Association Contracts, What to Look for to Protect Your HOA

HOAs often enter into contracts with contractors and vendors, but these agreements can contain hidden pitfalls that can cause trouble down the road. To ensure that your HOA is protected and avoids any unwanted surprises, it’s important to evaluate each contract carefully before signing. Here are some key factors to consider:

Termination Requirements

Before entering into a contract, it’s important to know what it takes to terminate the agreement if needed. Review the contract for any provisions that could make it difficult to end the agreement, such as lengthy termination notices or penalties for terminating the contract. An association should consider the following:

(A) Does the contract require a lengthy termination notice (such as 90 days, or is termination only allowed at the end of each year)?

(B) Does the contract violate any provisions in the association’s governing documents?

(C) Is there a penalty for terminating the contract?

Also, ensure the contract does not violate any provisions in the association’s governing documents. 

Liability for Contractor Actions

It’s essential to understand who will be responsible if someone is hurt due to the actions or negligence of the vendor or contractor. Some association contracts may require the HOA to be liable for such incidents. Be sure to review the contract language carefully to ensure that the HOA is protected.

Conflict Resolution Requirements

Many contracts have provisions requiring mandatory arbitration of any conflicts. Make sure to review these provisions and understand the requirements.

Hidden Costs

Review the contract for any hidden costs that are not explicitly outlined, such as copies, postage, or extra time spent. If such costs are not given, determine what they are before entering into the contract.

Time of Completion

If the completion date is a concern, ensure that it is specifically addressed in the contract. For example, is this the type of contract where liquidated damages may be an appropriate remedy if the contract is not completed by a specific date?

Clear Requirements

It is much easier to enforce a contract where the terms are black and white versus some oral representation. The contract should clearly set forth the requirements of both parties. Ensure that all terms of concern to the HOA are properly addressed in the contract.

Personal Liability

Review the contract for any provisions that may hold board members personally liable for payments due to the contractor. Shockingly some contracts have actually been known to contain this provision. No board member wants to be personally liable for contracts of the association. 

Contractor Performance

Ensure that the association is protected if the contractor fails to fully perform the contract requirements. Retain a certain amount of funds owed to the contractor to ensure the project is completed. Also, the contractor should only be paid for the work actually performed, and an expert should be hired to ensure sufficient funds remain to finish the project.

Recovery of Attorney’s Fees

Ensure that the association is entitled to recover its attorney’s fees and costs if it hires an attorney to enforce the terms of the contract. Protect the association from any potential legal fees and expenses.

By reviewing each contract carefully and considering these factors, HOAs can protect themselves from unwanted surprises and ensure they enter into agreements that are in their best interests.