Real Estate & Property Law

HOA BOARDS - DO YOU READ AND UNDERSTAND WHAT YOU ARE SIGNING?

QUESTION: "Our HOA has a landscaping contract that has been "auto renewed" for the past 10 years. Can they do that?"

This question is important enough for both blogs so I am doing it on both of my blogs and on Twitter. The question came to me in an E- newsletter I got from Adrian Adams? firm in So. Cal. Actually it was the first time in my 25+ years in the law that I heard it called an ?evergreen clause?. I probably last heard it when I took the California Bar Exam and forgot it. So funny thing, since the question was about a landscape clause, I thought maybe Adrian made it up. Not so. I looked it up.

An ?evergreen clause? is (thanks to Wikipedia?s clear definition), a ?Provision which extends the life of the contract after the primary term has expired. As a rule, the clause will provide that the terms of the contract will remain in effect until a written notice of termination (required) is furnished by one party to the other. ?

Adrian explained how all this works in his newsletter and about how to terminate. And also about how the contract probably expired after a year and then renewed for 1 year automatically if not terminated. This is a common clause in management, cable provider and some other vendor contracts. The laundry service provider contracts containing them are the some of the worst I have seen in terms of being difficult to terminate and often have a 5 year term and renewal term, which of course would be in violation of the Bylaws if they limit boards authority to one year contracts and the board does not get owner approval. And the cable tower contracts are asking in some cases for 10 and 20 year contract and renewal terms so it is important to note they probably require owner approval.

But as Adrian explained, a contract signed by the Board that violates any contracting limitation in the bylaws is not void simply because it violates the bylaws. The Board may have some responsibility for ignoring the bylaws limitations and the association may end up culpable if an owner sues over it and can show some legal damages. But keep in mind that there may be benefits of this kind of contracting such as long term rates with a ceiling. And keep in mind that providers who will incur up front costs are going to want some longevity built in so they can recoup the costs. The more the up front costs, the longer term they are going to require.

But one more (and perhaps the most important) thing I would add in response to ?Can they do that?? is that the contractors aren't the ones "doing it" to associations. The Board members who sign the offered contracts without any regard to what they are signing and without asking any questions or negotiating changes are the ones "doing it".

So Boards, WAKE UP AND READ WHAT YOU SIGN AND ASK QUESTIONS IF YOU DON'T GET IT!

Full post as published by California Condo & HOA Law on February 07, 2011 (boomark / email).