Non-disclosure agreements, disclosed Industry pros say NDAs do little to muzzle deal gossip
Illustration by Lexi Pilgrim for The Real Deal
Last May, the chairman of 上海千花网交友 New York REIT, a company that became notorious for having its dirty laundry aired in public, stressed the clandestine nature of a potential entity-level selloff of its $3 billion portfolio.
The process “generated over 80 executed nondisclosure agreements,” company chair Randolph Read told investors on a conference call at the time.
Those agreements, at least in theory, were designed to ensure the REIT would not have dozens of tongues wagging about prospective deals, which could give some parties unfair leverage.
“As a seller, you don’t really want buyers comparing notes and telling people what they’re bidding,” said Woody Heller , head of the capital markets group at Savills Studley, who was not involved in the negotiations. “You want them to bid based on what they’re paying, but every buyer wants to know what everybody else is paying.”
Despite Read’s proclamation, he and others at New York REIT surely had their doubts about how confidential the information was being kept, as industry players are near-unanimous in their belief that NDAs do little to muzzle shop talk.
“In general, these agreements are the bane of the industry’s existence,” Heller explained. “They don’t really serve a function, yet we all use them. They’re a pain in the neck.”
“I’ve signed 10,000 of them if I’ve signed one, and I’ve never seen one litigated.”
Any real estate pro whose business relies on turning chatter into commissions has had to hear or utter the statement: “I can’t say anything. I’m under a really strict NDA.”
But brokers who have signed one NDA after another say that the agreements are almost never abided by, and even less frequently enforced when an accusation of a breach comes up.
“They come in various degrees of tightness, but if somebody wants to circumvent it, they’re going to do it,” said Peter Hauspurg, CEO of Eastern Consolidated. “It gets done all the time, just by a whisper to a friend. I’ve signed 10,000 of them if I’ve signed one, and I’ve never seen one litigated.”
A boilerplate NDA is a “for your eyes only” agreement, which stipulates that a prospective buyer or broker can share sensitive information about a deal with certain parties – attorneys, partners, lenders, etc. – only insofar as it’s reasonably necessary to market or evaluate the deal. Stricter ones will bar the recipient from acting on that information, such as cutting a deal with a partner for a c上海贵族宝贝交流区 ertain period of time that might be up to three years.
“The weaker ones are silent. The stronger non-disclosure agreements expressly say what other transactions are prohibited,” said Skadden, Arps, Slate, Meagher Flom attorney Evan Levy, who’s worked on drafting many NDAs. “They re not only worried about the non-disclosure, they re also worried about what other transactions you might do.
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