Commercial real estate brokerage: Confidentiality of information, duty to collaborate and remuneration sharing

Commercial real estate brokers often face a dilemma when it comes to respecting their duty to collaborate with other brokers, while ensuring that sensitive information regarding, for instance, the sale of a business, is not disclosed to a competitor. 

Since the conditions of practice are the same in both commercial and residential real estate brokerage, all real estate brokers are subject to the same obligations, including the obligation to collaborate. Brokers who engage in commercial transactions are not exempt from their duty to share information and to agree in advance to share remuneration with the buyer’s broker. 

The compromise—often embodied in a confidentiality agreement—helps reconcile the obligation to collaborate and protect sensitive information.

Seller’s requirements

• Confidentiality agreement

A confidentiality agreement helps establish specific rules for managing and protecting sensitive information that is shared—such as financial data or a seller’s client lists—and aims, in particular, to ensure that such information is not disclosed to unauthorized third parties or used in an abusive or inappropriate manner. The agreement may concern only one party to the transaction, or both parties when sensitive information is exchanged.

Of course, a confidentiality agreement does not have to be proposed by the real estate broker. It should be used only in specific circumstances required by the seller. When such circumstances arise (e.g., during the sale of a business), it is the seller's broker’s responsibility to manage the confidentiality agreement. Inappropriate use of a confidentiality agreement can lead to various problems, including issues related to collaboration between brokers and remuneration sharing.

• Obtaining the name of the prospective buyer

Unveiling the buyer’s identity often lies at the core of information transmission issues. In some cases, the seller may require not only the signing of a confidentiality agreement, but also the disclosure of the buyer’s identity before sensitive information is shared.

It also happens that, after receiving the signed agreement, the seller's broker refuses to exchange information, claiming to represent that buyer.    However, it is important to note that real estate brokers—whether they work in residential or commercial brokerage—must at all times avoid conflicts of interest and protect the public.

Sound practice dictates that this requirement should stem from a seller's formal request. This requirement should be confirmed as a condition in a brokerage contract with the broker representing the seller, while specifying that the aim of obtaining the identity of potential buyers is to reassure the seller about the intended use of the information provided. 

By doing so, the seller's broker will be able to submit this brokerage agreement to the buyer's broker, who will have it signed by their prospective buyer. The seller's broker shall keep the duly signed agreement on record prior to disclosing any sensitive information. In most cases, this will meet sellers’ requirements.

In exceptional circumstances, the seller may insist on obtaining the names of prospective buyers before sending them documents. In this case, it would be normal for a buyer's broker to request a written undertaking from the seller's broker to protect the buyer's information and any details disclosed during this transaction. 

More rarely, sellers may refuse to disclose information to a specific buyer because they definitely do not want to sell to that person. Where applicable, the seller’s broker shall keep written evidence of the seller’s refusal on record and notify the buyer’s broker.

Keep in mind that a real estate broker who acts in good faith and fosters collaboration helps facilitate communication and the smooth completion of transactions, thereby strengthening buyers’ and sellers’ interest in seeking their professional services.

Duty of collaboration between brokers

For example, a clause in the confidentiality agreement requiring the buyer to personally pay the remuneration of his own broker goes against collaboration duties set out in the Regulation respecting 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.

Remuneration

The brokerage contract to sell should detail all relevant aspects of remuneration, including any conditions that could affect the final amount payable—such as the fulfilment of certain conditions or the sale of the property at a specific price. It is crucial that these terms be clearly understood and accepted by the seller before signing the contract to avoid any misunderstandings later on.

Remuneration sharing

The seller's broker cannot refuse to agree in advance to share remuneration with the buyer's broker on the grounds that the confidentiality agreement has not been signed or received. The seller's broker may not include a clause in the confidentiality agreement requiring the buyer to personally pay his own broker's remuneration. 

In all the aforementioned cases, such conduct violates the obligations of collaboration and remuneration sharing outlined in the Regulation respecting brokerage requirements, professional conduct of brokers and advertising.

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