But while proptech enables properties and their facilities to be more efficiently operated and managed, such as through automated systems, the use of technology in the property space also comes with various legal risks and considerations, including cyber security, privacy, intellectual property and liability issues.

A growing area of legal practice

DLA Piper has a dedicated proptech team, providing both legal and business support to emerging proptech companies, investors, and developers of innovative real estate technology.

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Proptech, explained real estate partner Stephanie Lambert, is a “byproduct of the current age of rapid technological advancement and is an exponentially growing industry globally, including Australia”.

“In simple terms, it’s any type of technology [that] assists the property industry. However, as these technologies become more and more integrated in real estate transactions and the industry generally, they give rise to their own unique, and often complex, regulatory and legal challenges,” she told Lawyers Weekly.

“The issues stemming from proptech innovations intersect with various practice groups, including real estate, finance, projects and intellectual property and technology. A cross-practice approach enables firms to comprehensively consider the risks of the transaction and strategies to best manage this risk by tapping into the specialised expertise and experience of each practice group. This benefits both firms and clients in terms of efficiency and better client outcomes.

“Proptech is a dynamic and ever-growing industry. With the rise of artificial intelligence and big data, it’s interesting to see the democratisation and transparency of the real estate industry, for example, having access to tools [that] allow target assets or entire markets to be analysed within minutes – where historically this would take months – or the rising trend of fractional ownership. There has been a huge expansion in these areas over 2023, and I am looking forward to seeking what the next big trends for 2024 will be.”

As a result of this expansion, developments and growth within proptech have (and will continue to have) a “massive” impact on legal practice, according to Madison Marcus partner and accredited specialist in property law Yuqing Sui.

“Not long ago, say, early 2017, practitioners were still content with manual settlements. We had to send staff or settlement agents to a settlement venue to settle property conveyance. Some settlements failed simply due to a bank cheque incorrectly issued or an error was made in a document. These days, most of the settlements have been moved to online workspace. The entire settlement agent industry has even been shaken and significantly downsized. Errors in payment details and land dealing instruments can be easily fixed. The electronic settlement workspace has enabled us to complete the settlement with a high successful rate and way less carbon footprint (due to no requirement for physical attendance),” she said.

“During the COVID lockdown, e-signing services also had a search. The government amended the legislation to allow a number of things to be validly signed using electronic signature. Some of the rules and practice have remained after the lockdown. From personal experience, e-signatures are the more preferred way of executing a lease. Electronic signing (and the laws behind it) have allowed us and the real property agents to ‘close the deal’ and ‘lock in the buyer/tenant’ faster than it used to be.”

Following the pandemic, Clayton Utz established its own dedicated proptech focus group in early 2022. This move, special counsel Monique Azzopardi said, arose from the COVID-19 lockdowns.

“Specifically, our proptech focus group stemmed from a chat during the COVID-19 lockdowns between me (a commercial lawyer with a focus on technology and privacy law) and one of our real estate partners, Andrew Steele, about what the post-COVID-19 world might look like for the future of properties and buildings and our clients. Based on the types of transactions that we had recently been involved in, we both identified that technology would play a key part,” she explained.

“This then resulted in us doing some research and talking to market proptech experts. It became clear to us that there was a burgeoning proptech market that could benefit from the respective expertise across our firm. And so, our Clayton Utz proptech focus group was born. It’s been a great forum to share ideas and implement ways to best support our clients to navigate the legal issues associated with proptech.

“This area of law is expected to grow due to the increased proliferation of technologies within buildings and in a real estate context. Whereas traditionally, you would go to a property lawyer for property-related advice and a technology or commercial lawyer for ICT or commercial law-related advice, the world of proptech means that such demarcations are less useful. Rather, cross-collaboration is vital. A cross-practice and collaborative approach is also positive for our clients, who get the benefits of specialist expertise from different areas across the firm in an efficient and comprehensive way.”

Legal considerations and key challenges

However, the growth of the proptech space brings new challenges and legal issues for lawyers to overcome.

These challenges, Ms Azzopardi outlined, include cyber security, privacy, intellectual property, liability and risk management, due diligence and contract development and management.

“Proptech innovations introduce some new risks for property managers and owners. We typically think about the physical security of properties. But as recent high-profile data breaches have shown, privacy and cyber security are equally as critical. Internet-connected systems offer a potential ‘window’ for a hacker to get in. If a hacker gained access to a building’s ICT systems, the consequences could be potentially serious, especially for data centres, hospitals and other critical infrastructure assets. But the good news is that these risks can be managed and mitigated both legally and operationally.

“Historically, real estate due diligence has centred on matters such as contract review, title searches and statutory enquiries. Where a property incorporates technology, it’s important to ensure that due diligence extends to an assessment of the technology, IP rights in respect of such technology and each of the above matters,” she explained.

“Risk management is also vital. Where technology is put in charge of property, it can sometimes be more difficult to establish causation and prove liability. Lawyers need to focus on the contractual, insurance and other risk management mechanisms to best manage and allocate risk in a proptech context.”

Being across these challenges is vital in the current landscape, particularly with the rise of AI and other emerging tech.

“Lawyers should stay up to date with trends in the proptech space, including through media alerts. An understanding of the key legal considerations and issues related to the use of technologies, especially emerging technologies such as AI, will also put lawyers in good stead,” Ms Azzopardi added.

“AI and other technologies used in a property and technology context rely on, and can potentially generate, vast amounts of data, including personal information about visitors’ attendance and movements within buildings and biometrics. It’s important that the collection, use and processing of such data is carefully considered through a privacy lens. In addition, any surveillance or tracking from the use of technologies must be in accordance with all applicable surveillance device legislation.”

