There are many things that make attorneys cringe, but there is one phrase that makes them want to pull the covers over their heads: “After I signed the contract….” That’s like saying, “After I jumped in the pond, I realized it was infested with snakes.” There’s not much an attorney can do for you at that point, except call an ambulance or an undertaker.

Poorly drafted contracts, unlike snake bites, aren’t going to be fatal for a condominium association, but they may contain conditions that could be expensive and harmful. That’s why the association’s attorney should always review contracts before you sign them. (You knew I was going to say that!) It is also why I’m going to concentrate here on the provisions boards either want to include or want to avoid in construction contracts and contracts with their vendors.

But first, this key question: Do you need a contract for small projects or services that aren’t complicated and don’t involve much money. The answer (unsurprising from an attorney) is yes -- because even small projects can create huge liability risks, with the potential for legal costs and adverse judgments that could far exceed the cost of the work.

A maintenance contract won’t have the same level of detail as a construction contract, but their purpose is the same: To protect the association’s interests and ensure recourse if the contractor doesn’t deliver the product, service or performance the association expects and the contractor has agreed to provide. It is better to have a contract you don’t need than to need a contract you don’t have.

Contracts differ in their complexity and their details, but all should deal in some way with: Insurance, termination, and duration.

Contracts should require a service provider to have the appropriate type and amount of insurance. In a construction contract, the coverage should exceed the cost of the project. For most projects costing between $200,000 and $1 million, this would mean a policy limit of $1 million per incident and $2 million in aggregate. For larger projects, you would want an “umbrella” providing excess coverage above the policy limit. You want the vendor to insure not against the most likely risks but against the worst possible outcomes.

The contract should also require the contractor to “indemnify” the association against claims resulting from the project. This invariably complicated language addresses whose insurer will pay the litigation costs and damages if something goes wrong. To secure the broadest protection possible for my clients, I prefer language requiring the contractor to defend and “hold harmless” the association, the manager, and the trustees from any damages arising from the project or any breach of the contract.

This is a bit one-sided and I will modify the language somewhat if contractors push back on it. A contract is a negotiation, after all, and the goal is to find language on which both parties agree.

I also reject language that seeks to limit a vendor’s potential liability to a set amount, or to the amount paid by the association under the contract. Under this language, an engineer’s liability would be limited to his/her fee, even though a claim resulting from a flawed study could be several times that amount.

In addition to requiring service providers to have appropriate insurance, the contract should require them to provide proof that they have the insurance required. A certificate of insurance isn’t enough. It simply documents the type and amount of insurance the contractor has. The contract should require evidence that the service provider’s insurance policy names the association as an “additional insured.” This endorsement provides, at least in theory, that in the event of litigation, the provider’s insurer will cover the association’s defense costs, potentially avoiding the need to tap the association’s liability policy for that coverage.

No one thinks about terminating a contract the day they sign it – if you do, you probably should be having second thoughts. But you can’t predict the future. Good relationships can go south. Conditions, priorities and needs can change. A termination clause protects both the association and the vendor from the unexpected. In a vendor contract, I try to insert language specifying that either party has the right to terminate “for cause or convenience” by giving 30 days’ notice. Associations don’t often exercise this option, but it provides an exit for the association the relationship is beyond saving, but there hasn’t been a material breach by the vendor.

In a construction contract, I will typically accept language requiring the association to pay any costs the contractor has incurred for the project. But I will try to exclude the penalty some contractors want to add for anticipated profits they lose as a result of the early termination.

The contract should state when the project or service begins and ends, which is usually fairly straightforward. However, some vendor contracts contain self-renewal provisions specifying that the contract will renew automatically unless the association (or the vendor) gives notice of non-renewal before a specified date. These provisions are common in long-term contracts, like those with laundry service providers, which typically extend for five years or more.

Here’s the problem: What are the odds that anyone will remember that a 10-year contract beginning in January 2020 will renew automatically, and remember to provide the non-renewal notice by October of 2030? The manager may keep track, but managers change; so do board members. And if they miss this renewal notice date, odds are they will miss the next one, too. That is why they call these clauses “evergreen”- because they can lock associations forever into relationships with vendors they may want to replace.

The best way to deal with these provisions is to reject them, which I always try to do. Alternatively, if the vendor insists and the association likes the vendor, I want the vendor to provide written advance notice of the renewal date, giving the association ample time to opt out before the self-renewal provision is triggered.

A ‘right of first refusal’ isn’t exactly the same as ‘self-renewal’ but it has the same undesirable “flypaper” effect – sticking the association with a vendor it doesn’t want. Under the most common form of this provision, as long as the current vendor matches a better price offered by another provider, the association must renew the contract, even if the vendor has been providing lousy service and the association has been counting the days until the current contract ends. If I can’t eliminate this provision, I will try to modify the language to specify that the association must “consider” the matching price but isn’t required to accept it.

What happens if a vendor the association likes insists on undesirable contract language, and the choices are to accept that language or find another vendor? This is a business decision the board is free to make as long as it understands and is willing to accept the risks involved.

Automatic renewal and right of first refusal provisions are traps, and there is no easy way to escape them. Associations will be able to terminate the contract only if:

The vendor commits a significant breach of its terms; or
The vendor agrees to waive the ‘fly-paper’ provisions, which most vendors either will not do, or for which they will charge an exorbitant buy-out fee.

The association can also break the contract and dare the vendor to sue, but many vendors, especially those with in-house attorneys, will do just that.

And vendors that sue will probably win. Even if the dispute is eventually settled, the association will still incur substantial litigation costs. Fly-paper provisions may be unpalatable to associations, but they are usually enforceable. Few things in life last forever. A contract shouldn’t be one of them.

Please contact Jonathan Klein for any contract related questions or a MEEB attorney.

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MEEB SECURES SETTLEMENT FOR ASSOCIATION’S CONSTRUCTION DEFECT CLAIM