In the PropTech space, technology is progressing at a dizzying pace. Still, legal obstacles cool down the ambitions of PropTech enthusiasts, proving that the road to the adoption of the latest technologies will not be easy. PropTech could significantly lower investment barriers, cut costs related to real estate transactions, and improve real estate’s liquidity, but legal and regulatory obstacles marr the adoption of new technologies in real estate. This raises questions about PropTech’s widespread adoption in the heavily regulated real estate sector. Below are the industry’s common legal and regulatory challenges and some suggestions to overcome them.
The main legal barriers standing in the way of widespread PropTech adoption
By 2022, there will be more than 22 billion internet-connected devices. This will escalate further with the roll-out of the much-awaited 5G technology. Technology is growing at an increased pace now. Therefore, it is critical to identify and analyze the legal and regulatory challenges that arise.
Challenge#1: Data Protection and Intellectual Property
A significant amount of data is produced by modern technology, which leads to data protection and intellectual property issues. For example, the developers need to trace the origins and ownership of datasets used by technologies. To ensure legal and regulatory compliance, they need to explain how the data was collected cleaned and how it will be processed. The data may also need to be protected to ensure the confidentiality of information/trade secrets. Besides, there are legal issues specific to the technology. For example, Blockchain technology involves storing data, which is in opposition to data protection principles.
Challenge#2: Service and Performance Issues
Modern technologies often come without performance guarantees. Therefore, the risks should be discussed at an early stage, and mitigation strategies should be addressed.
Challenge#3: Liability for Systemic Issues
Allocating risk for cyber security breaches and infrastructure failure needs thorough scrutiny as the elements of the system are interdependent. This issue is particularly very significant considering the difficult insurance market at the moment.
Challenge#4: Avoiding Lock-in
If the technology is made to be critical to businesses, contracts should be carefully created to cater to current and future requirements.
Challenge#5: New types of contracts
New technologies, such as – AI, automation, and IoT, will increasingly feature in building requirements; therefore, new forms of contracts need to be drafted. For example, using new techniques and materials at the construction stage will require lawyers to be technically competent.
Challenge#6: New areas of Corporate Liability
Developments of new technologies have given rise to novel opportunities for income generation in terms of leasing, but associated legal risks have given rise to new areas of liability. For example, the use of 5G masts may include health concerns resulting from proximity to the masts, or the use of drones on construction sites raises several legal and privacy issues.
Challenge#7: Keeping up with technological advances
Law often lags behind technological development. This is often termed as ‘regulatory disconnect,’ which often gives rise to undesirable conflicts and highlights the urgent need for changes.
Ways to overcome the regulatory challenges
Some possible suggestions to overcome some of the regulatory challenges are:
Gain a Complete View of Data
With the complexity and scale of expanding data, Proptech companies are pushing to collate and analyze data faster. A large portion of this data is dispersed across information silos. Therefore, PropTech companies are increasingly looking to advanced data management systems to collect and clean this data and gain a comprehensive view of it.
Many PropTech companies cite data management as the most challenging issue. Many don’t even have a strategy for compliance.
Establish a Single Source of Truth for increased alignment
Documentation, traceability, and evaluation of devices require close alignment of fields which are often siloed today. Therefore, there is a need to have a system in place that brings together all documents in one easily accessible system.
Improved visibility into processes and documentation will facilitate collaboration among different teams and other partners.
Elevate Quality Processes
The regulators demand more from proptech solution providers throughout their quality control processes, including an increased number of audit trails.
Bringing teams, documents, and data together on a single modern platform and unifying the quality environment will lead to greater efficiencies, collaboration, and control. Silos are also eliminated; as a result to speed up the approval process. Actively involving all stakeholders in the process also leads to fewer re-reviews and re-approvals.
Integrate Content Management
Legal teams often struggle to access consistent and accurate technological information. A unified and secure solution accessible to all stakeholders facilitates the creation, review, acceptance, dispensation, and access of tech content globally.
This move will also lead to fewer compliance risks and improve consistency.
Unify Commercial Content and Data
More content is created each year across a growing number of digital channels. But managing such vast amounts of content efficiently can be a struggle.
Therefore, systems that bring together disparate content will allow proptech companies to improve compliance. Combining digital asset management with technology, real estate knowledge, a legal and regulatory review will lead to fewer risks.
All in all, Proptech’s potential in the real estate industry is great, but there has to be a clear regulatory framework that combines proven, notarial practices with practical and innovative technology-powered solutions. New protocols and experts’ knowledge can effectively address most challenges. As the industry agrees to take a chance on the broader adoption of technology, real estate’s future might look very different from today.