Samuel Goldwyn said that “an oral contract isn’t worth the paper it is written on.” Unfortunately, the same can be said for many written contracts. The purpose of this brief article is to identify key provisions that should be included in association contracts. A well written contract can reduce liability exposure, reduce the risk of litigation, and help ensure that associations meet their objectives.
A good contract will detail relevant time frames and answer the following questions: (a) When does the contract become effective? (b) What is the deadline for completion of work? (c) How long will the contract remain in force? (d) Are party notification requirements time sensitive? (e) Is the contract auto-renewing, and if so, when, and for how long? (f) Do material terms (i.e. price) change throughout the effective date of the contract?
Associations frequently contact legal counsel seeking an escape route after becoming dissatisfied with vendor service. A good contract will provide an out for an unsatisfied association. Such provisions should include details on how to terminate, including the proper point of contact, the requisite advance notice (if any), an opportunity to cure, etc. At times it is in the association’s interests to clearly articulate grounds for termination; whereas, in some cases an association may wish to retain discretion to terminate without cause. Associations should resist rushing into agreements that appear to be informal (i.e. bids, proposals, estimates), which may in fact have all the necessary elements to constitute a binding contract. While the focus is often on the initial execution of the contract, associations should consider important provisions that are often absent in less formal agreements.
Association directors have a fiduciary duty to the association and its members to use reasonable judgment in carrying on association business. Thus, when negotiating and executing contracts boards should always consider the inherent risks and include contract provisions to account for accidents or otherwise injurious conduct or events. Qualified vendors will be insured and will be prepared to provide proof of insurance at the association’s request. Associations should (a) request proof of insurance, (b) ask about the coverage provided, (c) include a contract term requiring minimum insurance limits, and(d) establish that failure to maintain adequate insurance constitutes a material breach of the contract. Association’s should also consider seeking indemnification from vendors/ contractors, and should consult with legal counsel to take steps to protect directors’ and association interests.
Contract disputes can be very costly to litigate. Litigation expenses often prohibit an association from seeking court assistance to enforce contract terms. As such, a good contract should include an attorney’s fee provision, which allows a prevailing association to recover court costs, expenses, and attorney’s fees in addition to damages. Costly litigation should be avoided if possible; however, attorney’s fees provisions often bring additional clout to out of court negotiations because of the prospect for attorney’s fees liability if cooperative negotiations break down.
There is no one-size-fits-all contract. Associations are wise to consult legal counsel up front to avoid costly disputes later. Expending some association resources for competent legal counsel can save the association time, headaches, and money in the long run.