Risky Business

Risky Business

A Friendly Reminder About Association Contracts

By Rebecca Newman Casamayor / Published November 2018

Photo by iStockphoto.com/natasaadzic

In a monthly or sometimes even weekly basis, a community association will solicit and receive a proposal from a vendor offering services, or from a contractor to be retained on a building repair or modification project. A board member, or even at times the association’s manager, if the manager has the proper delegated authority, will then be asked to sign this proposal on behalf of the association. It will not be unusual for the board, management, or even the association’s residents to push for the contract to be signed on an expedited basis so that the services or the work can commence right away.

     However, this frequent inclination to immediately sign the proposal and move forward with the project must be resisted. The majority of these proposals tendered to the association for signature will not be written in a mutual/bi-lateral manner—let alone one that adequately protects the association’s, and therefore the owners’, interests. The proposals will often be extremely vague and leave numerous terms and scenarios open ended, thus setting the parties up for disputes and potentially even litigation in the future. Or, if the vendor or contractor has an attorney who prepared the draft agreement, the document may be detailed and clear-cut, but very one-sided in favor of the vendor or contractor and against the association. Another risky situation can occur when the contract appears simple and straightforward on its face, but attaches a “terms and conditions” page pulled from the internet, with tiny font, which is impossible to read and, which can contain provisions that do not even pertain to the transaction being negotiated by the parties.

     Consequently, in considering whether to sign a proposal from a vendor or contractor on behalf of the association, it is extremely important that the board and management consult with the association’s attorney, no matter how insignificant the project seems or how basic the draft contract appears. However, many times the board will want to proceed without legal advice due to the time it would take to have the attorney review and revise the document, or due to the legal fees the association could incur. This is particularly risky and not advisable since the price of the project or services being negotiated is not necessarily proportionate to the level of legal risk posed to the association if something goes amiss during the term of the agreement.

     For instance, here are some examples of the key provisions and terms, which should be considered when reviewing proposals and negotiating contracts between community associations and contractors/service providers:

  • Scope of Work or Services—What exactly will be provided to the association under this contract? Are there any exclusions?
  • Payment—How much will this cost the association? Is there a deposit and payment schedule, or is the contract price required up front? Is the price appropriate for the scope of work or services being provided to the association?
  • Term of the Agreement—How long is the parties’ business relationship supposed to last under the agreement? Will the term automatically renew upon the occurrence of a specific event or after a certain period of time?
  • Termination of the Agreement—Can the association terminate the agreement, and if so, how? Are there any conditions or occurrences required for termination? Can the other party terminate the agreement? What are the penalties for termination, if any?
  • Insurance—Is the vendor or contractor properly insured for this project? Is the association going to be listed as an additional insured on the vendor’s or contractor’s insurance policies?
  • Indemnification—Which party is required to indemnify the other party, and for what specifically? Is there a duty to defend, or only indemnify? How is the duty triggered? Are there any limits on potential liability to the other party?
  • Assignment—Can either party assign its responsibilities under the contract to someone else, and if so, how? Is the other party required to first agree to that assignment?
  • Modifications and Amendments—Is either party allowed to change the terms of the agreement, and if so, what terms can be changed and how? Are there any automatic changes, like price increases, included in the contract?
  • Attorney’s Fees and Jurisdiction for Disputes—Are attorneys’ fees and costs in the event of a disagreement provided for under the contract? If so, what kinds of attorneys’ fees and costs are covered? Where and in what specific court will the parties be required to litigate in the event of a dispute?

     The above is obviously not a complete list of all of the terms and provisions which should be vetted before an association signs a contract with a third party. In addition, the kinds of provisions included in the agreement will vary based on the type of transaction in question—whether it is a construction or repair project (structural, waterproofing, painting, electrical, landscaping, etc.), an agreement for ongoing services to maintain the building (waste retrieval, cable or internet, janitorial services, elevator maintenance, etc.), or a contract for services provided by a professional (property managers, accountants, engineers, etc.).

     Again, in light of the many variables and situations which should be covered and properly drafted in a contract to be executed by the association, it is imperative to seek advice from the association’s attorney prior to signing the contract document. While there will be some time and cost associated with that review process, it will be well worth it to protect the association and its owners from much larger consequences in the event of a later breach or if a dispute arises with the other party. 

Rebecca Newman Casamayor

Associate Attorney with Haber Slade

For more information on Haber Slade P.A., visit www.haber.law. Rebecca can be reached by email at email hidden; JavaScript is required or by phone at (305) 379-2400.