Putting Teeth in a Non-Disclosure Agreement

Recent court rulings have made co-op and condo documents more accessible to shareholders and unit-owners. While some residents welcome this move toward greater openness and transparency, many boards and their attorneys worry that delicate information will get into the hands of residents with less-than-pristine motives. The consequences, they fear, could be dire – such as someone posting the building’s financial statements on Facebook.

The first line of defense is a non-disclosure agreement (NDA), which boards can require residents to sign before they’re allowed to view certain types of sensitive information. Some boards use a standard corporate NDA or one provided by the New York State Bar Association. Others have their attorneys draft one. Increasingly, boards are seeking to put teeth into NDAs to deter residents from breaching the agreement.While most governing documents don’t empower boards to set fines for a breach of an NDA, boards can demand what’s known as “liquidated damages,” a prescribed sum of money that a resident agrees to pay if there is a breach in the agreement. Attorney Andrew Stern, a partner at Tane Waterman & Wurtzel, notes that such penalties cannot be added to maintenance or common charges, or “used to foreclose or evict.”

The collection of liquidated damages might prove small consolation, in the eyes of attorney Robert Braverman, a partner at Braverman Greenspun. “My concern always is that once the non-disclosure agreement is breached, the horse has left the barn,” Braverman says. “Liquidated damages don’t cure the breach.”

An NDA is not required every time a shareholder or unit-owner asks to review documents. Court rulings, statutes, and governing documents have made some information open to all, including lists of owners and their contact information, financial reports, invoices, minutes of board meetings, and redacted legal invoices – provided the review request to view them is made “in good faith and for a valid purpose.” Residents are also permitted to make paper or electronic copies after viewing these documents. An NDA is advised in gray areas, Braverman says, such as bid proposals, records of arrears, and whether email addresses are part of a person’s contact information.