There are also new areas of corporate liability arising within the real estate space from specific technology, ongoing changes in regulatory frameworks and even the choice of law and governing jurisdiction, according to Ms Lambert.

“Privacy is a big one as failure to comply with privacy legislation and regulation can incur significant penalties, not to mention negative media publicity. ‘Smart buildings’, which connect numerous systems such as heating, lighting, ventilation, fire safety and security systems, can be in breach of privacy legislation and raise data protection issues as these systems will have to gather and generate large volumes of data.

“To avoid incurring penalties and/or civil liability, lawyers should consider the data that is generated, who owns that data, whether the owner can sell or share this data with third parties, how that data is secured, how potential cyber security risks will be managed and their client’s liability for damage. In a sale of a property that has ICT systems or other forms of technologies, purchasers of the property can physically own the technologies in the building without the IP ownership or rights and licences to use the technologies,” she explained.

“These rights may be retained by the vendor, creator of the technology or a third party. Lawyers can proactively address this challenge by considering the IP rights that are attached to the technologies within a building and whether the contract for sale of the property transfers IP rights, including the right to use the technology, as part of the transaction. Lawyers should further consider the terms of the relevant IP licences and if it permits the purchaser to repair, maintain and further update the technology for future use.”

Ensuring that the technology being used is also “compliant with the existing regulations” as well as ensuring that contract terms are up to scratch and client data is protected are also key considerations within this area of law.

“Technology and tech-related risks always come hand in hand. Nowadays, legal notices may be served electronically. Clause 20.6.2 of the NSW standard Sale of Land Contract allows documents to be served via the online workspace. Under Clause 20.6.6, a document is deemed served if it comes into the possession of the person. Technology expands the channels of communication, but it also increases the risks of lawyers ‘missing’ a document served via a proptech platform or software. In the event of dispute, the proptech will provide a time stamp of the time the document is served, regardless of whether it in fact reaches the person having the carriage of the matter,” Ms Sui said.

“When we are consumers, we have the habit of scrolling down to the bottom of the terms and conditions and tick ‘agree’ without even looking at the contract terms. However, when signing up for a proptech service, extra caution ought to be taken to ensure that the terms are acceptable and compliant and offer our client and the legal practice sufficient risk protection.

“For lawyers, a new industry means new business, but this will also require us to be alert and ready to gain insights from the people in the new industry. Such insight and information will become handy when we are dealing with any drafting tasks or disputes involving the new industry.”

Reshaping real estate law in 2024 and beyond

As technology continues to disrupt and reshape the legal landscape, the “ongoing regulatory gap” is also likely to present new challenges in terms of regulatory compliance within the proptech space, meaning that real estate law will evolve and be more complex moving forward.

“Lawyers should anticipate regulatory change, an emphasis on the security and management of data gathered by technologies and should expect to increasingly consider and allocate risk allocation between parties, including the designers of the technology, producers, installers, owners and consumers of the technology at every stage of the contract,” Ms Lambert said.

“Proptech has reshaped traditional approaches to real estate law by streamlining the process and making transactions more efficient. For example, due diligence on a commercial property transaction would historically be done by reviewing mountains of paper and producing a report. Now, we have the ability to use artificial intelligence to identify key areas of concern and platforms [that] can model complex data in an easy-to-digest form. The widespread adoption of e-conveyancing, electronic land titles, and the increasing use of e-contracting and workflow systems are a few simple examples of the transformation of real estate law.

“However, it has also added layers of complexity to real estate transactions such as the sale of buildings, which require additional considerations in the context of smart buildings and technology-specific drafting in contracts for sale of property adopting the use of certain technologies. Legal practitioners can effectively navigate this landscape by keeping informed, adopting proptech where it makes transactions more efficient and doesn’t pose any additional risk, and working with other specialist practice groups to leverage off each other’s expertise.”

Ms Azzopardi agreed and added that proptech reinforces the need for a “collaborative approach to the provision of legal advice and services”.

“In a proptech context, a real estate transaction or project will no longer be purely about real estate. Likewise, as I have found with my technology and privacy law practice, a technology procurement or transaction may also have some real estate or construction law components.

“I anticipate that within the immediate future, generative AI and virtual reality will have an increased role to play in buildings and real estate projects and transactions, and the way prospective purchasers and their lawyers undertake due diligence (for example, through virtual property tours). Proptech will also facilitate much more data being available about properties and their users,” she explained.

“It will be critical that lawyers understand the potential privacy and other legal considerations related to the use of such technologies and associated data sets. This will be especially important as the legal environment governing the use of AI, facial recognition technologies, and other emerging technologies evolves.”

With the increased use of tech within the space, real estate lawyers are also now able to handle large-scale projects with less manpower, more efficiency and more clarity.

“In terms of strategies, property lawyers have already learned to be open-minded and willing to embrace technology. We enjoy the efficiency and improved accuracy brought to us by technology. At the same time, we also need to be cautious about errors and system issues that come with the technology. Having a back-up risk management plan is vitally important. Additionally, we need to be wary of the emerging technologies and new risk types sometimes come hand in hand,” Ms Sui added.

“The technologies will rise fast and diversify quickly. We are now in 2024, the age of blockchain, smart contracts, e-settlement, e-signature and artificial intelligence. It is foreseeable that in the next several years, many of us will work with innovative technologies derived from the new surge of AI technology. Our work style will be revolutionised by automation and other proptech products. To stay ahead of the curve, we need to have a ‘lifetime learning’ attitude and try to be at the forefront of innovation. We need to be agile and quickly adapt to the new work life brought to us by technology.”