Few things can raise one's blood pressure like signing a big contract. That can be especially true for board members or managers signing sometimes mammoth contracts on behalf of a co-op or condo association, obligating their neighbors, friends and themselves to page after page of fine print. Thankfully, there are more than a few ways to get things properly signed on the dotted lines, and it all starts with ensuring a very thorough vetting of the contract in question.

Avoiding Mistakes

It's crucial for a co-op or condominium community to establish successful business relationships, whether with a building contractor or a landscaping firm, and ensuring that a contract is fully vetted and amenable to both sides before work begins. Part of finding that assurance rests in having an attorney carefully examine the contract from top to bottom.

These days, contracts that automatically renew are everywhere, from your Star-Ledger subscription to your NPR contribution. Some of these are convenient, and make life easier by eliminating the need to stay on top of regularly recurring charges. But your Pandora membership is one thing; your condo's laundry contract is another. “Automatic renewal clauses are not often ideal because they complicate the termination options for boards, and may even impose lengthy contract terms that were not intended,” says Michael T. Reilly, an associate attorney at the law firm of Norris McLaughlin & Marcus, P.A. in Bridgewater. “Besides automatic renewal clauses, other items that can be damaging are the choice of law provisions and forum selection clauses requiring how and where disputes under the contract are to be adjudicated, along with one sided attorney’s fee clauses favoring contractors.”

Ensuring clarity and protecting the co-op or condo’s rights to terminate a contract for poor service also must be considered when signing an agreement. “Other mistakes in laundry, elevator and electronic-related equipment agreements include not clarifying the vendor's responsibility or obligation with respect to maintaining and replacing defective and non-operating equipment, or response time to fix the equipment,” says attorney Dennis Greenstein, a real estate partner at the law firm of Seyfarth Shaw LLP in New York City.

Spelling this stuff out in black and white not only protects the building community legally, but helps keep peace within, should things go awry. “Elevators not working, broken laundry equipment, boilers not functioning in cold weather or the absence of hot water will create immediate anger in any building,” says Greenstein. “Clear language in the agreement stating the response time—with remedies for the board if the vendor breaches that agreement—is critical to the board's ability to demand service, and to terminate the agreement if it's not honored.”

When it comes to signing contracts, inexperience on the part of a board or manager is usually to blame for mistakes and not-so-great terms and conditions. “You have to clearly define the scope of the contract,” says Hubert Cutolo, a partner with the law firm of Cutolo Mandel, LLC in Manalapan. “You don't want open-ended provisions in a contract, such as ‘You'll come in and you'll cut the lawn, and we'll pay you for the man hours and materials.’ Then the fee would be completely at the discretion of the contractor, and there would likely be an argument over the price later. So you want not only a detailed description of the exact scope of the work that's being provided, but also the cost for that work, so that the final cost isn't completely within control of the contractor. That will run into contractual disputes and litigation down the road, and you want to avoid that at all costs,” he says.

Securing the advice of legal counsel can save big money down the road, but still, some boards or managers try to save dollars up front by simply going it alone. “Many boards and agents feel that it is not necessary to pay legal fees for the review of these types of contracts,” Greenstein says. Understandable, perhaps—especially for a building community or HOA that's feeling financially pinched—but that approach can lead to trouble later. Different associations involve attorneys in the process at different points, and some property managers and boards may think that the nitty gritty only comes after the bidding process. Reilly disagrees. “If the lawyers are not involved in the front end of the bidding process, especially for large contracts, the bidding process may be compromised or delayed when the lawyers attempt to require certain warranties, insurance, guaranties or bonding requirements that certain bidders cannot, or refuse to meet,” he says.

Crossing T's and Dotting I's

Whatever may be said between a vendor and an association, if it's not in the contract, there's no proof it was part of the agreement. With that in mind, an important tool for boards is to simply compare and contrast different offers. Initial contracts are often more like proposals, so it helps to have different versions from different vendors to sort out which one is the best bet for your HOA. It also grants the association a degree of leverage to establish certain specifications and terms. “By presenting the draft contract with the specifications, the bidders will have knowledge of all requirements for the work,” says Reilly. “Those unable to meet such requirements will likely refuse, or be unable to meet the bidding requirements and therefore not submit a bid.”

