Smart Contracts for Commercial Leasing: Don't Believe the Hype?

There is plenty of hype surrounding the potential for blockchain-based smart contracts to revolutionise the real estate industry.

Smart contracts are computerised contracts under which a party can pre-authorise its terms to be performed automatically. Though the risk of ‘computer hacking’ immediately comes to mind, these contracts use and share encryption and distributed ledgers which are designed to be resistant to manipulation. A simple example is a vending machine. The consumer and the vending machine company both trust that the machine will dispense a can of soft drink if, and only if, a coin is dropped in the coin slot.

Supporters of smart contracts suggest the technology offers many benefits for commercial leasing, including:

  • Automatic payment of rent and outgoings;
  • Integration with the Internet-of-Things (IoT);
  • Immediate detection of breaches (such as non-payment of rent) and automatic forfeiture of security; and
  • Collection of data to allow for forecasting and analysis of market trends.

However the technology still faces many difficulties in overcoming:

  • The legislative requirements which mandate written leases and legislative reform or variations;
  • The loss of discretion and flexibility between the parties; and
  • The loss of flexibility associated with using proprietary technological platforms.

We can expect smart contracts to become a hotly debated topic in the real estate industry but, at least in these early stages, smart contracts for commercial leasing may be more likely to be used in standard form contracts, such as for pop-ups or co-sharing spaces. For more complicated leasing arrangements solicitors will likely stay at the forefront to ensure the proper preparation and execution of the terms of the contract (lucky for us!).

If you require assistance with your commercial leasing arrangements, please contact us.