Since the dawn of civilisation, property rights have been a cornerstone of social organisation. They provided and defined claims to territory, land, natural resources and shelter. Their structuring force in society allowed people to live in (relative) peaceful co-existence. As the editors Grinlinton and Thomas put it aptly in the introduction of their recent book on land registration in a digital age: "The creation, legal enforceability, transferability and security of property rights are foundational elements of most modern democracies. Therefore, an effective system for recording, guaranteeing, and enforcing these rights is of critical importance to protect, title, investment, development and economic stability."[1]
If you consult the Oxford dictionary, the standard English definition for the verb 'to protect' is "to make sure that someone or something is not harmed, injured or damaged". In the context of this publication, we will focus on how technology can both challenge and help us 'to protect' property rights on immovable assets, especially in a situation where a property right, e.g. ownership, is transferred. There are various protection mechanisms within property law, most notably publicity via land registers, which make legal title opposable to third parties. The second part of this article focuses on the so-called "dynamic" side of property law. Specifically, we are analysing the impact of technology on real estate transactions.
This article consists of two parts and follows the structure of my contribution to the 32[nd] Central European Colloquium of Civil Law Notaries. First, I will give a high-level overview of the property law and technology interaction. In that context, I will briefly look at digital ownership and how our current understanding of property rights might be broadened to incorporate digital goods. Second, I will highlight the key aspects of electronic conveyancing of real estate property in Europe. Finally, I will summarise my key arguments in a short conclusion.
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Before delving into the different technological intricacies, let us briefly set the stage for the interaction between law and technology. The 4[th] Industrial Revolution is often presented as the single most significant disruptor of the (traditional) legal profession. Scholars expect modern, aptly named "disruptive" technologies to profoundly change today's societal operational framework and dealings. Information technology is already fundamentally changing various behavioural patterns and organisational practices.[2] In this rapid (r)evolution, our legal systems struggle to keep up. Storme and Heylen are right to point out that in those situations, an initial reaction of lawyers is often one of conservatism.[3] Out of this legal stubbornness, a dialectical process originates that re(de)fines the sharpest edges of some of these revolutionary technology-inspired ideas. Lawyers tend to analyse innovation from a worst-case perspective.[4] Such a realist mindset frames the impact of technology in a down to earth practical sense. It leads to a symbiosis of sensible realpolitik and revolutionary dreaming.
The technologies discussed below are often labelled as 'disruptive'.[5] This begs the question of what precisely makes a technology disruptive and to whom? The word disruptive has an aura of negativity. This is, according to Van Erp, a terminology that is typically favoured by lawyers who "fear that inherited legal systems and well-established legal practices (including the role of legal actors such as advocates and notaries) are at serious risk."[6] Van Erp further describes the interaction as "complicated". Lawyers are primarily concerned that new technologies will disturb current balances of interests, e.g. in the field of consumer protection.
At the same time, their fears are more personalised. They are also concerned about their position and potential loss of income. Indeed, when new technologies are believed to take over (at least some elements of) their professional role.[7] Already, it is commonly claimed that Artificial Intelligence is better suited for contract administration than any human being, and it is widely suggested that specific responsibilities of, for example,
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notaries may be performed more accurately, efficiently and quickly by enabling the use of technology such as smart contracts to, e.g. draft a sales contract.[8]
From a theoretical point of view, the law and technology symbiosis became the focus of a growing body of research.[9] Various pressing (legal) questions have been put forward, especially regarding worst-case scenarios. The legislation on real estate transactions is an excellent example of this stubborn symbiosis. A long list of (potentially) disastrous scenarios created by new (and untested) technologies has been put forward in almost all jurisdictions. Professor van Velten gives an excellent example in the legal context of the Netherlands in his valedictory address; his questions included:[10]
• What if a new house is not as good-looking as the tasteful electronic presentation led you to believe?
• What if somebody else bought the house a few seconds before you?
• How is taxation organised if a notary is not in charge of the operations of a transaction?
• Was the seller competent to sell the house? For example, do they have the approval of the spouse to sell the communal house?[11]
• How is the sales price paid? And is a bank involved in such a transaction?
