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“Association Contracts” – FCAP Managers Report

“Association Contracts” – FCAP Managers Report

Whether your community association is a condominium, cooperative, or a homeowners’ association, Florida law empowers your association to enter into contracts in connection with the maintenance and operation of the community. Often times, your association is all but required to contract with third parties in order to maintain and operate the community, as it does not have the in house employees required for specialized, but essential tasks, such as the maintenance and repair of your community’s plumbing, elevators, or fire alarms. However, as explained in this article, your association should  always consult its legal counsel before entering into any contract, as association contracts are not only the subject of varying legal requirements, but they also may burden your association with long lasting terms and conditions that may be very costly and difficult to renegotiate once a contract is signed.

Chapters 718, 719, and 720, Florida Statutes, governing condominium, cooperative, and homeowners’ associations, respectively, have similar but different laws concerning contracts. For example, each of those Chapters require association contracts for the purchase, lease, or renting of materials or equipment, and contracts for the provision of services, that are not to be fully performed within 1 year, to be in writing. However, Chapter 718, specifically governing condominiums, goes a few steps further, requiring the contracts of condominium associations to specify certain information, such as the minimum number of personnel to be employed by the party contracting to provide maintenance or management services, or the disclosure of any financial or ownership interest of a board member. Failure to identify and adhere to such requirements may render a contract unenforceable or subject your association to liability, regardless of how long the contract has been place at your community.  As such, it is very important your association works with its counsel to identify such requirements at the earliest opportunity possible.

Similarly, Chapter 718, 719, and 720 require associations to obtain competitive bids for the materials, equipment, or services subject of the contract if the contract price exceeds a certain percentage of the association’s annual budget. However, that certain percentage of an association’s budget differs among the Chapters, with Chapter 718 and 719, governing condominiums and cooperatives, imposing a 5 percent (5%) threshold, while Chapter 720, governing homeowners’ associations, imposing a 10 percent (10%) threshold. As such, again, your association must work with its counsel to identify such requirements as early as possible.

Another issue of common concern is the issue of contract terminations. It is a common misconception that the Board of Directors are afforded the exclusive right to cancel contracts. However, under certain circumstances, Florida law empowers unit owners to cancel certain association contract pursuant to a certain vote, and, in some instances, within a certain time. Therefore it is extremely important that your association work with its counsel to negotiate the cancellation provisions of any contract it is a party to. Ideally, association contracts should afford the association the flexibility to cancel the contract at any point during its term and without a required cause or penalty, but that is not the norm that is offered to associations. Instead, vendors typically offer associations a contract that locks in the association for years and penalizes earlier termination. Some of these contacts may not even allow the association to cancel the contract if the vendor fails to provide the services it agreed to. Instead, such contracts may require the association to provide the vendor a reasonable opportunity to “cure” the problem before cancellation is effective and if the vendor attempts to do so, the association may be at a risk of a cancellation penalty if it ultimately decides to cancel the contract.  Usually these onerous provisions can be negotiated to mitigate their harshness.

Another common issue of concern is the issue of price escalations. Often times, vendors will offer contracts that provide the vendor the unilateral right to raise the price of their services every year or for even less clear reasons, such as “market conditions”. Sometimes such price escalations are unavoidable in the context of construction services that depend on overhead, material, and labor costs to be obtained over a long period of time. But, in any event, given that your association has a fixed budget and limited sources of revenue, the association should work with its counsel to ensure that it understands exactly what it is obligated to pay from the first day of the contract, to the last.

Lastly, your association should also work with its counsel to determine what, if any, requirements are imposed by its governing documents with respect to contracts. Some governing documents require a certain amount of unit owners to vote and approve certain contracts, while others may only require a majority vote of the association’s board of directors. For example, some association governing documents may require unit owner votes on any financing or loans, while others may require a unit owner vote if a contract is over a certain dollar amount threshold or over a certain percentage of the association’s budget for that year.  While perhaps not common, you should always check with your association counsel before executing any contract.

This article is not intended to serve as an exhaustive list of issues and concerns that your association may need to address in evaluating its contract, but rather as a reminder that association contracts should be reviewed by your legal counsel to ensure compliance with Florida law, that your community’s interest are well served, and to put the association on an even playing field with the contractor.

To read the original FCAP article, please click here.

Nicolas M. Jimenez is a Community Association attorney in the Miami office. Mr. Jimenez has experience representing clients in Florida state and federal courts and has a diverse range of subject matters, including matters relating to contractual disputes, non-compete litigation, intracorporate disputes, landlord-tenant disputes, employment disputes, class actions, and condominium related litigation.