In this article and video, we are going to walk through a real estate Confidentiality Agreement that is suitable for a listing broker to distribute to a potential purchaser of a commercial multi-family property. We’ll cover who the parties are, what information is covered, how it is conveyed, and what enforcement looks like in the event of a breach.
Note from Spencer: This is another post in a growing section we call ‘A.CRE Legal‘. One of Texas’ top real estate attorneys, Ronald Rohde, has graciously offered to share his time, expertise, and open his library of real estate legal templates for the A.CRE audience. Click here to learn more about Ron or to contact him directly.
Real Estate Confidentiality Agreement Template Walkthrough
What is a Real Estate Confidentiality Agreement?
A Confidentiality Agreement is a legal agreement that binds one or more parties to keep proprietary or other information confidential. It’s critical to have assurances in place that prevent a non-disclosing party from immediately publishing such information on their website or other social media platforms. Nondisclosure agreements, a type of confidentiality agreement, are typically used in situations where sensitive company information or proprietary knowledge should not be provided to the public or competitors.
The Elements of a Real Estate Confidentiality Agreement
- Who are the parties?
- While the broker may provide confidential information, the beneficiary is the property owner
- Agent for the buyer may receive information, but still remains liable for the actions of their client
- Clearly describe what information is confidential
- How is it transmitted?
- Where is it accessible?
- Outline the permitted uses for the information
- Typically, only for underwriting for the purchase of the subject property
- Shared among necessary agents and vendors of the party
- Document the receiving party’s promise to abide by the agreement
- Acknowledge the legal options for enforcing the agreement
- Disclosing party: has created or owns the confidential information, this is the property owner regardless of who enables the transmission
- Receiving party: agrees to keep the information confidential, but may transmit to their client and agents, while remaining liable for the actions of all parties who eventually receive the information
- Disclosing party broker: organizes the data, may provide formatting, upload, and be responsible for data security while being hosted
- Receiving party broker: receives information, carries the same duty to maintain confidentiality with any parties who receive the information
In the confidentiality agreement template provided below, the Property Owner is the disclosing party and is represented by a broker. In most cases, they will provide confidential information to the receiving party or receiving broker who is evaluating the information solely for the purposes of acquiring the property.
- You should always start drafting Confidentiality Agreements with basic information as follows:
- Name of Disclosing Party
- Name of Listing Broker
- Property name and address
- Mailing address
- Email address
- Date of execution
- Entity and individual information for receiving party
It is common and usual practice to use electronic signatures to simplify the agreement process. There are software options to require a signature and provide automatic access to a data room. The disclosing party may also email the information or provide physical documents by hand. Be sure to indicate how the information will be conveyed and whether there are any exceptions for technology, inadvertent email addresses, etc. The best practice will be to rely on a secure data room that provides access only to known parties and IP addresses.
In the event that the disclosing party suspects or knows of a breach of the agreement, what are your remedies to respond? Can you collect damages (money) from the breaching party? How long will the process take?
Arbitration clauses mandate that the parties to the contract settle their disputes in a private arbitration proceeding instead of through a public court of law. These types of provisions force parties to waive their right to a jury trial and instead submit to a faster, more private adjudication.
A disclosing party can protect itself from the risk of being forced to disclose confidential information via the public nature of public filings. If a disclosing party is forced to disclose the confidential information in order to prove the elements of a breach, then public litigation defeats the purpose of confidentiality. Arbitration outcomes will be limited to a damages finding. Arbitrators lack the force and power of a governmental entity. However, you may require a combination of arbitration award and a court order to provide injunctive relief (order for a party to act or cease from acting).
Arbitration, in comparison to litigation, offers a simpler process, lower costs, and faster results. If you are a party who is looking to discourage a claim from being filed, then we recommend litigation as the costs and procedures make litigation a higher barrier to filing claims.
In the event that arbitration is not mandated, or if there is a compelling reason to bring the issue into a public hearing (often by challenging the validity of the arbitration clause in federal court), litigation in a state court would provide the broadest remedies available to a plaintiff.
We typically see full-blown litigation cases if a disclosing party has suffered significant losses relating to the sale or breach of a purchase agreement. It’s important to discuss your client’s goals with your attorney before deciding whether to force arbitration in your confidentiality agreement.
Even though a Confidentiality Agreement is typically a short two- to three-page document, it is very important to have key elements in this agreement to protect your clients and give them confidence when sharing important information such as finances, tenant information, improvement history, or other confidential information. Keep this in mind for your next deal and don’t hesitate to contact us if you have any further questions.
Download the Real Estate Confidentiality Agreement Template
To make this legal template accessible to everyone, it is offered on a “Pay What You’re Able” basis with no minimum (enter $0 if you need) or maximum (your support helps keep the content coming – typical legal document templates sell for $100+). Just enter a price together with an email address to send the download link to, and then click ‘Continue’.
We regularly update the template (see version notes). Paid contributors to the Confidentiality Agreement template receive a new download link via email each time the template is updated.
- Initial release