For any transaction to be successful, trust is vital. From marriage vows to rental agreements, employment contracts to doctor-patient confidentiality, trust is the foundation stone upon which we build our personal and professional relationships.

Unfortunately, this vital quality is in a state of decline, according to the world’s most significant annual survey on trust, Edelman’s Trust Barometer. Moreover, irrespective of industry, the news on trust is not good.

As far as the private rented sector (PRS) is concerned, what can be done to help rebuild trust?

When renting out a property, some economic signalling is necessary between the signing parties of the agreement, to help counter any potential lack of trust.

What’s more, despite the credibility of tenants’ references being verified, various problems may occur afterwards, such as rent not being paid on time or property getting damaged. Blockchain could help in a number of ways:

  • Keeping records: It could be used to keep a permanent record of deed, title or tenancy that is distributed to many computers or available in the cloud.
  •  Public transparency: Such records could be made available for public scrutiny. The increased transparency from having a public record of a transaction would also help to reduce the risk of manipulation of valuable data.
  • Speed of rental payments and proof of transactions: Blockchain could enable both parties to transact directly with each other, without the need for a property agent. Not only would this reduce transaction costs; it would also speed up the entire process.
  • Smart contracts using blockchain: We know that a smart contract, or agreement, is electronic, is governed by computer protocols and has some features that could help dramatically improve PRS management. It would also provide real benefits for both landlords and their tenants, from smart-key access to automatic transactions and notifications.

Blockchain could present a significant advance in risk reduction

Blockchain could enhance the benefits of smart contracts, because various rental scenarios could be programmed into the blockchain. For instance, for different types of property damage, a separate cost deduction could be applied and deducted automatically. Of course, before signing a tenancy agreement, approval would be required between the parties. However, once in place, this type of contract would save time and costs on the enforcement of the tenancy terms.

Payments would be made via an electronic wallet. Bitcoin or other online currencies would not necessarily have to be used as bank accounts could still be used almost as quickly. A smart contract would ensure secure automated payments between parties, as recorded in the blockchain, along with near-instantaneous payments reconciliation.

Blockchain and smart contracts are not a panacea. In addition, multiple systems are being developed so there is no certainty at this time as to which will become the dominant platform and how compatible that will be with other systems.

Established protocols to help resolve disputes are also not quite there, nor is the tech ready for all elements of an interactive smart contract.

However, it is only a matter of time before such issues are resolved and the ‘Internet of Things’ becomes prevalent. In turn, blockchain would present a significant advance in risk reduction and a way to strengthen trust between the transactional parties of any PRS agreement.

Sanjeev Patel is managing director of PPP Capital