The (incredibly short) Property (Digital Assets etc) Bill, introduced in the House of Lords on 11 September 2024, aims to make room for the legal status of digital assets as being a form of ‘personal property’ capable of ownership under English law. This legislative move follows recommendations from the Law Commission for England and Wales, which was tasked by the Ministry of Justice in 2020 to review the law on crypto-tokens and other digital assets. The Bill seeks to ensure that the law can accommodate these new types of assets (which are increasingly significant in modern society and the contemporary economy) as a legitimate form of property that can be owned by a person. 

Background

The Ministry of Justice's request to the Law Commission in 2020 was driven by the need to determine whether crypto-assets or other digital assets could be characterised as personal property. Personal property rights are crucial in various legal contexts, including bankruptcy, insolvency, unlawful interference, and succession on death. They also play a vital role in modern legal relationships such as custody relationships, collateral arrangements, licensing arrangements and trust structures. 

Under the law of England and Wales, property is traditionally divided into real property (interests in land) and personal property (interests in other things). Personal property has been historically categorised into two types: “things in possession” (tangible items) and “things in action” (intangible items enforceable through legal action). To date, digital assets haven’t found a home in either of these categories.

“Digital assets” are defined broadly by the Ministry of Justice as “any asset which is represented either digitally or electronically” and can therefore be interpreted to encompass a broad range of item, including digital files, records, email accounts, domain names, in-game digital assets, digital carbon credits, crypto-tokens, and non-fungible tokens (NFTs). The technology behind these assets varies significantly, with cryptography, distributed ledgers, smart contracts, and associated technologies broadening the ways digital assets can be created, accessed, used, stored and transferred in today’s world. 

The Law Commission concluded that some digital assets (including cryptotokens) should be recognised as personal property but noted that they do not easily fit within the existing categories of personal property. The Commission recommended statutory confirmation that a ‘thing’ should not be deprived of legal status as an object of personal property rights merely because it does not fall into either category. Accordingly, as per the Government’s press release, “the Bill introduces a third category of ‘thing’ to allow for certain digital assets to attract personal property rights”. 

Key provisions of the Bill

In its short and sweet form, the Bill comprises two main clauses:

  1. Clause 1: Objects of personal property rights
    • This clause provides that a thing (including a digital or electronic thing) will not be deprived of legal status as an object of personal property rights merely because it is neither a thing in action nor a thing in possession. This means that things outside these traditional categories can still attract property rights if they meet the general criteria for personal property.
    • The clause does not specify which types of ‘things’ are objects of property rights or detail the implications of such recognition. These matters are left to common law development.
  2. Clause 2: Extent, commencement, and short title
    • This clause sets out the territorial extent of the Bill which applies only to England and Wales.
    • The Bill will come into force two months after receiving Royal Assent.

Conclusion

While the Property (Digital Assets etc) Bill may be concise, its implications are potentially far-reaching. Until now, whilst digital assets have generally been regarded by the market as attracting some form of property rights, this position has been left open to interpretation under the common law of England and Wales – leaving the status of digital assets very much in a “grey area”. 

The Bill will likely require a few rounds of revision and consideration before it is passed as binding legislation by the UK government (particularly given how light on detail it is), but as digital assets such as crypto-tokens and NFTs become increasingly commonplace in sectors such as commerce, gaming and sport (to name but a few) – passing of this Bill into legislation would provide much-needed clarity for stakeholders across sectors like these. 

The Bill certainly represents a significant step towards modernising our legal framework for personal property, in a move to keep English law up-to-date with technological advancements and ensure the UK remains a leading hub in the world of crypto and digital assets.