Commercial brokerage: confidentiality of information and duty to collaborate

The commercial real estate broker often faces a dilemma when it comes to respecting his duty to collaborate with other brokers, while ensuring that sensitive information regarding the sale of a business is not disclosed to a competitor, for instance. Since all brokers are subject to the duty to collaborate, the broker who engages in commercial transactions will not evade his duty to share information and to agree in advance to share remuneration with a buyer’s broker. So how to reconcile everything?

The compromise often lies in the signing of a confidentiality agreement by the buyer for the non-dissemination of information. Obviously, such an agreement should be used under special circumstances required by the seller, but should not be used systematically. When such circumstances exist, the handling of this document is the seller’s broker’s responsibility. In addition, various problems may arise from a misuse of this document.

Collaboration

For example, a clause included in the confidentiality agreement requiring the buyer to pay the remuneration of his own broker himself goes against collaboration duties set out in the Regulation brokerage requirements, professional conduct of brokers and advertising. The same applies to the refusal to agree in advance on remuneration sharing by invoking the non-receipt of the signed agreement.

Transmission of information or buyers' names

Regarding information transmission, the classic scenario is to refuse to disclose information before signing the confidentiality agreement and obtaining the buyer’s name. Sometimes following receipt of the signed document, the seller’s broker refuses to exchange information by claiming to represent that buyer. In some other cases, it’s the seller who requires obtaining the buyer’s identity before sharing information. Unveiling the buyer’s identity often lies at the core of the issue.

The parameters of a sound practice dictate that the requirement stem from a seller’s formal request that should be confirmed as a condition required in a brokerage contract or agreement with the retained broker. The aim is to know the identity of prospective buyers to reassure the seller about the possible use of information transmitted. In this case, the seller’s broker will submit such an agreement to the buyer’s broker who will have it signed by his prospective buyer and keep it on record before submitting information. In most cases, this will meet sellers’ requirements.

Furthermore, in exceptional circumstances where the seller is keen to obtain the names of prospective buyers before sending documents to them, it would be normal for a buyer’s broker to require a written undertaking from the seller’s broker indicating that the latter will not represent any of the buyers whose information is disclosed to him for this transaction. In the rare event where the seller refuses to send information to a specific buyer because he definitely does not wish to sell to this person, the seller’s broker shall keep written evidence of the refusal on record and notify the buyer’s broker.

Keep in mind that a broker acting in good faith, in a spirit of collaboration, helps facilitate communication and the smooth completion of transactions. This will strongly encourage clients to enlist his or her professional services.