This stubborn symbiosis between law and technology raises the eternal question: How should we regulate innovation? Or perhaps even more boldly: should we handle innovation. When we consider this question in the context of protection, especially in consumer protections, lawyers will quickly decide to regulate. This, however, risks stifling further innovation. The crypto-assets debate in various jurisdictions worldwide is an excellent example of this balance. We see many regulators jumping in headfirst without having a solid understanding of what they are trying to regulate in the first place, partly because what they are trying to control is in constant evolution. Innovation does not follow pragmatical rules and probably should not do that anyway. This in and of itself is an interesting debate. However, if we translate the law and technology interaction specifically to property law and property rights, we notice this same balancing act immediately into the field of property law. When we think about the (tech) future of property law, we should start our predictions based on property law's so-called "core" characteristics.
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In the future, we will need to find solutions that dovetail technological innovation, and more precisely, the impact of technological innovation on goods, with our existing property law systems.
All around us, society is digitalising at a blazing speed. Consequently, property law, which as a legal domain is mainly characterised by its focus on stability, is grappling with this evolution. Property law systems are, at their core, built for the long term.[12] They focus on the fundamental building blocks (amongst others ownership, legal relations, trust and publicity). However, technology has shortened not only news cycles but also more general societal timelines. This often adds pressure on property law to act "quickly", which is not necessarily what it was built for. At this point, we notice a balancing act within the question itself: do we find ways to speed up property law processes, or will we slow down innovation via, e.g. paper-based procedural regulation? Depending on the specific scenario, there is often a case to be made for both. In the words of Lehavi: "Digital technology can open new frontiers in the formation, registration and enforcement of property rights in land. (...) Digital technology should thus be matched with a legal reform on the institutional governance of multiple uses and interests."[13] We want to protect especially ownership interests for the long term. Property law focuses on the fundamental building blocks of our societies (and ownership is perhaps the most well-known example). Ownership is protected in the European Convention of Human Rights, Art. 1: "Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law."
A second characteristic is that property law has a firm reliance on other fields of the law. Perhaps most importantly, on contract law. We see that technology offers a platform to become more creative and create possibilities that were not there before. Take the example of the explosion of various types of short-term use rights (e.g. in the context of Airbnb). Property law exists as both private law and a public law discipline.[14] Technology, and specifically the creativity it offers, further exacerbates the tension between party autonomy and public policy.
As such, digitalisation has a profound impact on all three pillars (subject, object and a legal relation between both) of property law. First, there is the subject. Traditionally, subjects of property rights were either natural or legal persons (i.e. corporations, public entities or states). Objects have traditionally been considered as tangible and physical things, from an economic point of view, especially land and real estate were the core focus of property law. In the last century, movables made a steep ascent as an important asset class. In the last few decades, we saw intangibles, in the sense of non-physical things, becoming critical assets in modern economies.
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When considering legal relations between the object and the subject, most legal debate typically revolves around the numerus clausus question. It is often claimed that technology can play an essential role within information management. A key aspect of property law lies precisely in its role as a publicity mechanism that offers transparency and protects both owners and third parties' interests. To guarantee this protection feasible in a pre-digital society, a closed list of property rights was devised. The possibility of using technology for "modern" publicity systems could ameliorate third parties' protection. At the same time, allow more flexibility in the legal relations that are legally allowed.
As explained above, property law is the law of things. The so-called "objects" of property law. This legal field was developed with the physical world in mind. Intangible assets were generally always dealt with by analogy to tangible assets. However, we now see the emergence of very valuable objects, wholly intangible but still very much interwoven with the physical world.[15] As a consequence, a sort of hybrid world is starting to develop. And data is the prime example here. As such, over time, movables became as much an important asset class as immovables, but intangibles, in the sense of non-physical things, were still not generally seen as necessary from a financial and economic point of view. Nevertheless, monetary or security claims and intellectual property clearly show us how vital non-tangible became in modern societies.
The digitalisation of the object of property rights has often been coined as a 'dematerialisation' of property law. In the context of this dematerialisation, we see, on the one hand, a digitalisation of physical goods that get a software component (e.g. smart houses). On the other hand, we discern a growth in purely digital goods. A typical example of the latter are e-books, software, cryptocurrencies, domain names, NFTs and, more generally, data. Over the last decennium, these goods became substantial components of people's patrimonial estates (Fr: Patrimoine, Ger: Vermögen). Up until today, most legal debates in private law on digitalisation have centred around contract law.
