Smart contracts in commercial real estate transactions

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Smart contracts in commercial real estate transactions 

Smart contracts in commercial real estate transactions are growing today. In Commercial real estate, blockchain smart contracts automate and streamline transactions which in turn, boosts investments.

A market Statista predicts that blockchain commercial real estate transactions will grow from $339.5 million in 2020 to $2.3 billion in 2021.

What is a Smart Contract?

A Smart Contract on a blockchain platform is a self-executing contract where the terms of the agreement between buyer and seller are directly written into lines of code. 

Thus, the agreement in the form of code exists across a decentralized distributed ledger. Therefore, it creates makes transactions and agreements transparent. 

Also, it self-enforces the terms without any third-party or manual paperwork. 

Read Lilypads’ blog to know more about a blockchain-based smart contract.

Smart contracts in commercial real estate transactions: use cases and benefits

In the commercial real estate industry, these contracts ease the transactions with automation and consensus protocols.

Let’s walk through the several use cases and benefits of smart contracts in real estate.

1. Property Title Management and transfer

A Blockchain-based smart contract in the commercial real estate market can simplify Property Title Management and Transfer.

Blockchain creates digital identities for land titles which make title management error-free and tamper-proof. 

The distributed blockchain ledger enables the parties to access the digital identities. But, they cannot change it without a consensus across the several blockchain nodes. 

Further, a smart contract can transfer land titles digitally after the parties submit their digital signatures and complete the payment.

Also, a smart contract allows the concerned parties to access and verify the title transfer process in real-time. Therefore, it reduces the costs of title verification and agent fees in property transactions.

2. Rental agreements

Rental property owners can use a smart contract to create digital rental contracts on a single decentralized ledger. 

So, this digital contract will contain clauses like selling price, payment frequency, and other property and rental details. 

And, the landlord opens the contract by specifying the monthly rent and the property address. Then, the tenant signs the contract and start the agreement. Hence, no parties can change the terms for their own benefit.

Thus, the smart contract collects and sends rents automatically to the owner and triggers routine maintenance depending on the terms.

3. Lease preparation and payments

Blockchain smart contract streamlines lease preparation process that parties can track in access in real-time.

Furthermore, smart contracts can also begin deposits on a lease and the end-of-lease repayment. It also manages the lease terms of use of the deposit payment.

Further, smart contracts can automatically pay rents to the landlord that they can also track. It secures the rent in the form of a minimum balance bank account or digital wallets. 

Besides, when the lease ends, the contract triggers the payment of the security deposit back to the tenant.

4. Land registry

Land registry is the process of recording ownership and possession to ease due diligence, transactions and prevent unlawful disposal.

However, a smart contract uses digital signatures of the parties which reduces paperwork and removes errors in the information. 

Also, unique digital fingerprints approve the validity of the stakeholders that lessen fraud.

The process:

For the land registry, the sellers approve the land ownership transfer request on the blockchain platform, which is automatically sent to the land inspector. 

Then, the land inspector verifies the transaction and starts the transfer. 

It requires the buyer and the seller to upload their documents with their unique fingerprints and digital signatures on the blockchain platform. 

Then, the contract matches the hash that the signing generates with the hash generated after the upload.

As a result, when the two hashes match, the smart contract automatically approves the land transfer to the seller.  And they get registered as the owner of the property. 

Also, the contract stores copies of the transaction to its ledger. Thus, the permissioned parties can view the records at any time. 

Therefore, it removes middlemen from the process completely.

Benefits of smart contracts in commercial real estate transactions

Let’s have a look at the benefits of a smart contract in commercial real estate transactions:

1. Data availability

A Smart Contract in commercial real estate investment exchanges property information and transaction deals securely and transparently among the stakeholders.

Furthermore, all the parties can access the records at any given time due to their distributed nature. 

Also, it disallows any party to change any information without a consensus across multiple nodes.

 2. Accuracy

A smart contract is a digital code that contains every clause, term, and condition of an agreement in the form of code. 

So, It makes a commercial real estate transaction process error-free and accurate.

3.  Eliminate Intermediaries

Smart contract is a self-executing software that automates transactions in their peer-to-peer network without any brokers and escrow companies.

Hence, it gets rid of the fees of real estate agents and speeds up the process.

4. Secure Data storage

Smart contracts provide the secure storage of real estate asset data and transaction records. 

Also, the parties can access the information at any given time making the transactions permanent and dispute-free.

5. Transparency

Such self-executing contracts allow all the parties to access the agreement terms at any given time. 

Hence, it removes any communication gap between parties and ensures transparency in the transactions.

The Lilypads Bottomline

Smart contracts in commercial real estate transactions ease its challenges

Smart contracts and blockchain technology have huge potential for transforming the commercial real estate ecosystem. 

With automation, speed, and transparency smart contracts will create a new way of interaction among stakeholders. Thus, digitalization is the face of the future for the global real estate sector.