Vetting Contracts Before You Sign Know What You’re Getting Into

Vetting Contracts Before You Sign

Few things can raise one's blood pressure like signing a big contract. That can be especially true for board members or managers signing sometimes mammoth contracts on behalf of a co-op or condo association, obligating their neighbors, friends and themselves to page after page of fine print. Thankfully, there are more than a few ways to get things properly signed on the dotted lines, and it all starts with ensuring a very thorough vetting of the contract in question.

Avoiding Mistakes

It's crucial for a condominium community to establish successful business relationships, whether with a building contractor or a landscaping firm, and ensuring that a contract is fully vetted and amenable to both sides before work begins. Part of finding that assurance rests in having an attorney carefully examine the contract from top to bottom.

“It’s very important to have an attorney read over the contract,” says Jacqueline C. Marzan, senior attorney with the Jay Steven Levine Law Group in Boca Raton. For condominium boards trying to keep costs down, it's tempting to try and save money by not hiring an attorney—but that bit of supposed thriftiness could result in a bad contract that costs the association much, much more in the future.

Too often, attorneys for the association do not get involved until it’s too late. “After the fact, we’re just able to give suggestions on what to do” in response to a problem or unfavorable terms, Marzan says. It makes far more sense to avoid those issues at the beginning of the contract process. “You lose your negotiating power if the contract is already signed,” Marzan says. “We want to make sure your rights are protected from the outset.”

And, “it's the minor expense of looking at it early versus the later expense of sorting out problems,” adds Attorney Ben Solomon, managing partner and co-founder of Association Law Group in Miami. “A lawyer has a lot less to work with later if the contract wasn’t set up properly to begin with. Associations are very budget-conscious, which is a good thing, but they need a responsible attorney who can protect them with appropriate language.”

Solomon recommends that boards and managers ask for the vendor to present their contracts, and then have the attorney spend an hour or two reviewing the document. “We’ll send the client an email with a synopsis of the contract and give it a thumbs up or thumbs down in general, and then we’ll list issues and standard clauses we recommend,” he says. “The goal is not to go through the contract and reinvent the wheel. We don’t want to be an inhibitor. We won’t ask for something no other vendor has given. But boards certainly can’t be naïve and think the vendor’s attorney is looking out for their association.”

What to Look For

Ellen Brown, CAM, CMCA, AMS, senior association manager with C&S Condominium Management Services, Inc. in Bradenton agrees that moving ahead with a contract without lawyer evaluation can be a “pretty big mistake.” Sometimes the lawyer will uncover a very basic—but serious—error, like a signed document that seems like a contract, but is actually just a proposal. Operating under the terms of a document as basic as that means that many, if not all, of the essential protections available to both parties in a proper contract will be missing.

Some of these essential elements include “a lack of specific start and completion dates,” says Brown. “Painting contracts, for example, could go on for a long time.” There should be an item in the contract that states that if they do not finish the job by the time allotted, there will be a penalty taken from their final payment.

Automatic renewal clauses are also something to avoid, unless the terms are favorable to the association in terms of cost. “Otherwise, there is no good reason to have automatic renewal clauses,” Brown says. Cable contracts, for example, are often auto-renewed. “It is important that someone is keeping track of when these auto-renewal dates are coming up,” she adds. “Elevator contracts, for example, require 90 days for cancellation. If you cancel 88 days out, they’ll get you for it.”

Solomon says that termination clauses are also a must. “Vendors would prefer very little or no termination language,” he says. The goal, though, is to ensure that termination is possible without the burden shifting to the association and forcing them to show cause for termination. “The contract needs the reasonable right to terminate without cause,” he says. “Usually 30 days. If nothing else, at least make sure you have a solid termination right. Also make sure there is adequate insurance with the association named on the policy.”

Questions of venue can also arise with contracts, especially those with national firms. Should any litigation occur, “You want it to be in Florida, and you want Florida law to apply,” says Marzan. “A lot of companies will have mandatory mediation written into their contracts.” If you do not want that, then it must be specified in the document.

