Leasehodl?

Leasehodl?

Dave Merin
Dave Merin

July 2021

There’s a lot of energy right now in trying to put land on the blockchain (see., e.g., CabinDAO, CityDAO) and some interesting new ideas are emerging. In some senses, this energy is not surprising. Like DAOs themselves, various forms of tokenized real estate transactions have been a dream of members of the Ethereum community since it’s earliest days. Countries have worked to put title registries on chain, several teams have tried putting traditional LP units of real estate syndications on chain, and none of these efforts have really achieved product market fit.

In recent conversations, there has been discussion of starting by putting leases on chain. While on chain ownership of land registries may be the desired end state, this is a much lighter lift than full ownership and most importantly, it seems to be the least regulated way to get started, allowing for the greatest flexibility in iterating to product market fit.

It makes sense for leaseholds to be less regulated than freehold ownership by governments as governments need to directly interact with property owners to collect the property taxes they charge in exchange for protecting the ownership of that property. While property purchases need to be registered with the government, there is no such requirement with leases, as they are just contracts between private citizens.

Leases can be of short duration, long duration, and anything in between. They can be for fully furnished buildings, just the land, and anything in between. They can also be assigned, in whole and in part. This is quite a broad and malleable solution space for a startup to iterate through.

To see the benefit of this, consider that the Uniswap for land would require direct engagement with governments to register title changes (often requiring dead trees) if it wanted to transact property ownership, but should be able to keep everything fully digital if it was just involved in exchanging usage rights (otherwise known as leases). The former requiring days, if not months, to settle, the latter being able to settle at the speed of Ethereum.

If one wanted to start building in this space, an easy way to get started might be for an individual or investor syndicate to buy a large plot of land. They could then either sign a long term lease on the land to a DAO - possibly providing the DAO with an option to purchase the land at the conclusion of the lease OR engage a DAO as a property manager with all of the DAO members acting as collective property managers. The DAO could then possibly slice up the usage rights by time and space into NFTs representing various times and places of exclusive use, and those NFTs could trade freely on chain. If an individual wanted exclusive use of a piece of the property at a given time, they’d just need to prove ownership of the requisite NFT. Over time, this could evolve into more as the DAO builds out the requisite infrastructure to improve the land for higher and better uses.

While the romance of full property ownership may make getting started with leases appear to be a vastly inferior solution, at the end of the day the difference may not be as great as it seems. We’re effectively just leasing our land from the government anyways. If you own your property outright and fail to pay your property taxes for long enough, the government is always happy to remind you of who really owns the land.

These are all preliminary thoughts and I would appreciate any feedback on this, especially in areas of law or fact that I have made.

Disclaimer: this is speculation, not legal advice. Everything written here should be triple checked with lawyers acting as your counsel before it is implemented.