A Season for Contracts
A Season for Contracts:
By: Clarence Lau, Esq.
As the weather gets warmer and schools start to break for the summer, associations will see an increase in the use of their common areas and other recreational facilities. This is also a time of year when many individuals consider moving and/or deciding to buy a new home. Therefore, associations generally want their common areas to look their best and function properly. Although issues can arise at any time of the year, it is worse when an association encounters problems during the spring and/or summer months with their landscaping, common areas and/or recreational facilities. It would, therefore, be a good idea for the board to dust off and review its various vendor contracts to determine if they need to be updated, and just to make sure that both parties are on the same page heading into the most important time of the year. Although all provisions within a contract are important, there are certain key sections that deem more attention than others. Here are just a few of the key provisions to periodically review.
Scope of Work. An important item to review in any contract is the scope of work to be performed by the company. Most importantly, does the contemplated work match with what is expected and/or required by the association or its governing documents? With respect to a landscape contract, for instance, has the company agreed to plant perennials or annuals and, if so, when and where did it agree to plant them? Or did the parties agree on how many bales of pine straw will be needed for proper application? In regard to a pool maintenance contract, did the parties specify on how often the pool will be treated? Or does the contract contemplate for the right schedule of lifeguards to be in place to satisfy the association’s needs? An association should also consider whether any changes in the community, or its financial condition, require an increase or decrease in the amount of service to be provided? If the enumerated scope of work does not match the association’s expectations or requirements, the board should consider amending the contract. If the contract is modified, please remember to comply with all amendment provisions of the agreement. This will typically mean that the amendment must be in writing even if the vendor is willing to take verbal instruction.
Permits and Insurance. Contracts should also be reviewed to confirm that the parties are complying with all required technical terms and conditions. Of significant importance is whether the company was required to update any necessary licenses or permits for the community’s facilities, such as the swimming pool or the detention pond? In that regard, have the necessary inspections been scheduled and/or performed to comply with local government ordinances? The last thing an association wants is for its pool to be shut down right before the big holiday weekend. Having proper insurance in place is also important. In today’s litigious environment, associations must ensure that their vendors always have the requisite amount of insurance in place at all times. Accordingly, the contract should specify the amount needed and also require that the vendor timely and periodically submit proof of such insurance.
Term, Termination and Default. Regardless of whether the contract is for landscaping, painting, dredging the detention pond, or routine pool services, the association must determine whether it is satisfied with the service being provided. The board may decide that the company is not performing its duties at a level commensurate with the community’s standards or, more importantly, in accordance with the agreed upon scope of work or other contractual terms. Often overlooked, the association should always confirm the specific dates of the contract’s term. Even though the vast majority of the contemplated services provided are during the spring and summer months, most landscaping and/or pool contracts are for a term of at least 1 year. In some instances, the contracts may be for multiple years in an effort to lock in the best price. While locking in a good price may be an advantage, it can also lead to problems down the road if there is no mechanism for early termination. Lastly, in most cases, contracts contain automatic renewal provisions unless timely terminated. The window to cancel an automatic renewal can sometimes be very small. Therefore, an association should always have all dates properly calendared. If a vendor fails to live up to expectations and refuses to voluntarily terminate the contract, the association may expend a lot of time, energy and expense to get out of the contract or otherwise wait for its natural term to expire. It is essential, therefore, that the association always be aware of the specific termination provisions. In some instances, there are none stated in the agreement. There may also be a requirement that the company be given an opportunity to “cure” any breach, or to “make it all better.” Each contract is different, so these provisions should be closely reviewed and all required procedures carefully followed. Also, an association should always use its best efforts to make sure it is fully complying with its obligations under the agreement. If not, the vendor may seek damages against the association for its failure to comply with the agreement.
Liability and Indemnification. These two provisions are usually considered the “boilerplate” provisions of a contract and are often overlooked by the parties when negotiating a contract. However, they very much can become the most important provisions when, and if, something goes wrong. In such an instance, the association, and the vendor, should know exactly who will be responsible for what damages and claims if any occur. Of course, a vendor will try, to the greatest extent, to limit their exposure. It is important that the association is protected if something serious were to happen.
What can an association do to protect itself? If the board feels uncomfortable at any point during this review process, it should seek legal counsel to assist with this process. This may be especially important if the association is looking to modify or terminate the contract. Remember, it is essential that all necessary notices and procedures required under the contract be followed. There could also be changes in local, state or federal laws which may affect the legality and/or enforceability of a contract. Going forward, it may be prudent, and more cost effective, to have the association’s legal counsel review a contract before the association negotiates and executes it, to help prevent issues down the road. A simple review by its legal counsel on the front end can save an association a lot of time, money and headaches.
Although April showers can bring May flowers, an Association’s failure to proactively prepare, could leave the community worse for wear. Please take a little time in this busy season to review your community’s contracts. The time spent could certainly pay dividends down the road.