Also, the transfer of digital goods is generally based on contractual agreements, but their property law status is, for example, in Belgian law, still very much unchartered territory. Even the terminology is still not legally defined. In the Netherlands, scholars as Van Erp and Loof speak about digital objects (digital object) or digital content (digitale inhoud). Tjong Tjin Tai refers to digital assets (digitale activa) and Swinnen uses the term digital products (digitale producten).
Which objects do we consider legal objects, and is this list needing an update? New types of objects challenge the functionality of our existing property categories. Again, data is the prime example here. As Van Erp points out, data is not the same as a physical object, but data is connected to the physical world via a carrier (be it a house or a person).
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However, we cannot say that the owner of this carrier is automatically the owner of the data. To counter this, Van Erp coins the concept of ownership as management.[16]
As data is challenging for property lawyers, our current legal frameworks are not built to solve these new problems that data brings, which creates a loss of certainty. It leads to a lack of protection of our rights. More and more physical things only function in combination with data and software. A good example is self-driving cars, where software gradually becomes a real co-pilot.
Everywhere around us, data is being gathered, via social media, intelligent houses, location tracking etc. The outcome is an already immense and still growing amount of data: this is often called "Big Data". This data enables advanced analytic software - like machine learning and AI - to develop insights that humans could never grasp before. Therefore, what can be concluded is that it is not the technology itself, which is disruptive, but the data that enables this technology. Data and not technology should be at the heart of the debate of ownership and protection.[17] Paraphrasing professor Van Erp again, we can ask if we can überhaupt still use the centuries-old notion of "ownership" to describe our legal relation to something like data?[18] I subscribe here to the view of Professor van Erp that data are, in fact, "ownerless" and that our traditional understanding of owning is hindering us from protecting our rights. In the context of data, it is much more vital to access, manage and erase.
Can digital goods be owned under Belgian law, and if so, what are the specific requirements and underlying characteristics of the underlying right of ownership? The critical question we need to answer is whether a digital good can be qualified as an object under the general definition of a 'good' or 'object' in the view of the Belgian Civil Code (from now on BCC).
Art. 3.7 BCC stipulates that property rights relating to all goods in the sense of Art. 3.41 BCC: "Property rights may concern all goods as enumerated in article 3.41, except the limitations that stem from the nature of a certain right". If we analyse at Art. 3.41 BCC in more detail, we read that: "Goods in the broadest sense are all objects liable to appropriation, including property rights." Book 3 of the new Belgian code does not give a specific definition of the term "object". Art. 3.38 BCC states that "objects, whether natural or artificial, corporeal or incorporeal, are to be distinguished from animals. Objects and animals are to be distinguished from persons." As such, the Belgian Civil Code does not preclude digital objects from the category of goods.
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Digital technology is opening up new possibilities for the formation, registration and enforcement of property rights in land.[19] Generally speaking, these technologies are predicted to consolidate the efficient use of land, i.e. limit the risk of an anti-commons scenario, and streamline land markets. This has to be combined with a flexible and durable legal framework. In the words of Lehavi: "Digital technology should be matched with a legal reform."[20] As discussed in the previous paragraphs, legal reform in property law will require a balancing act that needs to respect and protect existing property rights by recognising new objects and legal relationships. In the following paragraphs, I will focus on the dynamic aspects of property law. More precisely, I will zoom in on the use cases for the technology in the transfer of immovables and how technology can protect title during and after the transfer process.
The key technologies discussed in this article lend themselves best to the digitalisation of the transfer of immovables. The potential of individual technologies in reducing delays and strengthening legal certainty is highly dependent on the operational and regulatory barriers in various jurisdictions. The Future of Real Estate Initiative at Oxford's Saïd Business School did systematic research into which specific technologies are most relevant in real estate transactions.[21] They based these findings on an extensive data screening of PropTech firms to identify the most appropriate technologies. Within the broader transaction process, they believe several technologies promise exciting use-cases. For example, automated valuation models, satellites and drones for property inspection, lease information extraction software using machine learning techniques, and virtual and augmented reality software alternatives to on-site visits.[22] However, in this study, we focus on the transfer of ownership specifically.
