Accommodating to Changes and the Benefits of AI

Inside View

Attila Ungár, Partner, Head of Real Estate, Lakatos, Köves & Partners

The property market in Central and Eastern Europe is again facing severe challenges in 2023. Development costs are high, bank financing is expensive, country risk is increased, the pricing expectations of owners and buyers do not meet, and hybrid-working trends are widespread.

As a result, investors, developers, financers and end-users of properties (such as tenants) are all hesitant in making their business decisions. All of this has a substantial slowdown effect on the traditional segments of the property market.

But how can a lawyer help in a slowing property market?

We accommodate the changing property market by staying well-informed about trends, assessing risks and incorporating flexibility into legal documentation. Businesses are always trying to find their way in challenging markets. As professional legal advisors, we have always adapted to market changes quickly; we “follow” our clients to new market fields in which they are active to help them achieve their goals.

Various non-traditional segments of the property market are still active:

• Greenfield investments relating to the auto battery industry and the related supply chains remain very active, involving state subsidies, land purchases, rezoning, permitting and construction activity. We provide legal support throughout all these, including bridging communication and cultural gaps between foreign new entrants and local players (such as local service providers and central or local government organizations).

• High and volatile development costs drive the market towards more flexible contractual frameworks in the construction industry. EPCM (Engineering, Procurement, and Construction Management) provides more room for negotiation and can help accommodate changes that arise during the construction process. They offer the advantages of more robust owner control, flexibility, and transparency but also require more active involvement from owners, who thus need more professional support. We help in preparing and negotiating these very complex contractual arrangements.

• Green energy projects are an expanding market field after the extreme energy price increases in 2022 and the uncertainties and unpredictabilities of the property market. Property investors are exploring these new opportunities, solar park projects are evolving, and we can help realize these projects in a highly complex regulatory environment.

• Mixed-used developments (involving retail, office, hotel and residential functions) are becoming more popular to mitigate risks of changing property market. The mixed-used nature of a project also mitigates financing risks for both owners and financers, and we assist in setting up these complex structures.

• Commercial leases need more flexibility in a less predictable market; we assist in flexible lease agreements addressing the changing needs of tenants and landlords. This may include shorter lease terms, options for renewal and termination, provisions to expand or reduce leased spaces etc. By incorporating flexibility into lease contracts, the parties can adapt to market changes in a regulated, more predictable way, helping to avoid future disputes.

In addition to following our clients to new market fields, we pay special attention to being more efficient when providing our services. The development of artificial intelligence fascinates the legal industry and is becoming a genuine tool for improving legal services. AI-powered tools are revolutionizing our services by automating repetitive tasks; they can analyze and process vast amounts of data, quickly identify relevant information, and, thus, increase efficiency and accuracy. Document automation is just the very first step, but legal research, contract analysis, due diligence and contract generation are all areas where AI is rapidly developing and gradually starting to be applied. We are following these developments, operate our own Legal Tech Lab and have started using these tools to provide a better service.

However, although AI offers numerous benefits, it cannot replace human expertise and judgment in complex legal matters. Personal relations and being a “trusted advisor” will remain the major factors of being a good lawyer, helping our clients navigate these rapidly changing market fields.

This article was first published in Top 50 Executives The Most Influential Real Estate Executives in Hungary 2023 on July 28, 2023.

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