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Condos and HOAs should have active contract review committees
by: Rob Samouce
Most condominium and homeowners’ association board of directors are made up of good people with good intentions. However, because of their good nature, many times their association can get taken advantage of by contractors with bad provisions in the small print contained in the “contractor’s contracts” that no one ever reads.

Under the applicable laws in Florida, bad terms contained in a contract are usually enforceable. The fact that association representatives may have never read the contractor’s contract is hardly ever a defense to prevent the contractor from enforcing bad terms in a contract. Unless a party to a bad contract signed under duress (a gun held to his head) or incapacitation (drugged), the bad contract terms will usually be enforceable.

So, to prevent an association from being stuck with bad contract terms, it is a good idea for the board to appoint one, two or three people to a contract committee (who can be board members as long as not a quorum of the board) to read and review all association contracts before the president signs the contracts. Even better is to have competent association legal counsel review the final draft the committee has okayed before signing to make sure any legal issues the committee is not aware of are also addressed.

Also, a board of directors should never let anyone sign an association contract of any consequential amount other than the president of the association. That includes other directors or management personnel. That is because the president has the actual authority to legally bind the association with the contractor and the other people do not.

However, these other people, who may sign a contract on behalf of the association, may have apparent authority to the contractor and thus be able to bind the association to the contract even though the other people were not granted such authority by the board.

Besides the price of the contract and services or supplies rendered under the contract, the contract committee should be focusing on the term (or length) of the contract; notices that must be provided if it appears a party breached the contract; ability of a party to cure any breaches of the contract; and requirements for the party to terminate the contract.

Also, the insurance, indemnity and hold harmless clauses, should be thoroughly reviewed to cover the unlikely event if someone gets hurt or property gets damaged during the term of the contract. Are damages limited or are liquidated damages expressed?

If an association is planning to do some remodeling or extensive maintenance or repair to a building or common elements or common areas, it is very important that any construction contract incorporate Florida’s statutory construction lien laws so that an association does not run the risk of maybe having to end up paying for the job twice.

What can happen, if the construction lien laws are not followed, is that if the association pays the contractor for the job but the contractor fails to pay a subcontract or supplies, the subcontractor or supplier can demand their full payment be made to them by the association because they did work on the real property of the association. If the contractor then skips town, the association may have to “pay twice” (already paid contractor and now has to pay the subcontractor and/or supplier who was not paid by the contractor).

The construction contract should say that no work is to commence until a notice of commencement has been posted on the property and recorded in the public records of the county. Then, when the work is complete, the contract should say that final payments will not be made to contractor until necessary releases are obtained from all subcontractors and suppliers and the association has been provided with a contractors’ affidavit, wherein the contractor is swearing that all subs and suppliers have been paid.

Following the statutory construction lien laws is well worth the peace of mind that can be obtained from not worrying about whether the association may be exposed to, or actually having to, pay twice.

Besides construction contracts, make it a habit for the committee to read and review all association’s existing long-term contracts (such as bulk cable, management and landscaping) to be prepared not to miss required notice dates for termination or non-renewal, and review in detail any new proposed replacement contracts to prevent any “bad clauses to the association” from remaining prior to the president’s binding signature.
Rob Samouce, a principal attorney in the Naples law firm of Samouce, Murrell, & Gal, P.A., concentrates his practice in the areas of community associations including condominium, cooperative and homeowners' associations, real estate transactions, closings and related mortgage law, general business law, estate planning, construction defect litigation and general civil litigation. This column is not based on specific legal advice to anyone and is based on principles subject to change from time to time. Those persons interested in specific legal advice on topics discussed in this column should consult competent legal counsel.