As such, especially technologies that help collect and process real estate information are of great importance to the digitalisation of the transaction process. Consequently, this research focuses mainly on the following technologies (1) the Internet of Things (IoT), Edge Computing and Digital Twins, (2) Distributed Ledger Technology (DLT), often more commonly referred to as 'blockchain', and Smart Contracts[23], (3) Property passports and BIM, (4) Machine Learning and Artificial Intelligence. On top of these technologies, it is essential to note the role and importance of 'data' or digital information more broadly.
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From a high-level perspective, the key to understanding technological innovation and digitalisation within a real estate transfer lies in understanding information flows. As such, technologies that are relevant for the transfer of immovables are all related to either information gathering (IoT, digital twins and edge computing), data storage (DLT), data management (property passports and BIM), data analytics (artificial intelligence). In future legislation, we need to systematically analyse a typical data life cycle in the context of real estate transactions. We must have a solid understanding of how data is created, stored, used, shared, and eventually archived or destroyed. This information flow is applied to the specific legal framework of information gathering in the context of property law.
Legislators in all European countries will have to adapt the existing legal frameworks for digital real estate conveyancing. While we do almost everything digital and online, transacting real estate is, in most jurisdictions, still primarily an "analogue" business. Although pushes for modernisation are plentiful, digital progress in this area is not as simple as it might seem at first glance. Covid-19 accelerated certain evolutions, but the adoption of electronic conveyancing systems is more than just a matter of technological possibilities. The conceptual framework of land law is, often for good reasons, namely the protection of property rights, complex, strict and rigid. The future should be built on solid legal frameworks.
Fundamental statutory amendments to, for example, publicity procedures are necessary building blocks for (digital) innovation in the context of registration and notary affairs. The move from a paper-based system to (predominantly) electronic, despite how banal it might appear, is fundamental. Telling are the comments of the UK Law Commission when it called its 2001 Land Registration Bill "the largest single law reform bill and project that has been undertaken in the Law Commission since its foundation in 1965".[24]
Innovation is everywhere today. It is seen as one of the critical drivers for economic prosperity. Often rules and regulations are removed or softened to limit the restrain on technological developments.[25] The law is often seen as reactive in societal changes. More and more scholars and practitioners are confronted with innovative technologies which do not align with the existing legal framework.[26] Future research should try to dovetail the centuries-old legal principles of contract and property law with the fleeting nature of technology. Often, certainly in the blockchain and crypto world, there is a sentiment of escaping the law. This, however, is often an illusion. The law will be crucial in private
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transactions, primarily to protect property interests.[27] Further, we need to balance, for example, privacy and data governance with innovation.
I have tried to contextualise the stubborn symbiosis between law and technology in this article. Especially the question of how and when legislators should regulate innovation was discussed. I argued that in the context of property law, there needs to be special attention to the characteristics of this field. Its long-term focus and its link to physical goods are two of the main concerns in the context of digital innovation.
I have shown via, amongst others, the works of Lehavi and Van Erp that digital technology can pave the way for new frontiers in the development, registration, and enforcement of property rights. As a result, digital technology should be accompanied by a law reform addressing the institutional control of different use cases and interests. The legislator's job is now to find that precarious balance between regulation and innovation. In this context, I gave the example of data as an object. Data is complicated for property lawyers; our current legal frameworks are not built to solve these new problems that data brings, which creates a loss of legal certainty. It leads to a lack of protection of our rights.
Similarly, in the context of real estate transactions, a myriad of innovative technologies are set to make conveyancing easier and safer and cheaper. It is my key argument that we should focus on protecting consumers in the transaction of immovables. It is my view that technology is a double-edged sword in this context. On the one hand, it exposes the average consumer much more to the pitfalls of the transactional process by eliminating (or trying to eliminate) certain middlemen such as the notary. The discussion on block-chain and the notaries in Belgium is an excellent example of this dynamic.
