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Editor: David Reiss
Cornell Law School

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April 13, 2026

Incorporating AI Tools Into Your Legal Practice

By David Reiss

Image Generated by ChatGPT

I published Advice for Incorporating AI Tools Into Your Legal Practice along with Celia Bigoness and Robert MacKenzie in the National Law Review. It reads,

We have been speaking with many lawyers and law students about using generative artificial intelligence (AI) tools in their legal practice. We are struck by the fact that many of them have not been experimenting much, if at all, with the tools that are available to them – although many acknowledge that their clients are increasingly integrating generative AI into their businesses. We have been integrating a lot of these tools into our own professional lives, and here are some tips to help lawyers and law students get comfortable with AI tools that can help them, in big ways and small, with their job.

Put it on Your Home Screen

Put your preferred AI app (ChatGPT, Claude, etc.) onto your phone’s home screen and be sure to allow it to access your phone’s microphone. You will be surprised by how often you get the urge to ask the app slightly complex questions that a basic web search would not answer. (Hat tip to one of our kids for this idea.)

Start with the Familiar

Trusting the output of an AI tool without having the ability to verify its accuracy is okay if you are choosing a movie to stream tonight. It is not okay if you are using it to provide legal advice to a client. To get comfortable with AI tools, start using it for tasks that you have experience executing and reviewing. One simple way to start: explain a familiar task to the AI tool and ask it for guidance on how you can use it to complete the task.

As you use AI tools in newer areas, you want to review the cited sources in the AI output to confirm that you agree with the AI model’s interpretation of them. Sometimes they are plain wrong, sometimes the AI model misinterprets the cited documents, and sometimes those documents are out-of-date.

When the stakes are greater than your personal entertainment, you need to do a lot of due diligence before you adopt an AI tool’s findings.

Use Multiple Tools

Different AI models are built on different training documents and have different algorithms that they apply to those documents. There is nothing more edifying than running the same queries through a few general AI models and a few specialized ones (like those geared to lawyers, in particular). You will see a range of answers, from non-answers to highly specialized and accurate ones. You will start to become a more sophisticated consumer of the different models, understanding each of their strengths and limitations.

Tell It Your Needs

Most AI tools will tailor their responses to your preferences. In some cases, we created a prompt to instruct the AI tool that responses should be of the type that a lawyer would like to receive—providing sources, explaining its analytical steps, and what it did and did not consider. The AI tool responded that it would be precise, answer “above a lay level,” and “be candid about uncertainty.” This has improved its answers and had the side effect of reducing sycophantic language (“That is a very good question!”).

Use it for Your Pain Points

We all have some routine tasks that we find irritating. They are usually the ones we procrastinate on. For some, it is preparing slide decks. For others, it is drafting certain kinds of emails (unpaid bills, anyone?). Just getting a first draft from the AI tool often helps you to finish the work up. But for some tasks, like preparing presentation slide decks, you can save hours and hours of your time.

We have experimented with both general AI tools and those that specialize in slide deck preparation. They have pros and cons, but are generally very helpful. In all these cases, the AI tool’s time savings are in large part due to the fact that the AI tool is optimizing a task that you are capable of doing yourself. You are able to quickly verify and edit the output.

However, if you were asking the tool to analyze a topic with which you are unfamiliar, or perform a task that you’ve never done before—if you’re learning from scratch—you will still need to go through the painstaking process of checking sources and confirming output.

Play in Vaults

One game-changing use of AI tools is to upload documents to a secure location in the cloud (sometimes referred to as a “vault”) and hone the tool’s focus on only those documents. A transactional lawyer can upload hundreds of documents and quickly identify commonly appearing terms for comparison or inconsistencies among them. A litigator can upload thousands of pages of litigation documents and create a draft chronology of events. Again, the output cannot be taken at face value due to the functional limitations of these tools, but it can provide an extraordinary first draft that can then be verified and edited to the form you prefer. This can be a game-changing use of AI for lawyers, as long as you have verified the vault’s security in advance.

Use it as a Second Set of Eyes

This is a great and scalable tip for those who are skeptical of AI tools. After you have completed a written task, ask an AI tool to critique for clarity, coherence, and accuracy. Even an experienced attorney will get at least a couple of suggestions that will ring true. And of course, you can reject all of the suggestions that you disagree with. This is a great way to see if an AI tool can provide you with real value with very little investment of your time.

