first mandatory date and additional 0800 support staff are also planned to provide high levels of assistance. Prior to the final 100% e-lodgement date, seminars are planned to assist the transition to full functionality. Increased 0800 support is also planned from the time full functionality is available until after 100% mandatory e-lodgement.

The Institute of Surveyors indicated that its members would be less likely to support a rapid move to mandatory electronic lodgement, and would prefer a phased approach. The Institute would also wish to see an enhanced maintenance programme implemented that addresses a number of irritants that surveyors are finding in Landonline. LINZ does not support a mandatory introduction extending beyond 1 September 2007 on the basis that current forecasts suggest that most surveyors will be voluntarily lodging at least some survey transactions on their own accord within this timeframe. The preferred option also provides for a maintenance programme that is funded in line with international best practice for applications of the size of Landonline.

The New Zealand Law Society has indicated that mandatory Option 1 would be unacceptable to conveyancing practitioners because under this option the level of training provided to practitioners is insufficient to guarantee that all practitioners would be adequately trained before the mandatory lodgement dates. The New Zealand Law Society prefers a phased roll-out approach for simple transactions moving to more complex transactions, discharges, mortgages, and then transfers. The NZLS considers that each firm should have access to LINZ training on a one-on-one basis prior to commencement date and to retraining if necessary. The NZLS supports the further development of Landonline to enable 100% electronic lodgement but has not committed on the proposed date for making this functionality mandatory. It has been informally indicated that practitioners would expect to have it available for voluntary use for at least six months.

The preferred option would enable training on existing Landonline functionality to be delivered to all practitioners prior to 15 December 2006 and seminars on 100% e-lodgement to be completed by 7 May 2008. There is also a significant risk to LINZ that the longer the period between the announcement of mandatory electronic lodgement and implementation, the more likely LINZ staff are to move on to other opportunities. The risk is that LINZ would not have a sufficient number of experienced staff to process transactions prior to electronic lodgement becoming mandatory. Further, there is a risk that providing too long a lead time will lead to a loss of momentum with firms having been training to date, delaying commencing e-dealing and thereby diluting the benefits of the training and either requiring retraining or demanding a higher level of support.

The stakeholder groups consulted all agreed that funding the development and training and the enhanced maintenance programme costs from the surplus in the memorandum account is appropriate.

There are a number of groups representing organisations that interact with the land transfer and survey systems, for example, the banking and finance sector. LINZ has not consulted them specifically on these proposals but would engage with them following any decision so that they were well prepared for any changes that 100% electronic lodgement might mean for them.

Government departments

Treasury, State Services Commission, the Department of the Prime Minister and Cabinet, the Ministry of Justice and Te Puni Kokiri were consulted on the preparation of this paper. No significant concerns were expressed.

Business Compliance Cost Statement

Some law firms who do conveyancing, and some survey firms, may wish to contract established e-dealing or e-survey registered practitioners to provide them with Landonline services while maintaining their own practitioner-client relationship. Law and survey firms who chose to do this work themselves instead will incur one-off compliance costs relating mainly to set-up costs required for lodging all title and survey transactions electronically and to time required for associated staff training on new work processes. The transition from manual to electronic lodgement is likely to be easier for smaller to medium sized firms than for larger ones.

Landonline has been designed so that users can work with readily available PC software and hardware. Some firms may use an existing computer resource depending on frequency of use. Alternatively others may decide that frequency of use requires one or more dedicated computers. New users will need to allocate time to attend free LINZ training courses or undertake online training.

The potential number of affected parties can be see from the current use of electronic lodgement with Landonline by practitioners. For the year ending 31 October 2005:

• 156 out of 356 survey firms used e-survey for survey transactions
• 428 out of 1195 firms used e-dealing for conveyancing transactions (the 1195 firms are overwhelmingly law firms but also includes other types, for example, specialist conveyancing firms or search agents).

All of those firms who are not currently lodging electronically with Landonline could potentially incur compliance costs.

Indicative set-up costs for a single e-dealing user:

(* a user may already have these items which could be used for e-dealing)

Indicative set-up costs for a single e-survey user:

(* a user may already have these items which could be used for e-survey)

Most surveyors have purchased 3rd party software (approximate cost of $5,000) to undertake the survey calculations and create their plan either paper or electronic. In the latter case the surveyor would likely export the survey data into Landonline to create the e-survey. However Landonline has full plan capture functionality so that 3rd party survey software is not compulsory.

LINZ proposals to minimise compliance costs based on user stakeholder feedback include:

• lead-in time for mandatory lodgement;
• free training; and
• additional helpdesk staff to support users at the point of lodgement.