Publications

By: Ryan Klassen, and Esther Leung.

In Part 5 of RBS’s AI & The Law: Legal Insights for the Digital Age series, we explore the impact of AI on Real Estate Law.

Overview

This article offers an overview of how AI is shaping the future of the real estate sector, highlighting its potential benefits, current applications, and legal considerations. Readers will gain insights into the opportunities and challenges associated with AI adoption, along with practical guidance on ensuring compliance and safeguarding interests as the industry continues to evolve.

Introduction

Artificial Intelligence (AI) is fundamentally transforming a wide range of industries, and as one of Canada’s most significant sectors, real estate stands to benefit substantially from these advancements. AI has the potential to enhance efficiency, streamline processes, and improve decision-making within the industry. However, it is essential to approach AI applications thoughtfully, considering current technological limitations and addressing key concerns around confidentiality, liability, and accuracy in real estate transactions. Striking the right balance will be crucial to leveraging AI’s full potential while maintaining trust and compliance.

Potential Applications of AI in the Real Estate Sector

The real estate sector has traditionally been cautious in adopting new technologies. However, AI represents a transformative development unlike any prior innovation in the industry. As AI capabilities continue to advance, it offers substantial potential to benefit developers, investors, managers, and other professionals by enabling more streamlined operations and data-driven decision-making. These innovations have the potential to lead to increased efficiency, improved productivity, stronger business relationships, and enhanced profitability within the real estate market. Embracing AI thoughtfully can position industry stakeholders for sustained competitive advantage.

As the real estate sector is still in the early stages of integrating AI, many organizations are actively exploring scalable approaches to implementation. Potential applications of AI within the industry include[1]:

1. Document Review
   Legal real estate documents can often be dense and technical, making it difficult for owners of many properties to sift through and find information in these documents. Given AI’s ability to query large datasets, it can extract key terms from leases, such as monthly rental payments, lease terms and the parties’ obligations. Additionally, the tool can scan across leases for a particular parameter (for example, all leases with a rent price per square foot below a certain level) and generate tables of information. This output can then be examined by real estate professionals. Given AI’s ability to query large datasets quickly and at scale, this application of AI has the potential to revolutionize the ease and efficiency of extracting key information from real estate documents.
2. AI-Powered Assistants
   AI can be utilized to develop sophisticated chatbot assistants tailored for a range of real estate functions, including handling tenant requests and lease negotiations. For routine inquiries, such as maintenance requests, the AI-driven assistant can automatically notify the appropriate teams, streamlining communication and response times. More complex issues can be flagged for review by a property management expert, ensuring accuracy and appropriate escalation. Additionally, generative AI can analyze conversations and written exchanges, providing actionable suggestions and insights to improve communication effectiveness. In high-stakes situations, such as negotiating commercial leases for office, warehouse, or retail spaces, the AI tool can compile key details about the tenant, property, and market conditions to generate strategic negotiation outlines. By leveraging natural language processing capabilities, these advanced AI-powered assistants have the potential to significantly enhance operational efficiency and decision-making within real estate organizations.
3. Improving Speed and Quality of Investment Decisions
   Currently, investment decisions in real estate often rely on manual analysis of customized data collected from diverse sources. For example, an investor interested in warehouse properties may begin with a broad market analysis, considering factors such as proximity to ports, airports, and high e-commerce activity. This is followed by deeper research, sourcing detailed location-specific information from brokers or digital platforms, and conducting separate evaluations of past investment performance.

AI has the potential to streamline and automate this labor-intensive process. By analyzing unstructured data, both internal, such as current asset performance and lease details, and external, including census data and comparable sales records, AI can generate valuable insights quickly. These insights can be leveraged to identify and prioritize promising investment opportunities, guiding manual review and due diligence more efficiently. Overall, AI’s integration has the potential to significantly enhance the speed, accuracy, and quality of investment decision-making in the real estate sector.

Current Examples of Applying AI to Real Estate

Looking at our real estate counterparts in Europe, we see start-ups attempting to experiment with applying AI to the real estate market. Tools including the Carbon Risk Real Estate Monitor have been designed to enable the projection of real estate assets on a trajectory compatible with the sustainability goals set out in the Paris Climate Agreement[2]. To implement real estate projects and to speed up compliance with regulatory standards, French start-up companies have started to develop tools for decarbonizing buildings using AI, interpreting planning regulations, studying project feasibility, and creating virtual assistants designed to decipher local urban planning plans.

