Artificial intelligence (AI) and large language models (LLMs) have broken down the door to most every industry in the United Statesand are now included in many products and decision-making processes. Commercial real estate is no different. From legal AI tools to lease management systems, landlords, tenants, owners, developers, and commercial real estate attorneys are seeing a change in their day-to-day operations thanks to AI. It is an extremely powerful tool, and those who fail to learn how to use and incorporate it into their practice are a step behind their counterparts. However, this immense new technology comes with its fair share of pitfalls.
Commercial landlords have found several ways to streamline their businesses using AI. Document management systems powered by AI review leases, agreements, and other documents in a fraction of the time it previously took an entire team of lease administrators to complete the same tasks. National landlords are even working AI into their building operations and predictive maintenance work, by installing AI-integrated sensors to adjust heating and cooling systems to conserve energy, thereby cutting costs. AI-powered chatbots handle and route support tickets and maintenance requests of commercial tenants.
Tenants in commercial spaces are also finding creative ways to integrate AI into their businesses. Through site selection practices, design of leased premises, and supply chain improvements, tenants are using AI to make better informed and more creative decisions and to streamline some often-costly processes. In the practice of real estate law, many firms are adopting legal-based AI products to improve document review, draft lease abstracts, and quickly search for relevant provisions within documents.
However, as with any new technology, there are several issues to be wary of when implementing AI into your business. It is important to remember that the implications of using any of these tools are still developing. Clear guidelines and policies on best practices are currently being developed and updated, seemingly on a weekly basis by both legislatures and individual companies. Many states, such as Florida, are adopting specific rules and penalties for citations to hallucinated cases generated by AI. Although mainstream media has recently highlighted some of the bigger, more obvious problems – such as lawyers referencing completely fabricated cases (or “hallucinations”) in court submissions, there are quite a few less obvious and insidious issues that may not be as obvious, but that are just as problematic.
It is also important to note that the use of AI to attempt to solve legal issues by those not well-versed in the law may result in unintended violations of the law. For example, some landlords of large residential projects have been using AI to set rental pricing and assist in tenant screening. This raises concerns about potential price fixing as well as unintentional discrimination in renting practices. It is important to remember that AI learns from existing data. In the event that the AI model data contains biases that run afoul of fair housing practices, landlords may be liable for such claims through no intentional fault of their own. Blindly relying on the output of AI products, without questioning the implications of such information, may lead to unintended violations of the law. Organizations will likely be held accountable for all systems that use AI in their process. Therefore, they should do an audit to understand how each of their systems uses AI and develop best practices around AI’s use and role in decision making.
AI is an extremely powerful and helpful tool when completing document review. It can quickly identify many of the items it is prompted to find. However, AI products are far from perfect and are prone to incomplete responses in review. For example, if an AI tool reviews a lease for a tenant’s financial obligations, it may identify nine different obligations. Without further independent review, this output would look fine, as the mistake is only in the omission of the potential tenth, important financial obligation that the AI tool failed to identify. As all commercial tenants know, a failure to recognize even one financial obligation in a lease can lead to serious economic consequences. It remains incumbent on the human individual to review and confirm all AI work in order to avoid this potential pitfall.
Skill atrophy is an additional concern, the full ramifications of which will not be known for years to come. AI tools may breed an overdependence from those who use them, resulting in a failure to develop certain skills. Overreliance on the output generated by AI tools, rather than independent thought must necessarily result in the degradation of new, individual and creative thought. This potential reduction in individuality of skills and thought cuts across many fields, but none greater than those that rely on document production and creativity. This is yet another reason why AI must be viewed as just one of a multitude of tools at one’s disposal.
Finally, the use of AI technology comes with privacy concerns and potential data breaches. It is important to remember that many AI tools are public, and there is a risk of third-party exposure to sensitive information when uploading documents into public AI. Further, prompts entered into public AI chatbots may be subject to discovery in potential litigation, creating risk for both individuals and companies.
Being mindful and thoughtful of your implementation of AI will allow it to be a tool to assist in continuing to make thoughtful and informed decisions, along with an improved work product, rather than a minefield of risk.
This alert is for informational purposes only and does not constitute legal advice. The outcome of the pending litigation remains to be determined and is not guaranteed.
This information is provided for educational purposes only. It should not be construed or relied on as legal advice. It is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication or other legal counsel.