By: Lezlee Zapatka

Picture this: you’re about to close on your dream home, and instead of a mountain of paperwork, the whole process is handled by code. No more waiting on signatures or hunting down missing forms, just a seamless, automated transaction. Welcome to the world of smart contracts in real estate, where blockchain is giving your real estate lawyer a run for their money, and the only thing standing between you and your new keys is a bit of code. But before we kick real estate lawyers out of the deal, let’s unpack how smart contracts work—and where the legal fine print still matters.

Contracts: The Basics

Contracts are a crucial part of many legal agreements, whether you’re buying a house or entering a business deal. A contract is a legally binding agreement between parties that establishes mutual obligations. For a contract to be enforceable by law, it must include these key elements: a valid offer and acceptance; mutual consent; sufficient consideration; capacity; and legality. 

Contracts: The Smart Ones 

Smart contracts are self-executing agreements coded on a blockchain. A blockchain is a virtual immutable ledger shared amongst network participants that records transactions, made up of digital “blocks”. Smart contracts are designed to automate the execution of a contract so that all participants can be instantly certain of the outcome, without the need for intermediaries or delays, which can be costly and time consuming. A smart contract has three main parts: the signatories, or the parties who approve or reject the contract using digital signatures; the contract’s subject; and the specific terms, outlining the agreed-upon conditions and obligations. 

Similar to traditional contracts, the parties involved agree to terms and conditions. The smart contract is then created (coded) and deployed to a blockchain. These contracts operate based on “if/when…then…” conditions. When the specified criteria or “triggers” are met and verified on the blockchain, actions such as transferring funds, registering assets, or issuing notifications are triggered automatically in a smart contract automation. The triggers that start the smart contract automation are “on-chain”, meaning they are programmed into the code of the contract and can be something such as receiving a payment or a specified date and time. Once executed, the transaction is permanently recorded on the blockchain, ensuring immutability and visibility only to authorized parties.

The Legal Fine Print

While smart contracts can automate agreements by initiating subsequent actions when predetermined conditions are satisfied, participants must still agree on the terms, how data is represented, and a framework for handling exceptions and resolving disputes. This is where your lawyer comes in. Contract lawyers are hired by parties for their expertise in  specifying terms and anticipating what can go wrong if one side does not fulfill their obligations. 

One of the crucial elements of contracts mentioned above is legality. Contracts must adhere to the law in the jurisdiction in which they are operating, which can become very nuanced when there are federal, state, and local law and ordinances at work, especially in real estate deals. 

Benefits of Smart Contracts

Smart contracts allow for automated transactions in the form of instantaneous secure transfers. This allows parties to streamline the process by getting rid of intermediaries such as brokers and notaries. While a lawyer may still be needed to draft the terms of the agreement, smart contracts can alleviate future legal issues that arise in contract law. 

Offers and acceptance can create issues that lead to litigation in contract agreements. If an offer is not unambiguously accepted, a dispute may arise. Smart contracts help alleviate this due to the nature of acceptance being a coded trigger that was previously agreed upon by the parties. 

Another issue that arises in contract law is failing to deliver on the agreed upon terms or “breach of contract”. Because smart contracts contain predetermined conditions that must be met before the transaction will go through, both parties must meet these conditions in order for the automation to take place. 

In real estate transactions, blockchain platforms tokenize properties by creating digital copies of the properties on the blockchain, allowing for them to be bought and sold on the secure blockchain ledger. Transactions on the blockchain ledger are done in cryptocurrency. Thus, when someone transfers the required cryptocurrency, the smart contract will automatically transfer the corresponding real estate tokens to them. This not only eliminates the risk of failure to deliver, but also the risk of fraud, by ensuring a valid transaction history and verified ownership records that have been logged on the blockchain, which is viewable to all network participants. 

Smart contracts are likely the future of many deals, both in real estate and beyond. While they can help mitigate the risk of contract breaches and alleviate the need for many intermediaries, they will not completely necessitate the elimination of lawyers from contract deals as terms must be negotiated and legality established. 

# WJLTA #smartcontracts #realestate #blockchain