Condo & HOA Law, Naples Daily News

Naples Daily News Q&A | March 13, 2021 | Long-Term Vendor Contracts

John C. Goede | GADC Florida Attorneys

By Attorney John C. Goede

 

Q: We just had an election and discovered that the prior president signed a long-term contract with a vendor that locks us into the agreement for almost five years. The contract appears almost impossible to terminate. Is this legal and can we terminate now that the new board was elected?

C.H., Naples

A: We would need to know more about the specific facts to fully answer the questions, but the answer is most likely that the agreement is legally enforceable, and the election of the new board would not permit the existing directors to terminate the agreement.

Many of our clients are under the mistaken belief that any contract can be terminated with or without cause by giving 30 days written notice. Unfortunately, this is not a default rule and most contracts may not be terminated without cause unless the contract specifically says so. The general rule is actually the opposite, which is that you can’t terminate a contract unless one side breaches a material term of the contract. As a result, if the contract has a term of five years and provides that it can only be terminated by the association after breach by the vendor, this is a legally enforceable agreement. This is very frustrating for many community associations because you want to make a quick decision, but the contract can make termination effectively impossible. For example, we have seen some contracts that require notice of a breach, a window of time to cure, a meeting between the parties to discuss whether the breach was materially cured, and then another window of time to cure if the breach remains, and then another meeting between the parties to discuss whether the breach was eventually cured. Finally, if the breach has not been cured, the association can terminate the agreement, albeit six months later. This process can be avoided by making sure that your contracts expressly provide that the agreement can be terminated by either party, with or without cause, after a specific notice period. If the contract does not already provide this, you can ask the vendor to revise the agreement. Alternatively, we routinely provide a short addendum which serves to insert important terms that can protect the association – one of which being flexible termination provisions. Your question specifies that the president signed the agreement but does not indicate whether the board approved the contract at a board meeting. This raises a different set of issues for a future column. Relative to your question, however, I should note that there is likely a binding agreement pursuant to a legal concept known as apparent authority even if the board never actually approved the contract. Ultimately, your contract and facts are specific to your situation and we highly recommend you consult a Florida licensed attorney to review the agreement and factual history and make a recommendation on how to best serve your community.

Q: I am a newly elected board member and feel somewhat lost because we are having virtual meetings and looking for guidance on how to learn about our community and my obligations. Are there any resources for this?

D.A., Naples

A: Many of our clients are effectively using digital platforms to hold board meetings. I can understand, however, that the distance makes it more difficult to join a board of directors for the first time, particularly where the board may be in the midst of multiple complex issues.

Broadly, I should note that Florida law requires all newly elected directors to take certain steps that may be beneficial for you. Specifically, within 90 days of being elected or appointed, all new directors must either sign a form indicating that you have read and understand your covenants or take a board certification class. The relevant Florida Statute provides that “within 90 days after being elected or appointed to the board of an association of a residential condominium, each newly elected or appointed director shall certify in writing to the secretary of the association that he or she has read the association’s declaration of condominium, articles of incorporation, bylaws, and current written policies; that he or she will work to uphold such documents and policies to the best of his or her ability; and that he or she will faithfully discharge his or her fiduciary responsibility to the association’s members. In lieu of this written certification, within 90 days after being elected or appointed to the board, the newly elected or appointed director may submit a certificate of having satisfactorily completed the educational curriculum administered by a division-approved condominium education provider within 1 year before or 90 days after the date of election or appointment.”

These classes are routinely taught by attorneys, including our own attorneys in this firm on digital platforms and in-person classes, and most attendees find them useful and educational. As my partner Steve Adamczyk proclaims, the jokes aren’t bad either.

As we proceed through educating in a COVID-19 environment, I should also note that there is an upcoming in-person trade show that you may enjoy. The Community Associations Institute’s South Gulf Coast Trade Expo will take place April 9 at the Lee Civic Center from 9:00 a.m. to 1:00 p.m. and can provide opportunities for you to learn and meet industry leaders.

Ultimately, your fiduciary duty as a director is the same whether you have been on the board for one day or one year, and thus I recommend that you take advantage of any educational programs to learn about your responsibilities. On the local level, you may consider scheduling a one-on-one with your property manager or president (assuming this does not constitute a quorum of the board) to learn some of the specific history of your community. Good luck!

 

Q: One of our board members also owns a home watch business and provides home watch services to many of the units in our building. Is this a conflict of interest?

P.L., Marco Island

A: Most likely no, there is no conflict of interest, but there could certainly be specific situations where a conflict may arise. In many communities, there is a local resident who also runs a home watch business and privately contracts with unit owners to periodically check the unit, run the appliances, change HVAC filters and other routine services. This person is also often a board member and there is nothing wrong with this provided the home watch contract is between the private unit owner and the director in his or her individual or corporate capacity. This would be a conflict if the association was voting to hire the director’s business on a bulk basis to watch all the units and the common elements because the director has a financial interest in the proposed contract. Here, the association is not a party to the home watch contract. We have seen this become a problem when there is water damage and there are allegations that the home watch person caused the damage or could have mitigated the damage. If this person was also a director, and assuming the association incurred damage to the drywall or common elements, you can see how this specific set of circumstances (although rare) could create a potential conflict. It would not, however, jeopardize the director’s eligibility.