“Proptech” is a new term that stands for property technology. It encompasses all types of technology used in commercial and residential real estate, from chatbots used by Realtors^®  on their websites to smart devices to control property functions, such as building access, to software used to analyze and manage a property, tenant relations and leases.

The Proptech industry has seen accelerated growth in the past few years growing from $4 Billion to almost $8 Billion, and advancements continue to be made in many areas.

At the same time, the laws around the use of these technologies continue to develop as law makers craft regulations around the incorporation of new technologies in real estate. Nowhere is that more apparent than in the use of electronic signatures and contracts.

The first and most fundamental question is this: Are electronic contracts valid?

The UN Model Law on Electronic Contracts was first adopted in 1996 and has been embraced by most jurisdictions in the Western World. Generally speaking, electronic contracts are valid where there is an explicit offer and acceptance to the contract. One notable exception as it pertains to real estate is when the contract must be registered. For example, electronic signatures and contracts are valid on leases that are not registered in the land titles office and on purchase and sale documents (including offers and counter offers). However, to register the transaction on title requires original signed documents rather than an electronic signature.

There are other instances where electronic contracts are not valid, such as wills, powers of attorney, certain business and financial documents, etc. so it is best to consult with your lawyer to determine your use of electronic contracts and signatures.

Is there a requirement to maintain electronic data for a certain time period?

Since electronic contracts are often viewed the same as paper contracts, the retention guidelines for electronic contracts (and electronic signatures) would be the same. Therefore, it is important to ensure proper back-up and retention of all electronic documents, and the keepers of these documents must be aware of the retention requirements.

The best practices for using electronic contracts and signatures include:

• an explicit understanding and prior notification between the parties that an electronic contract and electronic signatures (“e-signatures”) will be used.
• That all privacy regulations are upheld regarding the contract and the gathering of e-signatures, and
• maintaining accurate records concerning the use of the contracts.

How does all this apply in commercial real estate?

Obviously, the convenience of being able to conduct a wide variety of activities and transactions electronically can speed a transaction. The use of electronic signatures also means that the parties are no longer desk-bound. They can conclude a transaction anywhere, and at any time.

One frequent downside inherent in electronic contracts is that they are not tactile.  Many times the contract is misfiled, deleted or simply forgotten since it can easily reside inside an email or a misnamed computer file.  On less sophisticated systems, such as stand-alone computers, laptops and mobile devices, system failures or upgrades and result in the complete data loss of the contract.

Large organizations, such as landlords and occupiers with multiple locations, may have entire departments dedicated to the retention, management, and safekeeping of all their contracts, including electronic contracts.

Entrepreneurs and smaller operations, such as many tenants, often do not have these types of systems and policies in place, and are at a greater risk of losing data, or – more importantly – losing track of important contract information, such as important lease obligations and rights.

This is understandable, since the ‘virtual’ contract is often out of sight and out of mind.  Many times, the tenant’s lease and commercial space is taken for granted as something that was completed previously (perhaps the lease was signed years ago) in order to allow the tenant to operate daily, today. It simply is not top of mind. The risks of this can be devastating however. Imagine that you have an option to renew the lease, for example. If you miss the time to exercise that option you could lose your space – and that could mean the end of your business.

To solve this very real and prevalent problem it is important to keep track of lease milestones, obligations and rights as well as maintain a back up of your lease contracts – or have someone do that for you.

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