Originally the domain of technology start-ups, PropTech has emerged as a serious player in property and construction markets.
The integration of new technologies in the property space and the opportunity this creates is being embraced by investors, major construction companies and property developers alike to enhance the residential, commercial and retail customer experience.
As the appetite for agile working environments, tailored technology and automation grows, businesses will increasingly expect property developers to incorporate PropTech solutions (such as collecting data about how occupants are using spaces and controlling critical building operations and facilities) into new developments and require property managers to offer technology services as part of their tenancy arrangements.
While the benefits are enormous, PropTech solutions also present a number of legal and reputational risks. Explored below are six key PropTech considerations for investors, developers and owners.
1. Collection of data
Data that identifies an individual (such as information collected by sensor technologies to identify how individual occupants interact with their buildings by tracking individual movements) is likely to be personal information in Australia, and attracts different privacy obligations for recipients that access and collect it.
For example, a tenant that collects personal information about employees may rely on the employee records exemption under the Privacy Act 1988 if the personal information is collected for the individual’s employment. However, when personal information is collected from guests or contractors, the tenant cannot rely on that exemption and will be subject to privacy legislation concerning the collection, use, disclosure and storage of personal information.
A property owner that is collecting information to understand how a space is being used for the purposes of the facility or future developments will be subject to privacy laws if the individual can be identified. The owner will need to satisfy privacy obligations, including that the collection is necessary for one or more of its functions and activities. If not, the information should be de-identified.
2. Security of data
As large repositories of valuable data grow, organisations in the property chain need to move beyond managing physical security to managing the secure storage of information. Because data is often managed by third-party cloud providers with servers globally, collectors of this information must ensure protection from cybersecurity risk operationally and contractually.
3. Facial recognition software
Within retail property, facial detection applications use algorithms to detect the presence of a human face. While they don’t identify an individual, data is being used to collect information such as age, gender and even mood, which is then used to connect the shopper with particular retailers. This raises ethical and reputational issues for the centre operator as to the level of transparency required over what information is collected about the customer experience and how it is used.
In some countries, facial recognition software is being used as a security measure to create a digital record of individuals that pose a threat. Unlike facial detection, facial recognition uses biometric technology to recognise the human face. In the retail property context, if one retail outlet identifies a threatening individual, other outlets using the network could form the same view, resulting in the individual being automatically banned from multiple outlets.
4. Ownership of data
Multiple parties with access to the same data all seek to analyse and derive insights for their own businesses and identify new commercial opportunities. Could a property owner that operates sensor technologies set parameters in leases with tenants about what rights they have over the data?
It is important that property participants think about the value proposition created by the technologies and whether legal arrangements are properly defined to ensure that data, information and intellectual property rights are protected and revenue streams are preserved.
5. When things go wrong
The risk profile for owners of smart buildings that deploy AI technology to operate key functions goes beyond the physical infrastructure. Who in the PropTech supply chain bears responsibility for malfunctions and liabilities, particularly given the potential for harm where automated technology operates an essential building function such as lifts or fire detection?
The potentially catastrophic consequences of a PropTech defect requires owners to closely examine the technology chain to ensure that:
- the contractual framework with technology providers, integrators and others is robust;
- service levels are appropriately identified;
- responsibility matrixes are documented; and
- liability regimes are allocated to cover the new risk paradigm.
6. Intellectual property
Construction companies and property developers that embed PropTech solutions into the design or build of a development must ensure that the PropTech solution is immune from IP infringement claims and that IP is accessible should an emergency occur.
To this end, construction companies and property developers should conduct due diligence and enquiry on the IP ownership framework to ensure the IP resides with the correct ‘owner’ and is appropriately licensed to enable unimpeded use while the PropTech solution is in operation.
PropTech is set to revolutionise the construction and property sectors. While it will raise a number of new and varied legal and operational risks, those organisations that can manage these risks effectively will be best placed to make the most of the enormous opportunities this exciting sector presents.