Beware of Automatic Renewals in Contracts Look at the Fine Print

 Fortunately for boards looking to cut costs while still providing needed  services to their buildings, many vendors are advertising bargain basement  prices to fortify their own business. Unfortunately, the risk of getting stuck  with unfavorable contract terms means that many boards will not be able to cash  in on the savings being offered.  

 There is nothing more frustrating than being “locked in” to a contract, and unable to take advantage of a better deal. It’s a common refrain that’s sometimes harder to implement than lecture about, but a careful read of any  contract before signing can save a co-op or condo big money down the road.  Board members are typically very astute when negotiating for prices and  services, but often overlook the fine print toward the end of contracts. And if  there is one tricky term that all boards and associations should watch out for  it is the frequently used, often concealed “evergreen clause.”  

 An evergreen clause is an item that allows a contract to self-renew at the  expiration of the current term unless either party notifies the other of an  intention NOT to renew. The language used is invariably a bit muddy as well.  Typically, the clause requires the board to provide such notice in writing no  less than 90 days and no more than 120 days before the current contract  expires.  

 In recent years, and New York especially, there has been a significant amount of  litigation surrounding automatic renewal and right of first refusal clauses. In  2005, the First Department invalidated such a clause in Inwood Park Apartments,  Inc. v. Coinmach Industries, Co. When a Manhattan co-op decided not to renew  their laundry contract, the laundry company refused to remove its machines from  the building, claiming that the right of first refusal entitled them to match  the bid of any laundry service that tried to take over. The court found in  favor of the co-op, stating that without a time restraint, the renewal clause  was an “unreasonable restraint” on the alienation of property. No building owner or administrator should allow  an automatic renewal or a right of first refusal clause into a contract.  

 So mark your calendar—because four years and nine months from signing, someone is going to have to  remember to cancel the contract. Unfortunately, in that time there will likely be many changes to the board, and  possibly even a new manager at the helm, which may mean that no one is going to  remember that a given contract is going to automatically renew in five years.  In fact, a copy of the contract may not even be around.  

Read More...

Related Articles

Architects and Engineers

Keys to a Successful Relationship

Staff Management 101

The Art of Team Building

Assessing Your Building’s Energy Consumption

How Green Are You?