Does Metaverse Pose any Legal Ramifications for the Real Estate Market?

Metaverse or Meta gained its popularity since Facebook has rebranded itself to Meta Platform, Inc. Facebook Metaverse or any other metaverse like Sandbox have completely replicated the real world into the virtual world. Here consumers can lease, rent or license properties and carry out businesses like in the real world. Between Nov.

22 and 28, $106 million worth of business was conducted in real estate on various metaverse platforms. As the business is growing in these metaverse companies are renting office spaces and conducting office meetings on these platforms. Given the growing reliance on the platforms an exponential growth is expected.

One of the most significant potential legal ramifications of the metaverse for the real estate market is the potential dispute over ownership of the virtual property. In the real world ownership is proved through land registry maintained by the authority and such ownership is surrounded by well defined rights under various laws and jurisprudence. For example a piece of land owned by a person cannot be simply taken away by someone or not even the government without following the due process.

Properties purchased and possessed on metaverse are in the form of NFTs and governed by the platform’s user license agreement unlike real world property laws. Further, the platforms have the discretion to limit the use and terminate the agreement anytime. In such a case, a user with a $100,000 digital painting can be banned from the platform the next day after purchase, and the NFT has no value and function.

Like any other digital right holder, a land owner on metaverse can only use it for his/her personal purposes. The user does not hold reproduction rights. In Capitol Records v. Redigi the second circuit held that it is impossible to transfer any digital file from a user’s storage medium without making a copy that is controlled by copyright’s ongoing “reproduction right”, as opposed to the “distribution right” that is extinguished by the First Sale doctrine.

Another legal issue concerning metaverse real estate is the risks surrounding the rights of a mortgagee. Like the real world, one can obtain financing to purchase real estate in the metaverse but they are governed by a volatile and extremely insecure contract. For example, in the event of a foreclosure the affected individual has limited recourse, there is no judicial system in place to contest the foreclosure. Given the lack of regulation or public accountability, it is up to the platforms to make any changes.

In addition to being subject to volatile NFT based assets, metaverse land is exposed to the unregulated risk of devaluation created by new lands. Either of these circumstances, or even a combination of the two, can result in the value of the virtual land falling below the value of the mortgage, which is likely an event of default, even if payments are being made regularly.

Overall, while the metaverse has the potential to create significant legal challenges for the real estate market, there are steps that can be taken to address these issues. By creating new legal frameworks and regulations that specifically address the unique challenges of the metaverse, we can ensure that this new virtual world is safe, secure, and accessible for all.

Lex Bridge is a boutique law firm specialising in legal advice, regulatory compliance, and risk management services. With our in-depth and up-to-date knowledge of regulatory laws and risk management services and using our comprehensive database, we can provide your business with the guidance it needs to stay compliant and minimise potential legal exposure. We take pride in our commitment to excellence, integrity, and client satisfaction, and we work tirelessly to ensure your business is well-positioned and up-to-date in the regulatory landscape. Our clients and services are spread globally, primarily from the USA; EU; UK, and MENA states.​
This article is provided for informational purposes only and does not constitute legal advice.