Commercial real estate in Ireland has evolved rapidly in recent years due to the integration of sophisticated technology into various types of property assets. Smart buildings create dynamic, efficient and sustainable environments for their occupants but smart buildings also come with risks. Here we discuss the potential risks which can be managed using contractual safeguards.
1. Incident Management
The dependence of smart buildings on internet connectivity presents vulnerabilities to cyber-attack. Tenants need to have contingency measures in place which can be implemented in the event of a cyber-attack and, crucially, tenants need to understand whether the landlord or tenant will be liable for the costs of dealing with such an event. Where critical functionalities of a building fail, tenants may want the ability to trigger a rent suspension mechanism in their lease until the issue is remedied.
2. Data Protection
Some functionalities of a smart building may involve the processing of personal data, the most obvious example being security measures in place at an office building. Where the movement of employees at a multi-tenanted building is captured electronically by a single landlord, a controller / processor relationship may exist between the landlord and its tenants. The parties involved in the processing of any personal data have a legal obligation to ensure the terms of any processing arrangement are clearly captured in a written agreement. The risk of non-compliance with data protection laws carries the potential for hefty regulatory fines. It may also give rise to employee claims for any infringement of their data protection rights.
3. Ownership of Data
It may be possible for the landlord of a building to collect data which is valuable to the business of its occupants and other third parties. Data analytics may be used to predict the most effective future use of a tenanted space, based on current patterns of occupancy. Matters such as data ownership and confidentiality should be covered in the appropriate contract, such as the lease. Shopping centres have long monitored customer footfall in order to predict and harness consumer trends. Such analyses will become far more routine and more widely used with PropTech advancements. Parties need to agree at the outset how such data can be captured, utilised and monetised by the parties.
4. Ownership of Tech
In many circumstances, the technology which is integrated into a smart building is not owned by the landlord / developer but rather used under a licence from a software provider. Typically, software licences will include restrictions or limitations on the use of the software by parties other than the licensee. On the acquisition or leasing of a smart building, the licensing arrangements should be reviewed in order to ascertain if the licence to use the technology can be freely assigned by the vendor / landlord and whether there are any hidden costs in doing so. It is not enough to review the title to the property itself – the technology forms an integral part of the fabric of any smart building and any contract for sale / lease of a smart building should include appropriate warranties reflecting this.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
