As we have gone about educating ourselves and our clients about the metaverse and virtual real estate, one of the questions that we have been asked about is what the contract looks like when virtual land is bought or sold. (We are real estate attorneys after all!) Is the contract akin to the documents used for the sale of real property or is it a new type of agreement with completely different terms and conditions? Well, it turns out that, like most things, the answer is complicated.
What contracts are used in Virtual Real Estate?
When it comes to buying or selling metaverse land, the terms are largely governed by what is known as a “Smart Contract.” In essence, a smart contract is just lines of code in the blockchain that are automated with predetermined conditions. The code creates a series of if/then and when statements, which then execute the actions when certain conditions are met and verified.
What benefits do these contracts bring?
The main benefit of these smart contracts, and why people like them, is that they streamline the purchase process and remove the need for intermediaries (pretty sure that’s code for lawyers). Combining a smart contract with other unique identifying metadata — such as the identity of the owner and transaction history — also provides irrefutable proof of ownership and authenticity to prospective buyers. Any changes in ownership are implemented into the blockchain in real time, and since a smart contract’s code on the blockchain is public, any time a smart contract is used, anyone is free to inspect the code and verify information whenever they please.
How does this differ from more traditional real estate contracts?
A smart contract is only a “contract” in the loosest sense (offer, acceptance, consideration), and the majority of the terms, conditions, representations and warranties that you would expect to see in an agreement for the sale of real property, are generally absent. When what you are buying is essentially just a box on a grid (what most virtual real estate is right now) that’s not all that concerning. But as these plots of land develop and take on new forms/utility, the contracts are going to have to evolve as well. Already there is confusion about intellectual property rights, and whether those rights are transferred as part of a sale? Or who bares the risk if the server that holds the asset disappears? These are questions that are difficult to answer or clearly explain in a few lines of code.