AI could fundamentally change commercial property deals

Artificial intelligence could change the way commercial property deals are structured, as well as making transactions quicker, according to a legal expert at Morr & Co.

Much of the focus on AI in the property industry has so far centred on its ability to speed up due diligence and document review.

But Nick Leavey, commercial property partner at law firm Morr & Co, believes its longer-term impact could be much more significant, potentially leading to more sophisticated development deals, performance-based rents and leases linked to live building data.

He said: “Everyone is talking about AI making due diligence quicker, and that is already happening.

“But I think the really interesting question is what happens next. If we can analyse much more information, much more quickly, it could start to change the way we structure commercial property transactions in the first place.”

Nick believes one of the first changes could be significantly shorter transaction times, as lawyers, surveyors and other advisers are able to process large amounts of information more quickly.

However, he warned businesses not to assume quicker automatically means safer.

He said: “Time pressure always adds risk because there is a greater chance something gets missed.

“AI can analyse huge amounts of information very quickly, but something can be technically correct without necessarily being right for a particular client, property or transaction. That is where professional judgement is still going to be extremely important.”

AI could also change how landowners and developers agree to share the future value created by development.

Development agreements can include overage or deferred payments, where a landowner receives additional money if, for example, a developer secures permission for more homes than anticipated or achieves greater value from a site.

Nick believes AI could analyse planning, environmental and market information to identify where additional value could arise, while making it easier to monitor whether future payment triggers have been reached.

He said: “At the moment, these arrangements can become incredibly complicated.

“AI could help identify where the opportunities for additional value really are and therefore where the agreement needs to deal with them. It could also make it much easier to monitor what happens afterwards and identify when a payment has become due.”

Commercial leases could also become more closely linked to the performance of the tenant or building.

Turnover rents, where rent is partly determined by the revenue generated by a tenant, are already used in sectors such as retail.

But greater access to business and market data could make it easier for landlords and tenants to assess when turnover rents or other performance-based structures are appropriate.

The same principle could eventually apply to environmental obligations as buildings generate increasing amounts of data on issues such as energy and water consumption.

Nick said: “Green lease provisions can still be quite broad, with landlords and tenants agreeing to cooperate and work towards particular environmental aims.

“If you have much better information about what is actually happening within a building, those obligations could potentially become much more specific.”

However, greater reliance on AI and building data will also create risks around confidentiality, cyber security, data protection and data ownership.

Nick said businesses should also establish who is responsible for AI-assisted advice or analysis before relying on it to make significant commercial decisions.

He added: “The biggest mistake businesses could make is assuming AI is going to be 100% right.

“The most significant impact of AI in commercial property could be moving towards transactions and leases that are much more data-driven, performance-based and dynamically managed.

“Professional judgement will remain essential, but AI has the potential to change how value, risk and contractual obligations are assessed and allocated throughout the life of a property transaction.”

For more information, please visit https://morrlaw.com/

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Editors notes

Morr & Co is a leading law firm with offices across Surrey, Hampshire and London, offering expert legal services to individuals, families and businesses throughout the UK.

With roots dating back to 1729, the award-winning firm combines centuries of legal heritage with a modern client-focused approach, operating across seven offices in Farnborough, Fleet, Guildford, Oxted, Redhill, Teddington and Wimbledon.

Known for its commitment to excellence, empathy and strategic insight, Morr & Co’s 150 strong team supports clients across corporate and commercial, commercial property, dispute resolution, employment, court of protection, family law, medical negligence, personal injury, private client and residential property.

For more information, please visit https://morrlaw.com/