On the other hand, technology exposes various inefficiencies that today's private buyers must put up with when buying or selling a piece of real estate. The archaic operational process stands in sharp contrast with technology's possibilities. These are exciting times for all professionals connected to the transaction process. I think all of us should be looking forward to what is yet to come, but keep the fundamental protection of property rights always front and centre of all innovation we propose. ■
JEGYZETEK
[1] David Grinlinton and Rod Thomas (eds), Land Registration and Title Security in the Digital Age: New Horizons for Torrens (Informa Law from Routledge 2020) 1.
[2] Roger Brownsword and others, The Oxford Handbook of Law, Regulation and Technology (Oxford University Press 2017).
[3] Matthias E Storme and Frederic Helsen, 'Digitale omwenteling in het recht' in Innovatie en disruptie in het economisch recht (Intersentia 2017) V.
[4] Amnon Lehavi, 'The Future of Property Rights: Digital Technology in the Real World' in Amnon Lehavi and R Levine-Schnur (eds), Disruptive Technology, Legal Innovation, and the Future of Real Estate (Springer 2020) 59-60.
[5] R Levine-Schnur, 'From Blackstone to Blockchain: Theorizing Property Law in the Age of Cryptography' in Amnon Lehavi and R Levine-Schnur (eds), Disruptive Technology, Legal Innovation, and the Future of Real Estate (Springer 2020).
[6] Sjef van Erp, 'Management as Ownership of Data' in Sebastian Lohsse and others (eds), Data as Counter-Performance: Contract Law 20? (Hart/Nomos 2019).
[7] A good example of this type of reaction was the (initial) critical and conservative reception of blockchain technology by the Belgian Notary Federation.
[8] van Erp (n 7).
[9] Matthias E Storme, 'Old Rules and New Technology and the Necessity of Distinguishing' (2019) 27 European Review of Private Law 947; Storme and Helsen (n 4).
[10] AA van Velten, 'Klik zei de muis en weg was het huis: kanttekeningen bij de toenemende invloed van elektronisch rechtsverkeer op het Nederlandse onroerend goed stelsel en de gevolgen daarvan voor het consumentenrecht, alsmede voor de kadastrale registratie en de notariële ambtsuitoefening' in Ars Notariatus (142, Kluwer 2009) 6-7.
[11] S ee the Dutch case in which a husband sold the communal house via an internet website without the consent of his wife (Notamail 2002, nr. 9).
[12] Sjef van Erp, 'Ownership of Data: The Numerus Clausus of Legal Objects' in Brigham-Kanner Prop Rts Conf J (HeinOnline 2017).
[13] Lehavi (n 4) 59.
[14] Sjef Van Erp, 'Comparative Property Law' in Mathias Reimann and Reinhard Zimmermann (eds), The Oxford Handbook of Comparative Law (Oxford University Press 2019).
[15] See: Sjef van Erp, 'The Data Economy: There is No Status Quo Ante' (2018) 5 European Journal of Comparative Law and Governance 313.
[16] I am basing myself here largely on the insights of Professor Van Erp, for a general introduction see: van Erp, 'Ownership of Data: The Numerus Clausus of Legal Objects' (n 12); Sjef van Erp, 'Management as Ownership of Data' in Sebastian Lohsse and others (eds), Data as Counter-Performance: Contract Law 20? (Hart/Nomos 2019).
[17] san Erp, 'The data economy: There is no status quo ante' (n 15).
[18] san Erp, 'Ownership of Data: The Numerus Clausus of Legal Objects' (n 12).
[19] Lehavi (n 4) 59.
[20] ibid.
[21] A Baum and others, 'Can Digital Technologies Speed up Real Estate Transactions?' [2019] Journal of Property Investment and Finance.
[22] ibid 354.
[23] I t remains important, however, to clearly distinguish blockchain from DLT. Blockchain is merely one iteration of Distributed Ledger Technology.
[24] Law Commission, 'Land Registration for the Twenty-First Century: A Conveyancing Revolution' (2001) 1.
[25] Larry A DiMatteo and others (eds), The Cambridge Handbook of Smart Contracts, Blockchain Technology and Digital Platforms (Cambridge University Press 2019) 2-3.
[26] ibid 3-4.
[27] ibid 4.
Lábjegyzetek:
[1] A szerző PhD kutató, Leuveni Katolikus Egyetem.
Visszaugrás
