These are the most common mistakes I see in HOA ’s acceptance of contracts (and believe me, I see these every day):

Failure To Check Out Free Information: Boards and Managers often forego checking out a contractor. For construction contracts, the California State Contractor’s License Board (www.cslb.ca.gov) has a wealth of information on: protections, the vendor’s principals, bonding information, insurability, complaints, claims, laws protecting the consumer, and licenses that are required and are held. And another source of free cross check information is references. Certainly, contractors and vendors will be loathe to give out names of persons that would give poor references; however, this is one way to find out if they have worked for many HOAs. This could prove very valuable (see more below).

Acceptance of Fuzzy Terms: Boards and Managers often respond on bid/proposal forms provided by the contractor rather than considering a “negotiated” or balanced contract. Proposals and form contracts provided by contractors or vendors are favorable to them, not to HOAs. These often are one page forms with handwritten notes on the front page and a backside that has another 20-30 terms written in light colored or very small – crammed together – print that is hard to read. (Suppose these were drafted by lawyers??) The bid offered may be vague to nonspecific as to time, place, manner, phased work, and protections. What is emphasized is the price. This means the HOA obligation is clear, but the contractor’s is not. And, it is as important to read the backside as it is the front.

Ignoring Limitations on Authority: Many HOA documents have limitations on contracts. Entering into a contract that has a term of more than one year is a common prohibition. Laundry, cable, and management contracts are some that are commonly listed in the exceptions to this rule. Some documents require owner approval for some contracted work (an example might be for capital improvements that exceed 5% of the budgeted gross expenses for the fiscal year or for borrowing that requires collateral). Ignoring the limitations does not automatically void a contract, but it does make the Board look bad, and could lead to a breach of fiduciary duty claim.

No Way Out: Many contracts are very vague or noncommital about termination provisions. In other words, it’s easy to get in, but not easy to get out. And if the contract encompasses a lot of work or the term is for a long period of time, and the HOA finds it is very unhappy with the contractor’s work, conduct, reliability, etc.; finding a graceful way out can become very important. A bad working relationship is hard on all the parties. Specifics on incremental evaluation, assessment of work (such as a phased contract), and/or the ability to terminate the contract with or without cause on reasonable notice can become extremely important.

Failure to Properly Treat Insurance Requirements and Other Protections (Such as Indemnification): HOAs need to be concerned about insurance protections. Many assume that asking the contractor if they have insurance (liability, bonding, workers compensation, etc.) is enough. It’s not. If the HOA contract does not require by its terms that the contractor carry specific types and levels of insurance, does not require that the HOA be named as an additional insured when possible, does not require a contractor to carry workers compensation insurance, and does not require the contractor to carry and provide proof of a proper endorsement that provides protection for working in an HOA (for construction contracts – this is critical), there is little recourse to terminate the contract if the Contractor stops paying for the insurance and it lapses, or they lose their license and it lapses. And, it is critical to understand the indemnification provisions so as to make sure that the HOA cannot be held responsible for the contractor’s mistakes or negligence. (See more on this below – Attorney review.)

Failure to Keep Owners “In The Loop”: HOAs that find themselves under the “microscope” with owners may have failed in these areas: failure to seek multiple bids (to give a fair comparison of what terms, experience, offerings, and contractors are available), failure to keep owners sufficiently informed to garner trust, failure to respond well to those who raise questions, failure to recognize the importance of consensus building. It is especially important with regard to a very large contract that will require owner participation (such as approval of a special assessment) to provide the owners sufficient information as the process moves forward to build trust and confidence so that these things do not happen: (1) Owners demand copies of bids claiming they can find contractors who charge less, (2) Owners actively raise opposition in response to a proposal because they do not have a full understanding of the necessity of the work, the competence of the contractors, the trust in the Board in choosing the right “team” geared for successful execution of the contract.

Failure to Seek Legal Review: There are many things an experienced attorney will look for in a contract that a Board or Management may miss. All of the above signify just a few of the examples.

You can visit her at http://www.californiacondoguru.com/. Beth has a private law practice in Pleasant Hill, but serves homeowners association and homeowners throughout the State of California. Her practice is largely web based and telephone consultations are available.

The information provided here is for advertising and informational use only and does not constitute legal advice or create an attorney-client relationship. Visitors should consult with legal counsel in all cases where legal representation or advice is desired.

copyright 2007, Beth Grimm, all rights reserved