The tokens are electronic annotations made in a blockchain and used to represent subjective rights. These rights can be purely digital and deploy their effects exclusively within cyberspace, such as the voting rights of the participants of a DAO. But they can also be rights existing in the outside world(off-chain), which are represented within a blockchain by means of NFTs. In the latter case we speak of tokenization of rights.
There are certain analogies between the operation of the Real Estate Registry and the processes of real estate tokenization. In both cases, these are databases that store circumstances related to property and other real rights over real estate.
In the Land Registry, the database is centralized, and is controlled by a public official, the Land Registrar, who decides, through the qualification procedure, if there are going to be alterations in the registry books. In the case of real estate tokenization, the database is decentralized. Entries representing real rights take the form of NFTs that are stored in an Ethereum account. The control task is performed by the computer program associated with that account, called asmart contract, which would perform a function analogous to that of the Land Registrar.
In our opinion, the construction of a real estate tokenization system that can compete with land registries presents enormous challenges, both from a technical and legal point of view.
On a technical level, the smart contract that manages the account where the NFTs are stored would have an extraordinarily long and complex code, since it would have to translate into algorithmic terms all the provisions of the Civil Code relating to the creation and transfer of rights in rem over real estate, as well as all those contained in the Mortgage Law and Regulations.
At the legal level, however, there are not too many obstacles for the transfer of ownership and other real rights to be carried out by means of simple token transfers. Article 1278 of the Spanish Civil Code clearly establishes the principle of freedom of form. And there is nothing in our legal system that prohibits contracts for the transfer of ownership and other rights in rem to be made electronically. The requirement of a public deed and registration in the Land Registry is only ad oponibilitatem, that is to say, to grant effectiveness to the transfer with respect to third parties. A property could thus be transferred by tokenization successively to several persons and only at the end, a long time later, access the Land Registry by means of a file of resumption of the successive tract (article 208 LH).
The only weak point within this scheme would be the cases of double sale, in which the holder of the token would be unprotected against a third party acquirer who would register his right in the Land Registry(art. 32 LH). But perhaps this inconvenience could be avoided if the initial seller of the property (and registered holder of the same) subscribes a policy that protects the current holder of the token against the cases of eviction. There are investment funds and credit institutions that own large amounts of real estate and are interested in tokenizing them, which would have the financial capacity to subscribe to such policies.
Moreover, it would even be possible to create security interests in the tokens. Although Article 1875 of the Spanish Civil Code requires a public deed for the constitution of a mortgage, no specific form requirement is imposed on contracts of sale in guarantee (pacto de retro), which could thus be used as collateral for cryptocurrency loans within cyberspace. As the reader can see, this is a much more complex area than Intellectual Property. In the field of real estate tokenization, regulation is scarce and fragmentary, and the development of this new discipline will require enormous responsibility not only from public authorities, but also from all legal operators.
