Tenant Leasing Illustrated – July 2014 – Would You Believe, Confidentiality?

Would You Believe, Confidentiality?

Hard to imagine, but the CIA recently started “tweeting”. Their first tweet: “We can neither confirm nor deny that this is our first tweet.”

I am not sure whether or not it is comforting that the spymasters watching our every move have a sense of humor.

Not that they are so good at keeping secrets once they have uncovered them (see Wikileaks and Edward Snowden). The quintessential spy of my era, Maxwell Smart, Agent 86 from the old television series “Get Smart”, no doubt would have been equally bumbling as the present day NSA, but at least he could have kept all secrets safe with his “Cone of Silence“.

In business, confidentiality can also be essential; the secret formula for Coke, the algorithms used by Wall Street traders, Mintz & Gold commercial lease forms, all invaluable and closely guarded secrets.

Confidentiality can be imposed on a tenant in a number of ways.

Your lease may include a provision making it a default if you fail to keep the lease and its terms confidential.

Your landlord may also require that you enter into a confidentiality or non-disclosure agreement (an “NDA”) in order to avail yourself of certain important rights, such as the ability to audit the landlord’s operating expenses, or the ability to review certain important underlying documents such as ground leases.

Landlords have legitimate reasons for wanting to keep financial and proprietary information confidential.

In fact, tenants have similar interests, and although a topic for another newsletter, tenants should require that their landlord enter into an NDA in favor of the tenant before providing financial information required by the landlord.

But many NDAs and lease provisions are written in too restrictive a manner, which can lead to a breach by a careless tenant. This is particularly true with respect to lease provisions, since with the involvement of brokers, project managers, consultants and lawyers, there are many potential Edward Snowdens hovering about, many of them highly incentivized to spread the confidential information.

Don’t tell me that a confidentiality requirement from a landlord can expose a tenant to liability! Well, it can (“I asked you not to tell me that…”).

In such event, whether in your lease or in a separate NDA, make sure to address the following seven issues: 

  • Narrowly define “confidential information”. If you are entering into an NDA for an operating expense audit, limit your obligation to the confidential information provided by your landlord with respect to such operating expenses. If you are entering into a lease with a confidentiality requirement, limit your obligation to the financial terms of the lease, not every provision of the lease.
  • Require that confidential information be identified. You may be receiving a great deal of information that is not proprietary. Request that only information identified in writing by your landlord as confidential shall be deemed confidential. You may receive push back on this requirement but it can greatly limit the universe of confidential information and hence your exposure.​
  • Provide exclusions from what information is deemed confidential.​

○​   Exclude information in the public domain. There is nothing proprietary about such information.​

○​   Exclude information properly provided to you without restriction. This should include information which was furnished to you prior to the execution of the NDA without restrictions or after the execution of the NDA by someone who is not under any restrictions.​

○​   Exclude information independently developed by you. Even if viewed as proprietary and not in the public domain, your landlord should not be entitled to limit your use of such information.​

  • Provide appropriate exclusions from the non-disclosure requirement.​

○​   Allow the release of information for which disclosure is required by law. This would include any information required in order to comply with any law, ordinance, governmental decree or any rule or regulation of any governmental body or any court.​

○​   Provide appropriate exclusions for public companies. This includes disclosures required by the Securities and Exchange Commission and related disclosures required of a public company.​

○​   Allow for distribution to permitted participants. You will need to share the confidential information with your employees, directors, members, shareholders, attorneys, accountants, lenders, advisors, partners, financial advisors, agents, representatives, etc. and these parties must be specifically excluded from the confidentiality requirement.

Your landlord may request that you require each such permitted participant to enter into its own NDA. This would be a burdensome obligation. As a compromise, you can agree to advise the permitted participants to whom you disclose such information of the confidentiality obligation under the NDA and agree to use commercially reasonable efforts to cause such permitted participants to abide by the provisions of the NDA regarding confidentiality.

○​   Exclude disclosure needed during a dispute. You may need to use the information in a future dispute with your landlord and there should be no restriction in this regard.​

  • Resist limitations on the landlord’s liability. Landlord’s often include a provision indicating that it has not made any representation or warranty concerning the accuracy or completeness of the information and has no liability resulting from any errors or omissions. These provisions should be avoided if possible (but in particular you will need an exclusion for fraud).​
  • You will be asked to provide an indemnity. This is a reasonable request and hard to avoid. But make sure to exclude landlord’s own negligence or willful misconduct from the indemnification, limit the indemnity to third-party claims, exclude consequential damages and include other customary limits on indemnification.​
  • Limit the duration of the confidentiality obligation. Some leases and NDAs provide for confidentiality obligations of unlimited duration. There should be some limitation, for example of one to three years (in the case of a lease, running from lease expiration).​

There will be times when you must face the danger of a confidentiality provision that could lead to restrictions on your actions and/or potential liability. Follow the suggestions above and you will be able to respond just like Maxwell Smart … “And loving it.”​