Along the same lines, for more advanced experimentation, you can use the AI tool to issue spot and offer counterarguments to your work to complement your own analysis. Again, this is very low stakes because you can reject anything you find wrong-headed or irrelevant. Of course, you need to be careful about sharing privileged information (see vault security above).

Preserve Confidentiality

We have spent more time than many of you would like looking at the Terms of Use of the AI tools we have used. Except for certain tools that are developed for legal work in particular, we believe that the attorney-client privilege can be compromised when using many AI tools because of how the tools use your input information.

We have had students and clients who wanted to use AI transcription tools to compile meeting notes. We have advised them that confidential information can be compromised by such tools and that we do not use them in our practice, at least at this time.

If you begin to use a tool with client-identifying information, be sure to confirm that you are complying with your professional responsibilities to preserve client confidences.

Don’t get Lazy!

We all read the headlines about lawyers who use AI to draft legal documents and do not check to confirm that the work product is correct. Those lawyers rightfully face professional discipline and reputational consequences. We can all say that we would never do that, but a new term has arisen to describe an unthinking reliance on AI: “cognitive offloading.” This offloading occurs when we reduce our own deep research and thinking because of an unhealthy reliance on AI tools.

Every time we complete a substantive task with AI, we need to ask if we have thought through the task as fully as we would have if we did it without the tool. If the answer is no, we need to dig into it again. Cognitive offloading is a particular concern for law students and younger generations of lawyers, who have grown up with technology and tend to be more comfortable using AI tools – and therefore more susceptible to this unthinking reliance.

Conclusion

From our discussions with lawyers in private practice, it is clear that AI tools are being used in the ways we have mentioned above. No doubt, more specialized tools are in development. It’s clear that AI will transform the practice of law in the coming years. Those who are new to AI can use these pointers to begin exploring how AI works. We think they can amplify their effectiveness to the benefit of their clients and themselves, so long as the risks that AI tools pose are thoughtfully addressed.

 

April 13, 2026 | Permalink | No Comments

March 19, 2026

Can Mayor Mamdani Freeze the Rent? It’s Complicated.

By David Reiss

 

I published a column with Nestor Davidson in Vital City, Can Mayor Mamdani Freeze the Rent? It’s Complicated. It reads,

Zohran Mamdani, the newly elected mayor who promised as a candidate to freeze the rent for rent-stabilized units each year in his four-year term, will soon seek to make good on his promise.

He can’t do it alone. He needs the cooperation of the NYC Rent Guidelines Board, an appointed body on which both of us have served as chair in recent years. The RGB was created pursuant to state law to set rent adjustments for apartments in the city that are subject to the Rent Stabilization Law. About one million of New York City’s over three-and-a-half million units of housing are rent-stabilized.

The incoming Board — on which Mamdani has made a majority of appointments — will begin its work this month. At the top of its agenda will almost surely be considering whether to keep the rents of rent-stabilized housing at current levels. As it does its work, the Board can best serve the city if all members are committed to carefully reviewing data collected and analyzed by RGB staff and other information brought to the board by experts and the public before reaching its decision.

Put differently, the RGB should not simply execute the mayor’s command. There are laws to follow and economic data to consider. The stakes are high for tenants facing increased housing burdens, for landlords facing increasing costs and for the fabric of our diverse city.

The Rent Guidelines Board’s mandate

The City’s rent stabilization system differs from rent regulation in other jurisdictions. While some jurisdictions allow landlords to increase rent when an apartment turns over to a new tenant, the Housing Stability & Tenant Protection Act of 2019 (HSTPA) eliminated vacancy rent hikes. Rent adjustments in New York are also set by a Board instead of being based on a formula that is tied to the inflation rate. The Board can therefore set rent increase rates higher or lower than inflation, based on the statutory criteria it applies.

The media rarely explains the RGB’s decision-making process clearly and sometimes echoes misunderstandings about how the Board works. Perhaps the biggest misunderstanding is that mayors decide whether and how much rents go up. But that is not how rent stabilization was designed to work. Even though one of us chaired the Board during the mayoralty of Bill de Blasio, who used the bully pulpit to advocate for a rent freeze, we know well it is the members of the Board who have the sole power to make this decision. Each of us had to work to get a majority of the Board to support what became the adopted guidelines each year. Board members take their roles seriously and typically engage in lengthy discussions about the data before deciding which proposals to support. Rather than seeing a rent freeze as a simple test of mayoral power, the public is best served by understanding the limited but important function of the Board and the constraints on its decisions.

