Although the real estate sector has been relatively slow to adopt this transformative technology, GenAI holds the potential to streamline and enhance various aspects of it – including the legal due diligence process of a property transaction.

As property investors understand, “due diligence” involves a comprehensive examination and analysis of various aspects of a property to assess its viability, potential risks and financial performance – a process enabling buyers to make informed decisions.

In short, GenAI can inform your decision in relation to a property transaction, but it falls short of the necessary (human) judgment and expertise. As is often the case, it comes down to leverage.

GenAI refers to AI systems that create new content based on patterns learned from existing data. In this context, GenAI includes advanced tools for market analysis, property summaries, automated document review and scenario simulation.

The efficiency of AI-driven due diligence means faster turnaround times. GenAI can quickly review, summarise and simplify large volumes of data, allowing property investors to move swiftly. However, this is not without risk – what GenAI currently delivers in speed, it lacks in other capabilities. A few dos and don’ts to keep in mind when using Genai:

Dos:

• Play around with GenAI: It’s now a way of life – GenAI’s involvement in our day-to-day is no longer optional, nor can it be avoided. It’s better to be aware of its impact than be naïve to its opportunities, ie understand its capabilities and limitations to best adapt its use.

• Combine GenAI with legal expertise: Lawyers go beyond – for example – identifying themes in leases, highlighting stereotypical red flags in agreements and reviewing a title at face value, ie they don’t just consider what is in front of them, but what should be in front of them. Legal expertise identifies information gaps, asks the right questions, requests additional information that wasn’t provided and, of course, evaluates legality, proactively addresses compliance matters, and determines where risks and opportunities lie.

• Use the information GenAI delivers and go further: AI excels at identifying patterns or highlighting important contract terms, without understanding their full significance – human expertise remains crucial for interpreting the context of these patterns and the implications of terms, especially when a transaction involves subjective or nuanced factors eg overseas buyers in New Zealand, navigating assignments of leases with “claw-back” clauses, first-home buyers etc.

Don’ts:

• Upload confidential, commercially sensitive or financial information into publicly available AI tools: Due to confidentiality and privacy obligations, under no circumstances should this information be included/shared – once uploaded, it cannot be reversed and becomes part of the generated output for other users. Similarly, uploading agreements or loan documents may pose a breach of their respective terms.

• Assume regulatory/legislative compliance: GenAI may not generate its output using the latest changes or nuances in local laws and regulations. GenAI tools are only as good as their data sources – the output can miss legislative updates or complex legal interpretations and even hallucinate or fabricate inaccurate and outdated information. Expert legal knowledge is required to identify this and is in the best position for future regulatory/legislative changes.

• Rely on GenAI for negotiations: Developing a negotiation strategy and advising on drafting variations requires an understanding of legal principles and human factors that GenAI cannot replicate i.e. GenAI cannot make discretionary decisions that require human judgment such as assessing the trustworthiness of a seller, the potential for future disputes, or considering your ultimate goals and circumstances.

While GenAI provides valuable assistance in gathering and processing information, the role of a lawyer in property due diligence remains indispensable. Engaging a lawyer combined with using GenAI ensures that you – the property investor – can make informed decisions, safeguard your investments, and navigate the complexities of property law with confidence. ν

Disclaimer: The information provided in this article is for general informational purposes only and should not be relied on as legal advice. Always consult a qualified lawyer for advice specific to your situation.

Jenna Adamson is a partner with Wynn Williams, specialising in commercial and property law and leading the firm’s AI/tech portfolio. This article has been co-written by Danita Ferreira a senior associate in Wynn Williams’ corporate advisory team.