What is a Disclosure Agreement?

Malcolm Tatum

A disclosure agreement is a document that commits an individual, business, or other type of organization to revealing or sharing specific types of information with other parties who take part in the agreement. In many countries, the scope of information that can be required as part of a formal disclosure contract is governed by disclosure regulations put in place by government agencies. In general, any type of disclosure agreement will place limits on the type of information that must be shared, limiting the disclosure process to only data that is deemed to be essential in successfully completing the project that brought the parties together.

In employment situations, a disclosure agreement commits an applicant to reveal certain types of background information.
In employment situations, a disclosure agreement commits an applicant to reveal certain types of background information.

One common example of how a disclosure agreement works can be found in the real estate industry. In most countries, sellers must reveal specific facts regarding the properties they are placing on the market. This includes information about the general condition of any structures on the property, issues regarding the toxicity of the soil, or any other issues that buyers must know in order to make an informed decision about purchasing the property. Failure to abide by the terms of disclosure that are required by law can result in the voiding of the sale, fines imposed by government agencies, and even the possibility of a civil suit filed by the buyer.

The concept of a disclosure agreement is also common with investment opportunities. In the case of bond issues, entities that issue the bonds must provide potential investors with specific information that is considered relevant to the evaluation of the profit potential of the bond issue. Should a municipality create a bond issue to raise money for paving streets in a new residential area, the city or town must provide details on how the purchase price of the bonds will be repaid, what can happen to the issue in the event the project is abandoned for some reason, or what would happen if unforeseen delays occur. By considering these varied outcomes, an investor can decide if the bond issue is a good idea, or if he or she would be more comfortable investing in another type of security.

Even in employment situations, there is usually a disclosure agreement that commits an applicant to reveal certain types of information regarding education, criminal history, and other key aspects of his or her background. At the same time, the employer is often forbidden from requiring information such as religious preference or sexual orientation as part of the disclosure process. Should the employer find out later that an employee failed to reveal information that was specifically required in the terms of the disclosure document, disciplinary action may be taken, up to and including termination of employment.

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