Let’s step back a bit. The Rent Stabilization Law (RSL) charges the Board with one central task: adjusting rents of rent-stabilized units after reviewing “the economic condition of the residential real estate industry,” cost of living data and a catch-all, “such other data as may be made available to it.” Thus, there is no single, simple formula for the Board to apply.

To get into the weeds, the law requires that the Board review data regarding the operating and financing costs landlords are bearing, including (1) real estate taxes and sewer and water rates; (2) gross operating maintenance costs (such as insurance premiums, governmental fees and the cost of fuel and labor, among other things) and (3) costs and availability of mortgage financing. The Board is also charged with considering the supply of housing as well as vacancy rates. While tenants’ rent burden — the portion of their income they spend on rent — is not explicitly mentioned in the RSL, the Board has interpreted its mandate for decades to include an assessment of housing affordability.

While the mayor appoints all members of the Rent Guidelines Board (or a predecessor mayor, for holdovers), it is an independent body that is required by law to make its own determination about rent adjustments. The Board is composed of the chair, who serves at the pleasure of the mayor; two members who represent tenant interests; two members who represent landlord interests and four members who represent the general public. Other than the chair, members serve terms of two, three or four years.

Tenant members typically focus on affordability for today’s tenants. Landlord members often focus on the finances of rent-stabilized buildings, such as whether they are earning enough to cover maintenance and capital repairs as well as a profit for their owners. Those are appropriate agendas for those two sets of members. Chairs consider all of this, but also usually focus on the long-term, asking whether proposed rent adjustments will ensure that the rent-stabilized housing stock has sufficient revenue to be maintained for its residents for years to come.

Landlords have repeatedly challenged the Board’s annual rent guidelines, but courts have generally deferred to the Board’s expertise and upheld its balancing of the competing concerns of increasing costs for landlords and diminishing affordability for tenants.

The state of the housing stock

The Housing Stability and Tenant Protection Act, passed by the state Legislature and signed into law by then-Gov. Andrew Cuomo in 2019, dramatically altered the finances of the rent-stabilized housing stock. Proponents of the law wanted to limit ways that landlords could raise rents and, in particular, curb incentives to exit the program through high-rent/high-income deregulation. They succeeded in doing that, but rents flattened and buildings dropped in value as a result. Many buildings in the program are now showing financial distress as expenses have continued to increase each year.

A recent Furman Center report shows that there is reason to worry that the current regulatory environment has set up a dynamic where around two-thirds of the rent-regulated housing stock is on a trajectory of financial distress — potentially including mortgage default and bankruptcy — that will result in deteriorating quality in housing for tenants. This would mean more heat and hot water outages, more pest infestations and more lead paint hazards, among other health and safety concerns.

That picture of the current stock brings us back to how the Board makes its decisions. As we noted, many people think that the mayor simply tells the Board how to vote. That has not been our experience. Nor has it been our sense of the experience of other chairs we have spoken with.

It is true that mayors often appoint members who are broadly sympathetic to either tenants or owners. Now, even with some members whose terms straddle previous administrations, Mayor Mamdani has tapped a majority of the incoming Board.

The mayor does not — and should not — “control” them. With a process designed to provide broad technical and public input, chairs and other Board members formulate proposed rent guidelines that reflect the data that the RGB’s research staff provides them. The Board staff and members take their work seriously. They must consider the data before them, and the Rent Stabilization Law requires the Board to make challenging calls to balance increasing costs for building owners with affordability concerns for tenants. If the record does not support a finding that the Board’s decision was based upon their statutory mandate, it is open to challenge.

Some have asked why a rent increase or freeze needs to be boiled down to a single number when so many buildings and building owners face different pressures and conditions. It’s a fair question, but right now, the law doesn’t allow for fine-grained distinctions. Each year’s rent guidelines are a blunt instrument that applies to every building with rent-stabilized units. This means that the same figure applies to a building in the Bronx composed entirely of 99 rent-stabilized units and to the one remaining rent-stabilized unit in a 99-unit luxury building in midtown Manhattan where the owner has no limitation on how much it can charge for those ”market rate” units.

The Mamdani administration will need to grapple with this blunt instrument, just as every previous administration has had to. Ultimately, the Board must pay close attention to the data to determine how rents should be adjusted — understanding that a freeze will likely harm buildings in deep financial distress even as it would aim to help tenants in buildings whose landlords are doing just fine.

