Contracts and community rules are common documents for a homeowners association. Whether your Association is hiring a community manager, landscape provider, painting company, accountant, pool maintenance service, or contractor for community repairs; a form agreement may be provided by the contractor to the Association. Additionally, the Association’s governing documents typically include written rules. When alleged rule violations are reported, the Association has a duty to investigate and take appropriate enforcement action.
Unfortunately, it is far too common for associations to fail to have their contracts reviewed by their attorney prior to signing them. Instead, the contract is often only reviewed after there is a dispute or performance issue with the contractor. Associations may also be attempting to enforce community rules only to later discover that the rules are outdated and no longer comply with current law. Finding that there are deficiencies in a written agreement or noncompliant rules after the fact may leave the Association in a precarious legal situation.
Why Reviews are Important
Having contracts reviewed prior to signing is critical. Verbal discussions between the board and vendor often differ from what is actually contained within the written contract. Disputes will generally be resolved based upon the contract language. If the services outlined in the contract are inconsistent with expectations, then the Association may be unable to force the contractor to provide expected services despite prior verbal assurances.
There may also be turnover in the Association’s Board of Directors and changes in the vendor employees. The individuals on both sides of the transaction may not have been involved when the contract was originally negotiated leaving both parties looking to the contract language as the only documentation as to what was previously agreed upon. The agreement may also lack fundamental and reasonable protections for the Association. Resolving contract disputes are inevitably both time consuming and expensive. Ambiguous, inadequate, and poorly drafted contracts serve to compound the underlying issues and may leave the Association without an ability to force performance or to hold a contractor responsible for damages.
In terms of community rules, an initial set of rules may have been adopted when the community was under the control of the developer. Such rules may no longer serve the needs of the community and may not comply with applicable law. The legislature has enacted a myriad of changes over the last several years related to the regulatory authority of HOAs as to signs, flags, xeriscaping, electric charging stations, artificial turf, gardens, solar panels, accessory dwelling units, fire hardened building materials, parking enforcement options, and more. Having up to date and legally compliant rules is critical to the Association’s ability to successfully enforce those rules.
Red Flags
If any of the following conditions exist with respect to your Association’s contracts or community rules, then a formal review is recommended.
- No Written Contract. If the Association is only relying upon verbal agreements with vendors this is a recipe for disaster.
- Signing Bid or Estimate Documents Only. If the entire “agreement” is only one or two pages then it is certainly inadequate and does not contain reasonable protections for the Association.
- Dated Documents. If the Association’s rules are more than five or ten years old then they should be reviewed and updated. The board should review the rules periodically. Changes in technology, building materials, community expectations, and new laws should be considered. Once the board has reviewed the rules it is prudent to then have them reviewed by the Association’s legal counsel to ensure they comply with the Association’s governing documents and current law.
Things to Look for When Reviewing Contracts
The list below contains some key provisions that should be addressed in any contract.
- Scope of Work. Make sure the document is clear as to the services to be provided. Include details of the work such as plans and specifications, timing, materials, colors, permit requirements, make/manufacture information for purchased equipment, etc.
- Payment Terms. Include payment details including deposit amounts, due dates, ability to withhold funds, punch list completions, walk throughs, contingencies, and lien waivers.
- Warranty Information. Ensure the warranty information is clear as to what exactly is covered, for how long, and if there are warranties from both the contractor and the manufacturer.
- Indemnification Protections. Provisions should be included to require the contractor to hold the Association harmless from damages caused by the contractor.
- The contractor should be required to carry appropriate insurance including workers compensation, comprehensive general liability, and automobile liability. The Association should be named as an additional insured and certificate holder on the contractor’s policy.
- Termination. This provision should outline how and when the Association can terminate the agreement if the Association is not satisfied and should specify required notices and payment obligations.
- Attorney Fees. This provision is critical. If the Association is forced to hire an attorney to enforce the agreement, there should be a provision that allows the Association to recover its attorney fees. If not, the Association may be left without any practical ability to enforce the agreement.
Things to Look for When Reviewing Rules
Below is a list of key issues to consider when reviewing your community rules.
- Make sure the governing documents provide appropriate authority for the proposed rules.
- Conflict. The rules should be reviewed to ensure that they do not conflict with the Association’s governing documents or applicable law. The provisions of the covenants will control over the rules. As mentioned above there have been numerous recent changes in law so rules that may have once been enforceable may no longer comply with current law.
- Enforceability. Review to confirm that the rules are clear and unambiguous. The basis of any violation will need to be clearly articulated in the notice to the homeowner. Recent changes in law also require consideration. By way of example, applicable Colorado law prevents Association’s from regulating a public right-of-way. Therefore, the Association should not be attempting to enforce rules such as parking or landscaping rules on public streets or within a public right-of-way.
Association contracts and rules are an unavoidable part of an Association’s business operations. Boards should ensure that Association contracts and rules are adequately reviewed in order to protect the interests of the community. If your Association would like a contract or your community rules reviewed please contact one of our attorneys at 303.432.9999 or [email protected].