This article is written by Akshaya M. Kshirsagar, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from Lawsikho.com.
What if you are a landlord or owner of a property which is subject to an internal family dispute and you wish to rent such property without disclosing to your brothers the information regarding the potential tenant and consideration to be received from him?
What if you are a potential tenant who has to disclose the nature of business to be carried in the property and also any financial information relating to the business, the disclosure of which to any third party may result in irreparable loss or damage to you?
In both the above situations, the common element is that of disclosure of private or confidential information. Even though such information may be disclosed by the parties to each other under good faith, an agreement to legally bind the parties from disclosing such information is always advisable for upholding the interests of the disclosing party.
Non-disclosure agreements (NDA) have become an essential part of contractual obligations in recent times. The parties to an agreement may incorporate a non-disclosure clause in the agreement itself or draft a separate non-disclosure agreement altogether stating the terms of confidentiality. NDAs are primarily of three types:
- Unilateral: Here, only one party agrees to the agreement and agrees to refrain from disclosing confidential information. Ex: Employer-Employee Contracts.
- Bilateral: Here, both the parties to the agreement mutually agree to refrain from disclosing confidential information. Ex: Business Contracts.
- Multilateral: This is applicable when there are three or more parties involved and one of the parties is in the position of disclosing confidential information and the other two have to refrain from disclosing the information.
What is a landlord tenant non-disclosure agreement?
A landlord-tenant NDA, also known as a confidentiality agreement, is an agreement made between the Landlord, Tenant or Agent (if any) in the event that the owner/landlord of a residential rental property discloses private or confidential information about the Property to Potential Tenants or the Potential Tenant discloses confidential information regarding the business, if any, to be carried in the Property.
What are the important provisions of a landlord tenant non-disclosure agreement?
Drafting a landlord-tenant NDA can be a difficult task for many as it requires thorough planning and research. In order to enter into a non-disclosure agreement, the information relating to the parties, details of the Property to be rented, consideration/cost to be paid, etc., need to be ascertained in clear and unambiguous terms and put into writing.
A landlord-tenant NDA should necessarily encapsulate the following important provisions:
The most important element of any agreement is the parties who wish to enter into a contractual relationship with each other. The agreement must consist of a party clause which shall include the names, addresses, age and such other personal details which are necessary for ascertaining the competency of the parties to enter into the agreement. This clause shall also indicate the date on which the agreement is going to be executed. This is a mandatory clause without which there can be no agreement.
The next important clause which forms the basis of a Landlord-Tenant NDA is the clause identifying the residential Property to be rented and the brief description of such Property. This includes the full registered address of the property, i.e., its location, house/ward/area number, city, state, pin code, etc. If there is more than one property then the details of such other property shall also be included.
This clause shall state that the Potential Tenant is genuinely interested in renting the residential Property of the Landlord and to that effect has willingly agreed to enter into the agreement.
Under this clause, the Potential Tenant has to undertake that the confidential information disclosed under the agreement shall be used solely for the purposes of evaluating the property.
5.1. What will constitute confidential information?
All the proprietary information in relation to property taxes, revenues or other capital investment related information that provides the Landlord with an advantage over other Landlords or business plans, layouts or financial details of the Potential Tenant is confidential.
5.2. Who shall have access to such information?
The Access to such confidential information shall be limited to the accountants, financial representatives, attorneys and advisors of the Potential Tenant who are directly involved in the transactions related to the Property.
6.1. It is pertinent that a non-disclosure clause be incorporated in the agreement wherein both the Landlord and the Potential Tenant shall state the following:
- how the information is to be kept confidential;
- what they should and should not do in order to ensure such confidentiality; and
- who can access such information and under what circumstances.
6.2. What information shall not be subject to disclosure?
Any discussions, negotiations, or financial transactions that take place between them or any terms and conditions based on such discussions or negotiations to any other person or business entity shall be considered to be confidential unless the Landlord states it to be non-confidential and consents to disclose the same in writing. Such information shall not be disclosed under any situation to any third party and which shall be prejudicial to the contractual obligations of the parties towards each other.
6.3. What is the purpose behind incorporating this clause?
This clause plays an important role in assuring that important confidential information does not land in the hands of other persons or entities who may use or misuse the same for their own benefit and which may result in irreparable loss or damage to the Landlord or Potential Tenant. Therefore, it is important to be specific while drafting this clause as it will help in any compliance inspections and for proving a breach.
7.1. This clause imposes a restriction on the Potential Tenant from directly contacting the Property, its business employees or any other authorized persons or entities except through the Agent or Landlord.
7.2. This clause also bars the Potential Tenant from interfering in business arrangements or individual agreements between the Agent and the Landlord.
8.1. This clause lays down the laws which will govern the terms of the agreement depending upon the relevant State in which such an agreement is being executed. It should also state the period for which this agreement shall survive.
8.2. The survival of such an agreement may be upon the closing of the agreement between the parties or upon the availability of the information stated therein to the general public.
Cost of enforcement
9.1. This clause becomes relevant in the event of initiation of any judicial proceeding or action at the instance of either party.
9.2. Who shall be entitled to the cost of enforcement?
The prevailing party in any judicial proceeding or action shall be entitled and have the right to recover from the other party any and all the costs and expenses incurred by the prevailing party in consequence of such proceeding or action. These may also include reasonable attorney fees.
10.1. This clause corresponds to the Doctrine of Caveat Emptor or “Buyer Beware” in as much as the Potential Tenant is thereby warranted by the Agent (if any) that he does not guarantee, express or implied, the authenticity of any confidential information provided by the Landlord.
10.1. It is therefore the sole responsibility of the Potential Tenant to carry out due diligence in respect of such information and only rely on his own verification.
11.1. Who is prohibited from reproducing what?
The Potential Tenant is prohibited from making copies of any written information, notes of any discussions or negotiations, photographs, financial statements or any other written material supplied by the Landlord or Agent to the Potential Tenant or requested by the Potential Tenant from the Landlord or Agent.
Such information has to be returned by the Potential Tenant to the Landlord or Agent and the same shall not be disclosed to any employees or consultants unless they agree to execute and be bound by this agreement.
The best and perhaps the most effective way of protecting sensitive and confidential information is to not disclose it all. Landlord-Tenant Agreements are usually entered into by the parties based on mutual trust and confidence. As far as possible, the parties should perform due diligence and assess the standing of the other party before disclosing such confidential information. In essence, such an agreement provides the parties with security and protection against the unauthorized use by the other party of such confidential information. NDAs are enforceable and thereby provide the parties with an assurance that the other shall be legally bound to refrain from disclosing the confidential information or the terms of confidentiality.
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