The Board does not act alone

Whatever the Board decides, many stabilized buildings will continue to face financial distress. But the fate of the rent-stabilized housing stock does not solely rest with the Board. The governor, the Legislature, the mayor and the City Council can all act to ensure that the rent-stabilized housing stock has sufficient funding for maintenance and needed capital repairs. While the City and State have many tools at their disposal to address financial gaps, the three main avenues for helping distressed buildings are bigger rent increases, new subsidies or reduced costs for buildings in financial distress.

After the passage of the 2019 HSTPA, rent increases for rent-stabilized units can only be authorized by the Board (or, subject to stricter limits under the HSTPA and subsequent amendments, through temporary Major Capital Improvement (MCI) increases and permanent Individual Apartment Improvement (IAI) increases). And because previous amendments to the RSL have limited the Board’s discretion to target certain subsets of the housing stock, rent increases cannot be targeted to the buildings that need them most (not to mention the fact that tenants in the most distressed buildings tend to have lower incomes and are less likely to be able to afford those targeted increases). RGB rent increases will not be enough on their own to resolve the financial distress of many of these buildings.

Direct subsidies to preserve this stock will be very expensive, easily measured in the hundreds of millions of dollars, and soon into the billions of dollars each year — at a time when the City is already struggling to close significant budget gaps. Nonetheless, the City and state may need to subsidize a large portion of rent-stabilized housing to keep it from failing, and that will redirect resources from other priorities.

Broader changes to the regulatory and property tax regime that govern revenues and expenses for this housing stock might help, but none of those changes will be easy, and indirect subsidies come with measurable costs as well, even if they are not showing up in State and City budgets. It will be difficult otherwise to reduce costs, such as insurance and interest on mortgages, as these are set by third parties over whom government actors have relatively little control.

There are no easy answers to this growing problem. But as the politics heat up, it is important that the public understand the basic nature, power and obligations of the Rent Guidelines Board. All New Yorkers should be concerned about the long-term viability of the rent-regulated housing stock, and we are all on notice that it is at risk. This part of the housing stock is a precious resource for a city rightly committed to socio-economic diversity, and we should all look for a path forward to preserve it.

We assume that the mayor will work hard to make good on his promise to freeze the rent. If he doesn’t, many of those who voted for him will see it as a betrayal. If the Board, following its mandate, agrees, preserving the stabilized stock will require partnering with the governor, the Legislature and the City Council to address the impending financial crisis facing a large swath of this vital source of housing.

March 19, 2026 | Permalink | No Comments

February 20, 2026

Feet to The Fire on Property Taxes

By David Reiss

Created by ChatGPT

Newsweek interviewed me for Mamdani’s Property Tax Plans Holding Hochul’s Feet to Fire, Expert Says. It reads, in part,

New York City Mayor Zohran Mamdani’s proposal for a 9.5 percent property tax increase in the city is a way of holding Governor Kathy Hochul’s “feet to the fire,” according to David Reiss, professor of law at Cornell Tech and Cornell Law School.

Mamdani said this week that he was proposing the increase in property tax rates in New York City as an option if he could not persuade the governor to approve higher taxes on the wealthy.

“It’s very interesting, because Mamdani endorsed her in her race for governor, which is this year,” Reiss, an expert in real estate, told Newsweek, pointing at the strong relationship that the two have maintained until now.

Not only is the 34-year-old mayor backing Hochul in her reelection bid, but he also told organizers of a Tax the Rich rally in Albany, planned for February 25, that he would likely not attend the event because he does not want to antagonize the governor, as reported by The New York Times.

“So he’s done some things that are very good for her, but then he’s kind of holding her feet to the fire and saying that Albany can make the situation much better in New York, and this is how I want you to do it,” Reiss said.

“‘I want to raise taxes on the wealthy, and the backup—because I want more revenue for the city—would be my property tax hike, but I acknowledge that it’s painful,’” he added. “’I acknowledge that that’s unpleasant, but I want to hold your feet to the fire on the income tax increase.’”

* * *

“I think Mayor Mamdani is trying to set the terms of the debate and kind of trying to allocate blame for the budget deficit that the city’s about to face,” Reiss said. “And so he’s trying to say, ‘I have a path forward, but it requires partners in government to help with that path forward,’” he added.

“And so, he’s kind of trying to set up a dynamic where, when blame is allocated for budget cuts and promises unkept, he could say he did his best to make this happen, but partners in government are not playing ball with him.”