Getting a good contract also involves proactively ensuring that the proper elements are included in the document. One of those elements, says Greenstein, is “the right to terminate the contract if the vendor is in breach.” Delineating responsibilities is also important, including questions of maintenance.

“Have the vendor be responsible for any damages and fines that result from their failure to maintain the equipment and/or comply with the legal obligations required by applicable laws and governmental bodies,” says Greenstein. “Be clear what's being covered in terms of repairs and defective equipment and the cost of labor—particularly emergency service on weekends and holidays. There should be warranties on new equipment, specific obligations to replace parts, and what is excluded in the coverage.”

In addition, it may be necessary to state exactly what role building staff should be playing in conjunction with the vendor’s duties. “What—if anything—should the building staff be doing regarding the maintenance of the equipment?” says Greenstein. “A certain amount of daily upkeep may be required under service agreements to avoid a disclaimer by the contractor, who might claim that the building's failure to maintain the equipment voids his obligation to cure the problem under the service contract.”

Obviously, large capital projects have the highest stakes when it comes to contracts, and associations need to make sure they aren't left out to dry for any mistakes or problems that contractors should be responsible for. “You want to make sure that the contract includes indemnification insurance provisions,” says Cutolo. “The community association and the managing agent should be added as additional insureds, and that the contractor will defend and indemnify the association for any negligence or breach of the agreement. That’s very important.”

There are certain aspects of contracts that may apply to more than one type of vendor or service contract. Even if it’s not a huge capital project, you never know when a small service job might go slightly awry and, say, flood the building’s basement. So even with the small contracts, it’s important to review those sections with an experienced eye. “There should also be adequate insurance coverage of the contractor and vendor naming the property owner and others as additional insureds on the policy,” says Greenstein.

Looking Ahead – and Playing Fair

One of the best ways for co-op and condo managers and boards to protect themselves when signing a contract is to look for red flags ahead of time. More often than not, the signal that the contract is flawed is what's not there, rather than what is there. For instance, a contract should address issues like worker’s compensation. “Typically, most insurance brokers don't need to watch out for that kind of thing, because more often than not, it's the vendor that's providing the indemnification to the association and not the other way around,” says Greenstein. “But, the contracts need to say, 'We're going to provide you a copy of our license, we're going to provide you an insurance certificate, we're going to name the board of directors, and your property management company.” If those items are not part of the agreement, then the vendor isn't required to do them—and that can make for a sticky situation if something goes wrong.”

Other than checking references “to verify that the contractor met the time and work requirements, and if he honored the remedying of any problems for which he was responsible to address,” Greenstein says there are other resources out there to the board's disposal that can help vet potential vendors and find out more about their business history. “Do a litigation search to see if there are a number of lawsuits involving the contractor, and the claims made and the outcome of the matters,” he says, “and see if the managing agent has used the vendor in other buildings, and what the experiences were,” he says.

Ascertaining the way the vendor operates is equally important. Before signing any contract, it helps to know “Did the contractor or vendor clean the work areas each day? Were the workmen respectful of the residents in the building?” Greenstein adds. Character matters, especially in a long-term arrangement that may affect dozens, if not hundreds, of residents in a building or community.

And it should be said that in any contract negotiation, the onus for fair dealing should not rest entirely with the vendor. Board members and managers should also be cognizant of giving vendors a fair shake. More and more, associations are more willing to dump a relationship with a current vendor rather than work out a particular problem or issue. A persistent issue with service or maintenance is one thing, but smaller issues can almost always be worked out with a little patience and good communication, and can save the headache of starting a whole new partnership with a different company.

Certainly signing a contract can be a nerve-wracking experience, but with the right advice and experience and a willingness to ask questions, that experience can be a positive one, making way for new services and improvements that will benefit residents and families for years to come.

Liz Lent is a freelance writer and frequent contributor to The New Jersey Cooperator. Editorial Assistant Tom Lisi contributed to this article.