Commercial rentals and leases are stuck in the age of dinosaurs while disruption is happening in other industries.
Physical paper copies of rental lease agreements are still signed and kept by property owners and their tenants, while manual spreadsheets are used to monitor leasing agreements and transactions.
These traditional ways of transacting are paved with challenges for landlords. Fortunately for commercial property market, blockchain technology, used primarily in transacting cryptocurrencies can be employed as digital smart contracts — revolutionising the way landlords and tenants transact.
1. Painful Documentation Processes
Traditional commercial real estate leasing processes involve a lot of documentation. Between you and the lessor, there are lawyers, guarantors, agents, financial institutions and more needed to verify and safeguard each transaction.
The moment you engage your agent with the interest in leasing a property, your paper trail starts. Then it goes through various parties, with back and forth amendments, additions, and cleaned up versions with every new iteration of the contract.
With digital contracts, these processes and paper trails are greatly reduced.
Signature collection can be performed almost instantaneously online. Once the primary stakeholder and verified and signed off, the counter signatures can be notified and collected right way.
2. Need for Internal Checks
The manual process of leasing transactions opens up opportunities for fraud; the more parties involved, the higher the chances. Internal and external audits, tiered approvals, and corporate governance procedures are needed to minimise mischief and instil trust. Such processes lead to bureaucratic bloat and inefficiencies.
Using artificial intelligence, discrepancies can be quickly spotted for immediate ratification by the involved parties.
3. Privacy and Security Risks
Using excel spreadsheets to record data makes it vulnerable to data hacks by external parties. The Singhealth database breach last year is a prime example of how manual processes offers little to no security. With Blockchain’s cryptographic security system that requires the use of a public and private key, your data is secure and immutable.
4. Inefficient Manual Tracking
Current real estate leasing, tracking and booking systems are often recorded manually on excel spreadsheets. This is both time-consuming and tedious when records need to be traced and verified. This also places unnecessary administrative burdens on the personnel responsible for keying in entries to the excel sheet, and creates hours of non-productive work.
While applying blockchain, commercial real estate companies can now eliminate painful documentation processes as contracts will now be transacted online with a monitoring systems of each stakeholder’s actions. Privacy and security risk will be significantly reduced due to characteristics of Blockchain.
5. Environment and Space Unfriendly
The large amount of paperwork that follows a leasing transaction is not very green – many trees would have to be sacrificed. With that much paperwork, it also means there’s a need for substantial storage space to house all these documents. This results in a waste of space that could be used for commercially profitable activities.
Needless to say, if these transactions are done online tons of paper can be saved. While storage space can therefore be repurposed for commercial use.
6. High Intermediary Costs
Leasing a commercial space the traditional way doesn’t just involve the lessee and lessor. There could be many parties involved, like lawyers, guarantors, financial institutions, courier companies and more. Collectively, such third party and intermediary fees could swell the actual business cost for both landlord and tenant.
As platforms that utilise blockchain technology to create smart contracts typically acts like an agent. High administrative fees and commissions will be eliminated, saving real estate companies unnecessary expenses which can better their bottomline.
7. Lengthy Approval Processes
The time between the start of a leasing transaction until its completion could be lengthy. With multiple intermediaries to deal with, plus the time needed for contracts to be seen and approved up and down the corporate hierarchy of each organisation, it may take 2 to 3 weeks for a contract to be approved and endorsed.
This excludes the transportation time involved in delivering the physical copies of the contract back and forth between different parties.
By transacting online, all these inefficiencies will magically disappear. It’s as simple as sign, verify, confirm. It’s akin to performing a web check-in online before you travel. It enhances the experience between the landlord and tenant by reducing the need for unnecessary waiting time.
8. Costly to Manage Short-term Leases
The trend of tenants committing only to short-term leases makes the lease management process tedious and laborious. Manual records will need to be frequently documented, plus the need for intermediary fees to be incurred regardless of the size of the rental contract.
Smart digital contracts platforms are agnostic to the size of your leasing contract. The cost and time required to transact are the same for 1 month leases, as well as 10 year leases. It spells convenience without imposing heavy intermediary fees.
9. Tedious Tenant Due Diligence
Evaluating potential tenants and lessees is a painful necessity. Failure to ascertain their credit-worthiness may lead to potential risks such as tenant defaulting on payments or having tenants with poor track records on board.
10. Inefficient Tenant Search Costs
Finally, the marketing of available commercial spaces is archaic, cumbersome and expensive. Property owners have to list their spaces across multiple online and offline media, incurring marketing and advertising expenses.
It’s surprising that it has taken so long for the industry to take on a digital approach for their commercial property leasing. Like airlines, commercial property should take a direct booking or enquiry approach due to the sheer fact of perceived cost savings to be enjoyed when you transact directly with the landlord. There aren’t many plug and play solutions out there to help landlords easily market their spaces and there should be more, lots more.
Charting the Way Forward
Thanks to the advent of the blockchain, smart contracts, and cryptocurrency tokens, commercial property owners and managers can now forge a fresh way forward.
Offering greater security, almost real-time approvals, trust-less verification, and frictionless transactions, blockchain based systems can transform how commercial leasing takes place.