Smart contracts have the potential to deliver greater transparency to the client-supplier relationship as well as dispute-free automation of payment for services, writes Nicholas Newman.
While still in its nascency, particularly in facilities management, blockchain technology and smart contracts hint at a future in which transactions surrounding daily maintenance and servicing activities are automated, providing transparency and convenience as well as improving efficiency and reducing costs.
“Blockchain offers the real estate sector, first and foremost, security, traceability and transparency since documents, including leases, freehold transactions and provision of good title could be recorded and uploaded into a blockchain, which cannot be changed without the participants of the chain being aware,” explains international property consultant Jonathan Hutt at J Rands Hutt.
Currently, blockchain is still in its early stages of development and its potential applications for facilities management and real estate are being explored and trialled by Oxford University, PricewaterhouseCoopers and IBM.
David Shrier, associate fellow at Saïd Business School for Facilities Management in Oxford, says: “Blockchain is good at automating complex repeating tasks that involve multiple parties and require documentation and an audit trail which makes it well suited to estate transactions.”
Shrier adds that rent collection and service charge accounts could also be run using blockchain, which would make money-handling processes more secure, transparent and simpler.
The smart contract misnomer
Shrier says the term ‘smart contract’ is a bit of a misnomer as it is neither smart (in the sense of AI), nor a contract (in the sense of being a legally binding document). Smart contracts are in fact self-executing apps, using a set of specific instructions, conditions and outcomes that are issued, met and achieved through blockchain technology.
These contracts could, in time, replace conventional legal contracts or paper agreements. They will be able to determine how funds should change hands and then automatically execute fund transfers after certain conditions are met.
Jeff Garzik, co-founder of the blockchain services start-up Bloq, says: “[Smart contracts] guarantee a very specific set of outcomes. There’s never any confusion, and there’s never any need for litigation. It’s simply a very limited, computer-guaranteed set of outcomes.”
Smart contracts, initially at least due to current levels of technological innovation, will be particularly suited to regular micro-payments – i.e., recurrent sums of less than £5,000, usually for paying for service and maintenance contracts, small purchase orders or equipment – and not more complex and bigger Capex spend such as major equipment upgrades and large installations. However, this challenge will likely be overcome with time.