* * *

For Reiss, the unfolding tension between Mamdani and Hochul over a “rich tax” in New York is a reflection of a bigger split within the Democratic Party nationwide.

“I think both in New York and nationally, what we’re seeing is the economically progressive wing of the Democratic Party, as reflected in Mamdani, represents a push to reallocate resources away from the very wealthy towards the low-income and working class constituents,” Reiss said.

Mamdani, he thinks, is doing a good job at setting that debate up. The question is, he said, which wing of the party will win.

“It’s an interesting question in a majority Democratic state like New York, where both the governor and the mayor are Democrats. But it’s also going to be interesting in jurisdictions where you might have a Democratic mayor and a Republican governor, especially as we go to the congressional midterms,” he added.

“Republicans are going to talk about Socialist Democrats and Democrats are going to talk about billionaire-loving Republicans. And voters will have to decide, you know, which vision of America they agree with more.”

* * *

Voters, Reiss said, are sophisticated enough to understand that Mamdani might not keep all of his campaign promises, and might be willing to cut him some slack because he has already delivered some important reforms.

“For Mamdani, a very early win was getting the governor to go along with the child care proposal, which is, I think, fulfilling a major campaign promise,” he said.

“I think he now has the ability, because he’s been able to appoint a majority to the rent guidelines board, to encourage the board to implement a rent freeze, and that was a major campaign promise,” Reiss added.

February 20, 2026 | Permalink | No Comments

February 19, 2026

Mamdani’s Property Tax Hike Proposal

By David Reiss

ChatGPT Image

ABC News interviewed me in New York Mayor Mamdani’s Property Tax Hike Proposal Puts Pressure on Taxing Millionaires. It reads, in part,

David Reiss, a clinical professor of law at Cornell Law School, told ABC News that it was inevitable that Mamdani’s progressive policies would be met with initial resistance by moderates in a highly contested election year, but the debate over taxation will be one that resonates across the country as affordability takes center stage at the ballot box.

“I have no doubt this will be a flashpoint for national elections and state and local elections as well,” Reiss said.

    *     *     *

A Political Game of Chicken Not Limited to NYC

Reiss, who used to chair New York City’s Rent Guidelines Board, told ABC News that taxation has always been the big factor in elections, with Republicans previously running on a stance of no new taxes on Americans.

This year’s election season will be different, he noted, given Mamdani’s rise to national prominence, as well as that of progressive candidates who have been championing policies to help Americans make ends meet, such as improved child care and rent relief.

“You will see people say, ‘We want to increase revenues to support progressive issues,'” Reiss said.

Reiss said that Mamdani is “planting the flag” in a manner that is important to him and his supporters by making a property tax hike warning a part of his negotiations with the City Council and Albany.

Reiss further said that dangling a worst-case scenario this early puts the conversation on affordability and government fiscal priorities front and center, instead of it being buried under other issues that will surface as election season kicks off.

“You’re seeing a very popular mayor to use the bully pulpit for some change with a politically middle-of-the-road state government,” he said. “It really is a political game of chicken.”

    *     *     *

Reiss noted that the public push for more cost relief has seen leaders become more open to considering progressive policies.

Since Mamdani won the mayoral election, Hochul has been more open to some of his proposals to help New Yorkers, including expanding state funding for child care options for children aged two and older.

On Monday, the governor, whom Mamdani has endorsed, announced that the state would invest $1.5 billion in the city over the next two years for various services and programs, such as public health and youth services.

“It seems from a political perspective a logical strategy for a popular mayor to take, but it’s not without its risks,” Reiss said.

    *     *     *

Lawmakers across the country are facing growing calls from their constituents to address income inequality and the wealth gap, Reiss said, noting a proposed wealth tax in California on billionaires that has prompted some corporations threaten to leave the state.

“It’s the lightning rod, and it sets the terms of the debate,” Reiss said of Mamdani’s budget negotiation proposal. “But we’ll see if it compels other partners in government to go along or to resist it.”

February 19, 2026 | Permalink | No Comments

Mamdani’s First 50 Days: Housing Edition

By David Reiss

By Dmitryshein, CC BY-SA 4.0

NYC Mayor Zohran Mamdani

I was interviewed for AMNewYork’s story, Mamdani’s First 50 Days. It reads, in part,

For Professor David Reiss, a Cornell University housing expert and former chair of the Rent Guidelines Board, the mayor’s housing orientation so far is unmistakably pro-tenant, but it also underscores deeper challenges.

