While the vast majority of one-time projects and long-term service contracts involving vendors and service providers and their co-op, condominium or HOA clients go smoothly and either conclude or continue without incident, a small percentage of jobs do jump the tracks. Sometimes it’s a contractor’s inability to stay on schedule or stick to an agreed-upon budget that does it; sometimes it’s the quality of work itself that’s not up to par.
Whatever the cause, sometimes it’s necessary for management and building administrators to pull the plug on a contract—and that sometimes can be easier said than done. But before any contracts are signed, experts agree that boards and associations should make sure that all vendors and service providers are properly licensed and have a good record with the Better Business Bureau, for more information log onto www.newyork.bbb.org. Another useful search is your county’s Clerk of Courts office to determine whether the contracting firm or its principals appear in litigation.
There are numerous reasons why a co-op, condominium or HOA manager or board might feel it necessary to break a contract with a vendor or service provider but some are more frequent than others.
“While there are certain contractual warranties implied at law such as merchantability or fitness for a particular intended use, a cooperative, condominium or homeowner’s association would generally have the right to terminate a contract for work or services based upon the breach of a particular provision of a contract,” says Eric Goidel, a partner in the Manhattan-based law firm of Borah Goldstein Altschuler Nahins & Goidel, P.C. “Dependent upon the type of contract (construction or service) such grounds could include failure to perform pursuant to specifications, the failure to deliver materials, the failure to adequately staff or timely perform the work and the failure to timely respond to service calls.”
“Any breach of any material terms of the agreement is the primary reason for a condo or HOA to feel it necessary to break a contract,” adds Eric Frizzell, a partner with the Glen Rock, New Jersey-based law firm of Buckalew Frizzell & Crevina, LLP, who is also licensed in New York. “Failure to perform services properly, failure to be on-site during required periods, failure to respond within required time frames on a service contract. For example, an elevator service contract requires the service company to respond to a report or a complaint within a time frame and failure to respond promptly can be a detriment to the building, especially in a high-rise. Other reasons could be misconduct by workers directed toward homeowners, any type of inappropriate conduct or alcohol on the premises during work hours. There could be all sorts of reasons.”
“The most legitimate reason for a board or HOA to terminate a contract would be that the contractor or vendor is breaching the contract by failing to comply with the plans and specifications and requirements of the contract,” says Michael T. Reilly, an associate with the law firm of Norris McLaughlin & Marcus, PA in New York City. “Additionally, violating city, state and federal codes, ordinances and safety standards are also additional reasons, which can create dangerous conditions and potentially put the building and residents at risk.”
Writing the Contract
The association should decide what it wants to accomplish in a contract, and to be sure everything is included. In negotiating and writing a contract, an association board should rely on advice from its manager and management company, attorney, and design consultants—but the board makes the ultimate decision on the terms to which it will agree.
“It is significant to make certain that there is a tight contract which sets forth the parameters and benchmarks for performance,” says Goidel. “It's difficult to break a contract if you cannot specifically point to a breach. For major construction projects, one should always stay ahead of the contractor with respect to money. This will often ensure adherence to terms. For major construction contracts, an independent party should be retained such as an architect, engineer or specialty consultant, who will be the arbiter of whether there has been performance. There should be penalties built into the contract for non-performance or non-responsiveness. Large construction contracts may include a request that a contractor obtain a payment and performance bond. While the cost of such a bond can run in the neighborhood of three to five percent of construction costs, it is often an expense well spent.”
“Too often associations will enter into contracts without having their attorney review them and the contracts will fail to adequately specify what the contractor is going to do,” says Frizzell. “One instance where this arises, a contractor will submit a one-page proposal and the association considers that proposal to be a contract, when in fact it normally needs to be fleshed out in great detail with regard to services that are going to be provided, remedies and numerous other provisions, such as insurance and indemnification.
