Improper contracts can open a managed community to unnecessary litigation and expense. Here are some tips for writing solid contracts that serve both parties.
Contracts are a regular part of every vendor relationship, but if you don’t include key provisions, you could be in for a world of headache. A well-written contract protects the HOA and the service provider, and it ensures that both are on the same page before the work starts.
But a contract doesn’t serve the HOA if it’s not written properly. There are a few essential components that management should include to make sure the agreement is pulling its weight.
Term
A good contract will contain more than just a “signed on” date. It should spell out all relevant timeframes pertinent to the work, such as:
- When the contract officially starts
- How long the contract will remain active
- The timeframe and/or deadline for the service
- Auto-renewing details, if applicable
Dates and deadlines are some of the most commonly disputed contract provisions. Avoid unnecessary litigation by clearly defining all relevant dates and timeframes in the terms of the contract.
Termination
Few things are more frustrating than being boxed into an unsatisfactory vendor contract. What happens if the HOA hires someone in good faith and then finds their work to be less than stellar? How can it escape after becoming entangled in a legal agreement with that vendor?
Sadly, this isn’t a rare occurrence. Lots of HOAs and property managers find themselves in this position, and they discover the hard way how important it is to have a termination clause in the contract. Even if the agreement appears to be informal, taking place via bids, estimates, and emails, these elements can sometimes be regarded by the courts as adding up to a binding contract.
So, be sure to sign and execute an agreement that contains a termination clause. Hopefully you won’t need it, but you’ll be glad it’s there should the need arise.
Insurance
HOA directors have a fiduciary duty to their communities to use good judgment when it comes to managing the neighborhood. Therefore, managers and directors should always be cognizant of the inherent risks presented by property maintenance – accidents, injuries, etc. If the HOA hires a vendor that is not properly insured and an injurious event or conduct occurs, this can open the community up to a world of trouble.
So, it’s a good idea to include a provision in the contract about insurance and coverage, such as mandatory coverage with specified minimum limits. Most contracts will stipulate that failure to maintain appropriate insurance as defined in the agreement will constitute breach of contract.
Litigation
Finally, it is important to consider the worst-case scenario when prepping vendor agreements. Litigation for contract disputes can be expensive, frustrating, and prolonged. When you consider the unpleasant possibility of going through the legal system to resolve a dispute, it’s clear why it is so vital that the HOA has a solid contract before onboarding any vendors.
If you don’t have legal experience yourself, it may be worthwhile to visit an attorney and have a standard vendor contract made by a professional. While you can certainly draft your own agreement, a set of professional eyes on the documentation can eliminate a lot of grief should the HOA ever have to defend itself in court – especially if there were any mistakes made on the contract.
Protect your community with a thorough contract
The ultimate goal of all vendor contracts should be to clearly define the details of the HOA’s working relationship with its providers. When you and a vendor agree on all the details of the relationship in advance, it can preemptively smooth out any wrinkles that might come up as the work progresses.
By including important provisions such as timeframe, termination, insurance, and litigation, you can set yourself up for success and adequately transfer risk away from the HOA directors and the community. VendorSmart is a comprehensive web-based marketplace that connects vendors and community managers in one place. At VendorSmart, we understand that third-party vendor relationships are critical to the success of any association or condo. Our software and team of industry professionals guarantee full compliance vetting for every vendor employed by your management company at no cost to you or the vendor. Want to learn more? Schedule a demo today.