With a view to increasing the efficiency of early-stage negotiations, the Investment Property Forum has launched a new standard non-disclosure agreement and exclusivity agreement. Ciaran Carvalho, Clare Thomas and Dan Buckle share the details
It is very common for parties to a potential property transaction to enter into a non-disclosure agreement (“NDA”) in order to review certain marketing material and/or begin due diligence. Many sellers have their own favoured NDA, each differing to some extent from others. As a consequence, a disproportionate amount of time is spent reviewing and negotiating NDAs before the parties can move to finalising the transaction itself.
Recognising the unnecessary time and resources spent on NDAs, coupled with the level of investment by overseas buyers (many of whom are unfamiliar with the UK market), the Investment Property Forum (“IPF”) established a working group tasked with creating a standard form NDA, adoptable with minimal amendment by either party. Alongside the IPF NDA is a standard form of exclusivity agreement (“EA”) – to avoid further delays in the transaction process.
The IPF NDA
Parties
The NDA allows for the mutual disclosure of confidential information. The recipient of the information can therefore be either party to the NDA (or both) but does not include any affiliated/connected companies/funders/etc, thereby providing certainty as to who the contracting parties are.
The permitted disclosure provisions in the NDA allow the recipient to share the confidential information with other parties. It is not anticipated that such other parties will enter into direct NDAs with the discloser of the information. The recipient remains responsible for ensuring that confidentiality is retained and would be liable for the breach by any other parties.
Transactions
The NDA is appropriate for a direct property or corporate structure transaction.
Confidential information
The definition of confidential information is wide, catching electronic and hard copy information. In reality, we would expect there to be an electronic data-room for the types of transaction where an NDA is appropriate.
Retention of confidential information
The requirement to delete all soft-copy materials is onerous and unlikely to be complied with in practice. The NDA recognises this by providing that such information remains confidential but does not require its destruction.
The recipient can be required to return hard-copy documents in the usual way, but there is provision for a copy to be retained on a confidential basis where required for regulatory or audit purposes.
Term
Two years represents the usual time period in the market for an NDA to remain binding, but there may be particular circumstances where a different period is appropriate.
Warranties and indemnities
There is no warranty given in respect of the confidential information and the recipient would be required to carry out its own investigations in the usual way. We have not included an indemnity for breach of the NDA as such clauses in draft NDAs are invariably deleted by the recipient and are not seen as market-standard.
Execution
It is recommended (and good practice) that the actual parties (not their representatives or agents) sign the NDA. The use of electronic signatures is still rare in the UK and so the NDA assumes that a handwritten signature will be used. It is, however, common for the parties to complete on the basis of pdf-signed documents rather than the originals.
Jurisdiction
While the NDA is drafted to be governed by the law and courts of England, it is appreciated that the parties may choose to use a different jurisdiction depending on the location of the property.
The IPF EA
Heads of terms will sometimes provide a period during which the seller will give the buyer a fixed period of time to carry out its due diligence. However, heads of terms are not generally legally binding, so best practice is to enter into a stand-alone EA – hence the IPF standard EA.
Transactions
The EA has been produced for use on direct real estate transactions.
Exclusivity period
The period of the exclusivity (or lock out) will depend on the specific transaction but should have a definitive start and end date. If dates are not predetermined, there is scope for uncertainty and dispute.
Seller’s obligations
The EA envisages a full sales package available to the buyer. Often a contentious issue, it is recommended that, before signing the EA, the parties are clear on what information will be made available. The IPF has produced a helpful “Readiness for sale” guide aimed at streamlining commercial property transactions. Appendix 2 of this sets out best practice as to what should be included in a sales package and Appendix 3 is a readiness for sale checklist, downloadable as a spreadsheet from the IPF website.
Buyer’s obligations
The EA requires the buyer to act promptly in its obligations and it is recognised that a specific timetable may be set out in the heads of terms.
Execution and jurisdiction
The execution and jurisdiction provisions mirror those in the NDA.
The way forward
We believe both documents provide a fair and reasonable position for both parties and reflect general market standards at the current time. We hope that the industry will embrace them so everyone can expend their energies on the deal itself.
• Both documents, together with their respective guidance notes, can be downloaded from ipf.org.uk
Ciaran Carvalho is head of real estate and Clare Thomas is a partner in the real estate group at Nabarro LLP; Dan Buckle is a legal counsel at Aberdeen Asset Management