“He’s clearly pro-tenant,” Reiss said, noting Mamdani’s rhetoric, appointments, and actions such as launching his rental rip-off hearings and the revival of the Mayor’s office to protect tenants. But he cautioned that short-term policies aimed at controlling tenants’ costs must also account for the long-term viability of the housing stock.

“Are you pro-tenants five years, 10 years, 15 years down the line?” Reiss asked, pointing to the risk that buildings with constrained revenue might struggle to cover unavoidable expenses like property tax, insurance, and mortgage payments without meaningful engagement.

Reiss traced much of this pressure to state rent restrictions, which eliminated several mechanisms that previously allowed landlords to raise rents between tenancies. Under current conditions, he said, the annual RGB adjustments are often the only permissible rent increases, which, in recent years, have been modest in the view of landlord groups.

If rents are capped or frozen, his view is that the city will have very few tools to ensure financial stability without subsidies or cost reductions — whether direct (financial support) or indirect (tax relief or reduced operating costs).

“You have very few tools,” he said. “They usually involve somehow reducing costs directly or indirectly, or increasing income by subsidizing,” Reiss said that any meaningful approach will have to consider how the city allocates limited funds, especially in the face of a budget gap that has already pushed the administration to consider rainy day funds and reserve drawdowns elsewhere.

That tension between immediate affordability and long-range health of the housing stock frames much of the current policy conversation. Reiss said the rent freeze itself — assuming it survives legal and procedural hurdles — would represent a significant political success if delivered, given that it was a core campaign pledge. But he stressed that a broader housing strategy must also ensure that rent-regulated buildings can cover ongoing costs without descending into default or neglect.

“Success for the Mamdani administration,” Reiss said, “is to thread the needle between his expressed statement of reducing rent increases or rent freeze on the one hand, but ensuring that the housing stock has enough income to support itself — not just for this year, but for three years, five years, seven years down the line.”

February 19, 2026 | Permalink | No Comments

February 17, 2026

When Tokenized Real-World Assets Collide With The Real World

By David Reiss

Image generated by ChatGPT

Biying Cheng and I have a column in Law 360, When Tokenized Real-World Assets Collide With Real World. It reads,

The city of Detroit filed a public nuisance lawsuit in July of last year in the Michigan Circuit Court for the Third Judicial Circuit against Real Token, its co-founders and 165 affiliated entities, alleging building code and safety violations across over 400 Detroit residential properties.[1] RealT is a blockchain real estate platform that sells fractional interests in individual U.S. rental properties through the issuance of crypto security tokens.

On July 22, the judge issued a temporary restraining order — later converted into a preliminary injunction on Nov. 4 — barring RealT from collecting rent, pursuing evictions without a certificate of compliance and directing future rent into escrow until properties are brought up to code.

Detroit v. Jacobson is ongoing, with a trial scheduled to begin in May. The case highlights the brave new world we face when real estate assets are tokenized via blockchain technology.

The facts surrounding the case raise three pressing questions. First, are these real estate tokens securities? Second, assuming they are, do investors know what they are getting into when they purchase them? Third, and most importantly, are the very human tenants in these properties being provided with habitable housing by their decentralized finance landlords?

Are real estate tokens securities?

Until the Trump administration indicated that it might be taking a new approach to crypto more generally, it seemed clear that tokens like those issued by RealT were securities. Gary Gensler, chair of the U.S. Securities and Exchange Commission under the Biden administration, had stated that security tokens were generally securities under the long-standing Howey test, derived from the U.S. Supreme Court’s 1946 decision in SEC v. W.J. Howey Co.[2]

Trump administration officials have not, however, spoken in one voice on the issue. While SEC Commissioner Hester M. Peirce, the head of the SEC cryptocurrency task force, stated in July last year that “tokenized securities are still securities,” SEC Chairman Paul Atkins stated that “most crypto assets are not securities” a few weeks afterwards.[3]

Further muddying the waters, President Donald Trump’s Working Group on Digital Asset Markets released a report around the same time that distinguished between tokenized securities and tokenized nonsecurities, such as “commercial real estate.”[4]

On July 31, Atkins also announced the Project Crypto initiative to aid “President Trump in his historic efforts to make America the ‘crypto capital of the world.'” Under the aegis of Project Crypto, the SEC intends to develop “clear guidelines that market participants can use to determine whether a crypto asset is a security or subject to an investment contract” to slot crypto-assets into various categories.

