Evaluating Service Contracts

Evaluating Service Contracts

By Ben Solomon, Esq. / Published March 2016



Properly evaluating service contracts is one of the greatest responsibilities an association board has on behalf of its members. Frequently, such service contracts are for long terms and involve sizable financial obligations and liabilities to the association. Many vendor contracts relate to important services for the community, such as management, landscaping, security, and cable. Other service contracts may relate to capital improvement projects, such as repairs, replacements, or additions to the association’s common area. It is sometimes required by law and generally good practice anyway, to get multiple bids from vendors to ensure the association is always receiving the best quality and pricing on each of its vendor contracts. Although many contracts seem the same or similar, when it comes to protecting an association’s legal rights, it is always advisable to have service contracts carefully reviewed by the association’s attorney for input on things like indemnity, insurance, warranties, and cancellation rights.

The right to cancel is one of the most important rights for an association in any service contract with a vendor. If the association has the right to cancel, then it can consider other vendors from time to time, renegotiate terms of the contract with the current vendor, and/or terminate any vendor that fails to perform up to expectations. As such, associations should endeavor to have a cancellation clause in each contract that ideally allows it the right to cancel “without cause” anytime upon notice to the vendor. If the vendor refuses to allow for termination of the contract “without cause,” then the association should at least include a right to terminate the contract “with cause.” This provides the association an express right to terminate the contract in the event the vendor materially breaches any terms of the same (usually after reasonable notice to the vendor and an opportunity to cure). However, a “with cause” provision can make it more difficult to establish the association’s termination right and frequently provides the defaulting vendor a “right to cure,” which itself can cause a dispute over whether a satisfactory cure has occurred. The association should generally attempt to obtain the shortest notice timeframes possible relating to any termination rights and/or rights to cure. Contracts without any cancellation rights often leave associations legally vulnerable when it comes to separating from a vendor or attempting to avoid having to pay the full amounts due to them regardless of unsatisfactory performance.

Certain contractual, legal provisions like a “prevailing party attorneys’ fee clause” can also be major factors for associations if and when a dispute arises with a vendor. For example, if the contract is silent on whether a prevailing party is entitled to recover its attorneys’ fees (or states that each party pays its own fees regardless of who prevails), the same can significantly impact proposed settlements and/or deciding whether to even pursue litigation. Legal disputes can be very costly, so if the association cannot recover its attorneys’ fees at the conclusion of a successful dispute (and therefore must deduct such legal fees expended from any amounts recovered), the same can be a significant factor in deciding whether to even pursue a legal matter (especially in matters totaling $25,000 or less). However, if such right to recover attorneys’ fees is an express part of the contract, an association can generally recover its attorneys’ fees if it prevails (and therefore proceed with more confidence against the defaulting vendor). Whenever a dispute arises, associations should always do a cost-benefit analysis before spending any significant money on legal fees, especially in cases where such legal fees could potentially cost more than the amounts to be recovered.

If the service vendor only submits a proposal as its contract, suggest having your attorney create a standard contract, or an addendum to the proposal for your association to use. Such addendum should include all standard legal clauses (like indemnity, insurance, notice, default, termination, modification, and attorneys’ fees) and can then be quickly customized for each vendor’s contract. Using a standard addendum is a good way to have the association attorney assist in a cost-efficient manner without having to completely redraft each vendor’s contract, which is typically much more time consuming and expensive. Boards also need to carefully review all business points in each service contract to confirm the same are exactly what was agreed to with the vendor. Make sure that the contract also includes an adequate level of detail on issues like quantities, timeframes, pricing, materials, number of workers, etc., as applicable. The use of defined terms (such as “owner,” “contractor,” “property,” “association,” etc.) are important and should be consistent and accurate throughout the entire contract and any addenda. If such defined terms are mixed up, it can cause unnecessary confusion in provisions of the contract or even an unintended change in the terms or meaning of the same. Association contracts must always be commercially reasonable (based on like contracts with other similar associations in the market) and properly benefit the particular needs of the association. For more complex contracts, such as construction documents, associations should always have a qualified attorney review the same carefully because they often have more sophisticated terms and provisions and include multiple addenda and exhibits.

Associations should be on the lookout for (and avoid, if possible) automatic renewal clauses, whereby some contracts automatically renew if not canceled in writing in advance by the association. For example, some contracts require as much as six months prior written notice by the association if it wishes to cancel, otherwise the contract renews automatically for another (potentially long) term, well in advance of the current term’s actual expiration date. Avoiding auto renewals is especially important in cases where the association may wish to cancel and/or renegotiate the contract. Finally, always make sure each association contract (including all adde-

nda and/or exhibits) is fully executed by all parties and retain copies of such contracts as official records of the association. 



Ben Solomon, Esq.

Managing Partner of Association Law Group and Principal of Solomon & Furshman Title Company of Florida

Ben Solomon, Esq. is the Managing Partner of Association Law Group (ALG) and principal of Solomon & Furshman Title Company of Florida. Solomon is also the President of the Builders Association of South Florida and Corporate Counsel to the Miami Association of Realtors. For more information, contact ben@ALGPL.com or visit www.algpl.com.