Additionally, AI is increasingly being applied to the retrofitting of buildings[3]. Globally, governments and companies are aiming to retrofit over 1 billion square metres of office space by 2050 to help tackle carbon emissions. To effectively retrofit buildings involves systematically examining large amounts of information about the current state of buildings, their structures, materials, energy and utility systems and operations. For instance, going through construction documents and maintenance records can help limit the need for new equipment and materials, thereby reducing waste. This work, when done manually, is complex and time-consuming. AI can efficiently process the relevant documents for this process, extracting the necessary information and quickly organizing it into a standard format that is ready to use. Retrofitting of buildings will greatly benefit from increased applications of AI due to the speed at which AI can analyze vast amounts of data.

As AI technology continues to advance, it is poised to unlock new opportunities across the real estate industry. Potential applications include automating routine administrative tasks, reducing labor costs, and freeing professionals to focus on strategic activities like relationship building and high-value decision-making. Embracing AI’s potential will be key to driving innovation, sustainability, and efficiency within the sector.

The Potential Impact of AI on Real Estate Laws

Currently, no specific laws or legal protections targeting the application of AI in the real estate sector have been passed in British Columbia or Canada. We expect provincial and federal legislators to adopt new laws and guidelines as AI continues to advance. Given the immense potential of AI, it is important regulators establish requirements and protections for fairness, transparency, accountability, and risk management specifically for users in the real estate industry.

In the absence of legal frameworks for AI in the real estate sector, it is essential consumers understand the current risks and limitations associated with using AI. While it is becoming increasingly easier to generate standard documents online or using AI systems for purchasing, selling or leasing lands or property, clients should be mindful of the potential risks of using these auto-generated documents without seeking legal advice. These online-generated documents are often not catered to real estate laws in a specific jurisdiction and may not capture the specific needs of your transactions. Additionally, there may be concerns around the confidentiality and use of your data. Since Canada has not fully adopted any specific legislation regulating or restricting the use of confidential information accessed or stored by AI companies, the main business or servers of the AI companies are likely outside of Canada, making it difficult to ensure confidentiality of private information or trade secrets[4]. By contrast, lawyers recognize the importance of privacy and the sensitivity of personal or business information and must hold all client information acquired during the course of the professional relationship in strict confidence and in accordance with applicable laws and policies. We generally recommend clients obtain legal advice on real estate transactions, even if the client has obtained information or utilized AI to generate documents.

Additionally, clients should be mindful of statutory requirements regarding professional legal advice in real estate matters. In British Columbia, lawyers have the professional responsibility to oversee the work product generated using computer software or prepared by office staff. The Land Title Act[5] in British Columbia also requires that certain documents be signed in the presence of a lawyer or authorized persons using the unique designated forms and be submitted to the Land Title and Survey Authority of British Columbia in accordance with the applicable filing directions. Therefore, using AI to generate real estate documents may not be cost-effective for clients, as a lawyer will have to thoroughly review these AI-generated documents before signing or witnessing a client signing them. Other involvement of lawyers may include ensuring that the factual information is inputted correctly, investigating title or other interests registered against the land/property, processing trust funds on behalf of the client, reviewing and negotiating financing documents and contract clauses, and addressing and responding to client’s or relevant authorities’ case-specific inquires or investment considerations in relation to various areas such as real estate development, disclosure and management, building and development permits, subdivision, encroachment and landlord-tenant obligations. These are all essential elements of real estate matters that cannot currently be delegated to AI systems. Clients should seek professional legal advice to ensure their interests are safeguarded in real estate matters.

Conclusion

As AI continues to increase in capabilities, it has the immense potential to revolutionize the real estate sector. We are still in the early stages of applying AI to the real estate sector and it will be exciting to see how AI impacts the sector. AI has the potential to allow real estate professionals to automate the repetitive low-value work and instead focus on relationship building and other more strategic, high-value work.

However, clients should be mindful of the current limitations of AI systems in real estate matters. There are concerns around confidentiality, liability, and accuracy in using AI to generate legal documents. Additionally, there are statutory requirements in real estate matters that require the involvement of lawyers. As regulations around AI in the real estate sector continue to evolve, it is essential clients seek out prudent legal advice for their use of AI for real estate matters to ensure their interests are safeguarded.

Our team of lawyers at RBS would be happy to advise on any legal issues related to AI in real estate matters.

We would like to thank articled student Ajay Gill (2024/2025 year) for his contributions to this article.

[1] Mckinsey, “Generative AI can change real estate, but the industry must change to reap the benefits” (November 14, 2023)
[2] Global Real Estate Sustainability Benchmark, “Carbon Risk Real Estate Monitor (CRREM)” (2024)
[3] World Economic Forum, “How AI can help cut real estate carbon emissions” (January 11, 2024)
[4] JLL, “AI is here. How can real estate navigate the risks and stay ahead?” (March 2024)
[5] Land Title Act, RSBC 1996, c 250