The initiative also contemplates “an innovation exemption that would allow registrants and non-registrants to quickly go to market with new business models and services,” with no need to comply with burdensome regulatory requirements.[5]

It remains to be seen which types of real estate tokens will be deemed by the Trump administration to be securities and which will be deemed interests in real estate. It is important to acknowledge, however, that it would be a radical change to deem real estate tokens like RealT’s not to be securities, and it would upend decades of settled law relating to the Howey test.[6]

Indeed, the U.S. Court of Appeals for the Ninth Circuit on Aug. 11 reaffirmed a broad interpretation of the Howey test in SEC v. Barry.[7] To determine whether a security token is a security, the starting point is to decide whether it is an “investment contract” for the purposes of the Securities Act. Courts have found that the Howey test requires four elements to be met to determine whether something is an investment contract: (1) there must be an investment by the investor (2) in a common enterprise (3) with an expectation of profit (4) derived primarily from the efforts of others.

The Ninth Circuit in Barry found that sales of fractional interests in life settlements were investment contracts under the Howey test, and thus are securities. A life settlement is a transaction in which someone sells a policy insuring their own life to investors for an agreed-upon price, and the investors then take over the payment of the premiums and collect the death benefit after the insured dies. The defendants were sales agents for Pacific West Capital Group, a firm that buys life insurance policies from seniors and then sells fractional interests in those policies to investors.

Applying Howey, the court held that investors’ expected profits depended on PWCG’s managerial and ongoing efforts, including its policy selection, operation of the premium-reserve mechanism and the fractionalized structure that left investors reliant on PWCG’s management. The life settlements were thus found to be investment contracts.

Although this case does not address the tokenization issue, it demonstrates that the Howey test is generally applicable to transactions that fall under the broad category of “investment contracts.” So, while recent regulatory announcements impose some uncertainty regarding the applicability of the test, the Ninth Circuit’s decision in Barry shows that the Howey test is still alive and well, at least for now.

Are investors protected?

Promoters of real-world asset tokenization claim that they can lower barriers to real estate investing by allowing retail investors into the types of deals that once required high investment minimums and limited access to accredited investors. While the low cost and ease of entry into the real estate tokenization market are real, major challenges remain for retail investors to understand the risks posed by the tokens, as well as those posed by the underlying properties themselves.

Under the current regulatory framework, if a real estate token offering meets the Howey test, it is an investment contract and thus a security. The transaction then must be registered with the SEC or exempted.

Real estate token issuers typically rely on exemptions such as Regulation A, Regulation Crowdfunding, Regulation D and Regulation S. Each of those exemptions has various limitations on solicitation, investor accreditation and amounts raised, as well as other aspects of the offering.

States such as New York and California also have their own regulations that tokens must comply with. State securities regulators have identified schemes tied to digital assets as a top threat for retail investors.[8] It is far from clear whether real estate tokens generally comply with all of the federal and state investor protection regimes that apply to them.

In addition to being exposed to fraud and misrepresentation by token issuers, retail investors are also exposed to real-world problems relating to their investments that can rapidly interrupt cash flows and investor distributions.

Are tenants protected?

The Detroit RealT lawsuit clearly demonstrates how digital assets and their underlying real-world assets interact in a way that an investor pitch deck cannot. As alleged in the lawsuit, tenants in their properties have suffered for months from lack of heat, leaky roofs and other unsafe conditions. Investors are suffering — albeit only financially — for owning such poorly maintained properties.

Tenants are not without remedies. Many local governments, including Detroit, have significant statutory protections in place for residential tenants. Residential rentals in Detroit must obtain and maintain a certificate of compliance, and courts can effectively halt rent payments or consider noncompliance against landlords in  cases. When units are out of compliance, tenants may be directed to escrow rent until code issues are fixed, as the judge in the RealT case has ordered.

What’s next?

We are just beginning to live in a world of tokenized real estate. The RealT case in Detroit should provide some guidance as to how we should navigate this new world.

But the regulatory environment is not yet clear. Investors do not yet understand what they are investing in. And tenants may be suffering real-world consequences until a whole host of regulatory and business issues are worked out.

The sooner we figure it out, the better for all.

[1] City of Detroit, City of Detroit Announces Major Lawsuit Against Real Token And 165 Related Corporate Entities for Widespread Nuisance Abatement Violations (July 24, 2025), https://detroitmi.gov/news/city-detroit-announces-major-lawsuit-against-real-token-and-165-related-corporate-entities.

