Association contracts need legal review
Condominium and homeowners associations enter into new contracts all the time and many are for thousands if not hundreds of thousands of dollars. You have ongoing management, maintenance, accounting and landscape contracts, periodic construction contracts for reroofing, painting, paving and remodeling of social rooms or clubhouses.
Associations are required by Florida statutes to get competitive bids (at least two bids) for many of these contracts while for others you do not need bids but can contract with whomever you want. Next month we will discuss when bids are required.
Once you have picked out your contractor or vendor and the company has prepared the proposal or the draft contract, usually a committee, the president or board will review it, and if things look good, go ahead and sign it. We understand that many association directors and officers come from business backgrounds and are use to negotiating, reviewing and signing major dollar contracts. However, before the president signs and legally binds the association to such contracts, it really is prudent and worth a few extra dollars to have the negotiated contract draft run by association legal counsel.
Legal counsel will focus on the terms of the contract and how easy will it be to get out of the contract if the vendor breaches or the association is just no longer satisfied with the quality of the work being performed by the vendor or contractor. Ongoing contracts, such as management and maintenance, should have a 30- or 60-day out provision for the association “with or without cause.” This means that if the association becomes dissatisfied with the vendor, it can provide written notice of termination within say 30 days and does not need to, nor should it provide, any reason why it is terminating the contract.
In many states up North, you want to fill up the file with examples of breaches of the contract by the vendor before you terminate as such states believe there are property rights in an ongoing contract or a job. However, Florida is a right to work state meaning that unless a contract says there is some sort of “right” to the job, there is none, so you don’t have to gather any evidence of breaches or fill up any file. You can just say “you’re fired.”
Beware of non-compete clauses some vendors will bury in their contracts because they can come up and bite you down the road when you no longer like the way the vendor is doing business but you want to keep some of their good employees. We understand that some vendors need to be able to recoup some of the upfront training costs of employees who may leave, and such can be built into a decent non-compete clauses. However, the vendor should not be able to hold their employees hostage from being able to gainfully work if they leave.
When it comes to construction or remodeling contracts, it is really important that certain clauses be added to prevent the association from paying twice on the same contract. Section 713, Florida Statutes provides detailed protection to a property owner when work is to be done on the property. If the provisions are referred to in the contract requiring the general contractor to follow the statute, then the association will be protected if the general contractor fails to pay a subcontractor or supplier. Once Section 713 is invoked in the contract, the association will not make final payments to the contractor until any liens filed by subs or suppliers have been released and the contractor has presented a signed Contractor’s affidavit showing that all subs and suppliers had been paid.
If the contract does not incorporate the protections of Section 713, then the association may pay the contractor everything owed under the contractor only to find out later the contractor failed to pay his subs and suppliers and the contractor then went out of business or declared bankruptcy. Guess what, the association will still be on the hook to pay what is owed by contractor to the unpaid subs and suppliers (having to pay twice).
When you are talking about entering into contracts of $50,000, $100,000 or more, it is worth paying a few hundred or a few thousand dollars more (depending upon the complexity of the job) in legal review to make sure the association is legally protected. It also seems like many times Murphy’s Law comes in to play in this issue. When we review and revise association contracts with legal protections, things usually seem to go smoothly. However, when an association did not run the contract by legal, this is where many times we have seen it go south. We are then called in to try to pick up the pieces or to minimize the damage caused to the association by the poorly written contract that was not reviewed.