Associations also should be on the lookout for excessive price increases built into the life of the contract. “Cost increases that are unreasonable” are red flags, says Brown. For example, “A contract that’s five years long, and increases every year by certain amounts.” Certain companies (again, elevator and cable firms are likely suspects) regularly put those types of increases into the contract—something that may go unnoticed without proper attorney review.

Associations should also request assurance of performance somewhere in the contract, to specify when work will be completed, and what the standard of quality will be. “You want cooperation with scheduling,” says Solomon. “What if a vendor accidentally cuts a pipe or cable? We want language that makes sure they are responsible and they will bring the property back to its original state.” In addition, associations want to make sure that there will be no liens or encumbrances on the condo community if the vendor does not pay its subcontractors.

And well before signing any contracts at all, the board or management firm should ensure that they have solicited bids from multiple vendors. “Another issue—especially with condos—is that they are required to obtain bids,” says Marzan. “But they often don’t do that. They don’t have to take the lowest bid, but they need a point of reference.” In fact, in Florida, the bidding process is mandated by law for contracts over a certain amount. Plus, it's just a good practice to ensure fair pricing.

Going it Alone

For self-managed associations, there may be a sense of being alone out in the contract wilderness. Without a professional management firm overseeing their affairs, it's even more important for self-managed communities to rely on experts they can trust.

“Self-managed associations should have an attorney review the contract,” says Brown. This can be especially important if the HOA is operating without the guidance of a management firm. “I always recommend an attorney because they can pick things out. They know the lingo. Of course, if it’s a small contract then it may not be necessary, but for something that’s five years or a high cost, then yes.”

In addition, there are some things the board can do itself to protect its interests. “Call the references provided,” says Brown. “And get more than one proposal.”

Spotting the Red Flags

Both managed and self-managed associations can do themselves favors by watching out for red flags. Those red flags include “no termination right,” says Solomon. “You always have to go into a relationship with the understanding that it might not work out. You need the right to terminate.”

Also watch out for any vendor that does not carry insurance, Solomon says. “I’d be skeptical about any association hiring a vendor without insurance.” Brown agrees. “You want to know whether or not there’s workman’s comp or liability insurance,” she says. “If a vendor doesn't have those, then you don’t want to use them at all.”

She also suggests checking to see if there are any complaints against the vendor filed with the Better Business Bureau. If they've left a trail of dissatisfied, disgruntled clients, it may be smart to take your business elsewhere. “Check their work history,” Brown continues. “If they’ve only been in business six months or so, then maybe you don’t want to use them. And ask for references. If there are not many of them, then that could be a bad sign.”

Most important of all, do not discount your instincts. “Listen to your gut,” Brown says. “If you don’t feel it’s right, then it’s probably not.”

And if a vendor is not providing the elements necessary or desired in a contract, the best course of action is simply to ask. “Just review the contract, and supply a list of changes to the vendor,” Brown says. “Because it never hurts to ask. You just have to see what they say. If it’s reasonable, they’ll usually do it. If not, then sign with a different company.” This is why it is best to get things sorted out right from the start—one or both parties can always walk away before the signatures are put down.

When it comes to asking for those changes, this is a spot where it can be beneficial for the board or management to step in, but it depends on people’s comfort levels, says Solomon. “If they are comfortable with the attorney being behind the scenes (rather than out front and negotiating), that’s good,” says Solomon. “That way it’s business person to business person, not lawyer to lawyer. It’s fine as long as the client is comfortable. We’re here to answer and address legal issues, but it’s not my job to say, ‘I think this vendor is too expensive.’ We don’t make business decisions. That’s what the board does. They are the decision-makers.”

Certainly signing a contract can be a nerve-wracking experience. With the right advice and experience, however, and a willingness to ask questions, that experience can be a positive one, making way for new services and improvements that will benefit your residents and families for years to come.     

Elizabeth Lent is a freelance writer and a frequent contributor to The South Florida Cooperator.

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