“So two key provisions with any contract, with any contractor or service provider, are insurance provisions to make sure that they provide proof of adequate insurance and that they provide an endorsement that names the association, management company and board as additional insureds,” says Frizzell. “And an additional provision that says in simple terms that if the contractor breaches the contract or is in violation of any law or is negligent in any way causing damage to the association or any of the residents, the contractor is going to fully indemnify the association.”
“We try to have our clients enter into license agreements rather than long-term leasehold arrangements because they’re more ready terminable,” says David L. Berkey, a managing partner with the law firm of Gallet Dreyer & Berkey, LLP in New York City. “If you don’t want to do either of those two, you are probably best off not dealing with that particular vendor.”
Here are a few additional elements real estate experts believe that an association should seek to include when writing a contract:
• Termination for no cause, which could occur if the association board decides to get rid of a contractor it doesn’t like, if a new board or management company wants to replace the contractor with another it prefers, or if the board elects not to complete a project that is already underway. Then the association must pay the contractor for all costs and expenses he incurred prior to the termination.
• A default clause, which allows the association to cancel the contract if the contractor doesn’t cure a default within a specified time after notice by the association. The time to cancellation may be five, 10, or 30 days.
• A description of the work to be done, including a comprehensive scope of work statement, and a schedule of values containing a complete breakdown of quantities of materials and labor and their associated costs.
• A schedule that specifies three dates: when the work will begin, substantial completion, and final completion.
If Problems Arise
Frizzell believes that if a contract dispute develops the board should first attempt to work things out with the contractor. “If there is a problem you want to sit down as soon as possible with the contractor and review your areas of concern. You definitely want to try to work things out,” he says, “You also want to be careful to not make a statement that is inadvertently prejudicial to the association in the event, you can’t work things out and it ends up in litigation. Sometimes, people may be afraid of confrontation so they minimize what their concerns are. They may make a statement like ‘this really isn’t a major issue,’ or something along those lines. You don’t want to make those types of statements. You also want to get your attorney involved, earlier rather than later.”
“If a dispute develops it should try to be resolved without going to court,” says Goidel. “Litigation of any type will be costly to both sides and dependent upon the issue in dispute, it might ultimately prove a situation where you win the battle but financially, lose the war. All disputes or alleged breaches should be documented in writing and then communicated to the contractor or service provider. It is difficult to win a case where there is a lack of a proper paper trail. Adherence to mechanisms set forth in the contract for terminating the agreement or for pursuing dispute resolution must be adhered to,” he says.
Contracts can provide for mediation and perhaps arbitration of disputes as opposed to litigation. Mediation, if necessary followed by arbitration, is generally a less-costly and speedier process. The major distinction between mediation and litigation is that once the arbitrator’s decision is handed down, it is non-appealable. One benefit of arbitration is that the arbitrator is generally more knowledgeable about the matter than a judge.”
Most Contentious Contracts
Certain types of repairs and services are prone to contract disputes, construction-law attorneys say. Roofing jobs, concrete restoration and replacement of windows and sliding glass doors are known to generate disputes, as well as landscape maintenance and solid-waste collection.
“I think that there’s a greater chance for disagreements about whether the services are being properly performed,” adds Frizzell. “If someone is supposed to provide you with an A-B-C brand photocopier and that’s in the contract, you either get it or you don’t, the more specific the better. If it’s a materials contract it’s easy to confirm if you received the materials you ordered, but if it’s a services contract and the contract is drawn with terminology that is too vague that can lead to disagreements.”
In closing, dealing with contracts—including extricating your board or association from one that's no longer meeting your requirements or expectations—boils down to doing your homework beforehand, making your needs and standards clear (and making sure they make it into the language of the contract) and involving your legal counsel earlier in the process rather than later. Following this protocol will not only save you time and headaches, it will save your building or HOA money in the long run.
George Leposky is a freelance writer and a frequent contributor to The Cooperator. Staff writer Christy Smith-Sloman contributed to this article.