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.
For this reason, even if a contract does not contain a self-renewal clause, boards should avoid signing very long-term contracts. Five years is a long time to contract for garbage disposal. This is especially true as garbage service providers and companies offering similar services do not typically invest in any special equipment at the property to provide their service. Laundry providers do typically supply machines and related equipment to the property, so there is more of a justification for those providers to use longer-term contracts.
To avoid the “evergreen” dilemma the best defense is still a good offense–strike the clause. Insist that the contract not self-renew, and ensure that the contract has a termination provision which affords the board or the association a way out if service goes south. A clause that allows either party to terminate the contract with thirty to ninety days notice, for any reason, offers boards the most flexibility. There is no reason a board should be forced to take the risk of an unfavorable contract automatically renewing by accident. There is simply too much at stake and such clauses offer little if any benefit to associations. If the service provider wants to extend the contract, that can be done with a simple request to the board to sign an extension agreement. The burden of renewing the contract should be on the provider—not the board or association, which is ultimately the customer in the transaction.
If you cannot remove the clause entirely, make the renewal contingent on the provider giving written notice of the renewal date with ample time for the board to opt out. Don’t get stuck in contract purgatory—review all contracts (even the fine print) before signing, strike any self-renewing provision, and avoid excessively long terms whenever possible.
Mark S. Einhorn is an associate with the Braintree, Massachusetts-based law firm of Marcus, Errico, Emmer & Brooks, P.C. He is a member of the firm’s landlord/tenant and condominium association practice groups.