Late last year, a precedent-setting property sale in Vermont became the first real estate transaction in the United States to use blockchain, portending a new era in the sale of land and improvements.
Blockchain technology is an industry disrupter on the cusp of improving transactions across all sectors and borders. It is suggested that blockchain may do for the $217 trillion U.S. real estate market what the portable phone did for communications, and that may be an understatement.
Blockchain will address high transaction costs, long time delays, and heterogeneity of real estate transaction types, accelerating the investment in real estate across sectors, the nation, and the globe.
Blockchain is a digitized, distributed ledger that records and shares information. It could enable the real estate industry to address many of its ineﬃciencies. Think of blockchain as the technology, or better yet the operating system, that supports Bitcoin, the digital currency launched in 2009. Cryptocurrency is only one of an untold number of applications for blockchain. In another high-profile application, Walmart just announced it is requiring suppliers of leafy green vegetables to upload growing and shipping data to blockchain by September 2019.
There is no requirement that a cryptocurrency (Bitcoin or something else) be used in a blockchain transaction. Payment can be made by any ordinary means that the parties agree to.
A highly regulated industry
Real estate is a highly regulated industry and real estate transactions must be recorded in a government ledger to be recognized. There are more than 3,600 governmental jurisdictions in the United States alone where real estate deeds are filed. The vast majority are paper instruments filed with a court clerk. Documents are not easily accessible, except to a dinosaur industry of local courthouse title abstracters supported by a coterie of indemnity title insurance companies.
There have been government studies and pilot programs, including the much-ballyhooed Cook County, Illinois, pilot that designed blockchain real estate conveyance software. But no actual transactions took place.
Then Propy, a private company based in Palo Alto, California, announced that it had used blockchain for a property purchase on February 20, 2018 in Chittenden County, Vermont, a first in the U.S.
I posted this blog last year when Propy announced the very first blockchain sale anywhere: the sale of an apartment in Kiev, Ukraine, in 2017. And on October 9, 2018, Propy announced it had used blockchain for a property purchase in Seville, Spain.
State laws are being updated
Laws will need to be changed across the U.S. and the globe to allow more than the old-fashioned register of deeds. Today, in most of the thousands of local jurisdictions in the U.S., the transfer of ownership of real estate is enforceable only when the deed is presented for recording among the land records in the courthouse.
There is, of course, some risk that a patchwork of state laws may inhibit blockchain’s growth, so most states are adopting minimalist legislation demonstrating that the jurisdiction and its courts are blockchain-friendly.
States have been actively making the necessary changes in law since 2016.
Vermont that year enacted House Bill 868, now a model across the country, that provides for the enforcement of transactions using blockchain by providing a rebuttable presumption of admissibility of a blockchain-based digital record as a “business record” under Vermont’s rules of evidence.
Here’s what the law says: “A digital record electronically registered in a blockchain, if accompanied by a declaration that meets the requirements of subdivision (1) of this subsection [notarized], shall be considered a record of regularly conducted business activity pursuant to Vermont Rule of Evidence 803(6).”
Similarly, in 2018, Ohio passed Senate Bill 200. It provides that “a record or contract that is secured through blockchain technology is considered to be in an electronic form and to be an electronic record.” Electronic signatures secured through blockchain technology are considered to have the same legal standing as any other electronic signature.
In 2017, Arizona went even further by enacting House Bill 2417, which recognizes blockchain signatures and smart contracts as electronic records. Lawmakers also adopted Senate Bill 1084, which requires governmental agencies to allow the use of electronic records or electronic signatures, including for the transfer of real estate.
At least 25 other states have some blockchain authorizing law, as do Dubai, Israel, Canada, Sweden, and Ukraine.
Look for blockchain in lease agreements
This law firm has worked with clients in the outdoor sports apparel and agricultural sectors in matters of blockchain and we see the application in real estate.
Interestingly, it may well be leasing that will elevate blockchain in the real estate marketplace ahead of deeds because most leasing transactions do not require involvement of a government registrar.
Owners of green buildings, among some of the most progressive in the real estate industry, will all but certainly be at the forefront of this technological revolution. But all owners of commercial real estate risk becoming as outmoded as the buggy whip industry if they do not consider adopting blockchain technology.
Stuart Kaplow is an attorney specializing in environmental law. This post originally appeared at his blog, Green Building Law Update.