[2] Gary Gensler, Chair, U.S. Sec. & Exch. Comm’n, Remarks on the Importance of Oversight and Investor Protection in Our Crypto Markets (Apr. 4, 2022), Securities and Exchange Commission, https://www.sec.gov/news/speech/gensler-remarks-crypto-markets-040422. , 328 U.S. 293 (1946).

[3] Hester Peirce, Comm’r, U.S. Sec. & Exch. Comm’n, Statement on Tokenized Securities, (July 9, 2025), https://www.sec.gov/newsroom/speeches-statements/peirce-statement-tokenized-securities-070925; Paul Atkins, American Leadership in the Digital Finance Revolution (July 31, 2025), https://www.sec.gov/newsroom/speeches-statements/atkins-digital-finance-revolution-073125.

[4] President’s Working Group on Digital Asset Markets, Strengthening American Leadership In Digital Financial Technology 37 (July 2025), https://www.whitehouse.gov/fact-sheets/2025/07/fact-sheet-the-presidents-working-group-on-digital-asset-markets-releases-recommendations-to-strengthen-american-leadership-in-digital-financial-technology/.

[5] Paul Atkins, Chair, U.S. Sec. & Exch. Comm’n, American Leadership in the Digital Finance Revolution (July 31, 2025), https://www.sec.gov/newsroom/speeches-statements/atkins-digital-finance-revolution-073125.

[6] SEC v. W.J. Howey Co., 328 U.S. 293 (1946).

[7] SEC v. Barry, 146 F.4th 1242 (9th Cir. 2025).

[8] NASAA Highlights Top Investor Threats, North American Securities Administrators Association (Mar. 6, 2025), https://www.nasaa.org/75001/nasaa-highlights-top-investor-threats-for-2025/.

February 17, 2026 | Permalink | No Comments

February 11, 2026

Consumer Law Awardee, alongside Senator Warren

By David Reiss

David J. Reiss (right), clinical professor of law and research director of the Blassberg-Rice Center on Entrepreneurship Law at Cornell Tech and Kara Bruce (left), head of the AALS Section on Commercial and Consumer Law and the Graham Kenan Distinguished Professor of Law at the University of North Carolina School of Law.

Via Cornell Law School:

David J. Reiss, clinical professor of law and research director of the Blassberg-Rice Center on Entrepreneurship Law at Cornell Tech, was among the distinguished law professors honored at an awards ceremony held January 9 during the Association of American Law Schools’ (AALS) Annual Meeting in New Orleans.

Reiss was recognized with the Section on Commercial and Consumer Law Juliet Moringiello Mentorship Award, which was also given to Senator Elizabeth Warren, Harvard Law School (Emeritus). “I am extremely honored to share this award with Senator Elizabeth Warren, who is a hero to many of us who work on consumer protection issues in the financial sector,” said Reiss.

Kara Bruce, head of the AALS Section on Commercial and Consumer Law and the Graham Kenan Distinguished Professor of Law at the University of North Carolina School of Law, presented Reiss with the award.

“In his twenty-three-year career in law teaching, David has founded and directed a variety of law clinics, merging discrete areas of law such as real estate, consumer, and small business law into programs that offer broad support to the communities they serve. Along the way, he has guided and supported many clinicians, adjuncts, and fellows as they found their footing in legal academia,” said Bruce.

Praised for his mentorship-focused activities at Cornell, Reiss spent the past semester co-teaching with Robert MacKenzie, the Davis Polk & Wardwell LLP Clinical Teaching Fellow at New York University School of Law, as he entered the academy. “Watching his excitement as he figures out how he wants to approach teaching, scholarship, and service over the decades to come is a joy in its own right. And to the extent I can offer any advice that he might find useful, I am very happy to do so,” said Reiss.

Reiss remains connected with the practicing bar as a fellow of both the American College of Real Estate Lawyers and the American College of Mortgage Attorneys. He also has a forthcoming book, Paying for the American Dream: How to Reform the Market for Mortgages, that will be published by Oxford University Press.

At the award ceremony, Reiss said, “Receiving this award drove home to me how we are a community of scholars who work with each other and rely on each other to make sense of the immense complexity of commercial law and to understand the implications of its structure for consumers and businesses.”

February 11, 2026 | Permalink | No Comments

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