All too often, condominium, townhome, and/or homeowner associations enter into contracts that are no more than a one- or two-page proposal. The deficiencies in these contracts often only come to light when there is a problem.
Accordingly, it’s critical that association board members:
- Proactively address basic issued involved in vendor contracts, and
- Work with legal counsel to review any agreements prior to execution.
Before negotiating a contract, the Association should first confirm that the contractor is duly licensed and authorized to do business. Association should also confirm that the contractor is a corporation in good standing with the state of incorporation.
During contract review, Associations should ensure that all of the essentials of a written contract are present. These include, but are not limited to:
- Named Parties. The Association and the contractor should be named as the parties in the contract, even if the Association has a property manager.
- Description of the work. The scope of the work should be outlined in appropriate detail, including where the work is to be performed. Meticulous detail is encouraged in describing the work to ensure the contractor executes the Association’s wishes precisely.
- Timeline. The start date and duration (or completion date) of the work should be specifically defined.
- Code Compliance. The contractor should perform the work in strict accordance with all applicable codes and regulations of the municipality and State of Illinois. If the Association is a pre-1978 property, Contractor must also comply with specific EPA Renovation Repair, and Painting Rules addressing asbestos and lead.
- Building Permits. The contract should describe which party is responsible for obtaining and paying for any necessary building permits.
- Payment Terms. The contract should describe the down payment, progress payments, and the final payment.
- Lien Waivers. The contractor must furnish a sworn statement, as well as waivers of its mechanic’s lien, lien waivers for subcontractors and material men, for that portion of the work for which application for payment is being made. Furthermore, waivers must be exchanged at the same time as payment. Lien waivers provided in anticipation of payment, or conditional lien waivers, are not acceptable.
- Insurance. The contractor (and subcontractors) must deliver documentation demonstrating sufficient insurance coverage at least ten (10) days prior to commencing work under the contract.
- Warranty. The contractor should describe: the details of the warranty of workmanship, the contractor/manufacturer warranty on materials, start of the warranty, length of the warranty, and the delivery of the manufacturers’ warranties to the Association.
- Indemnification. The contract should outline the indemnification of the contractor from the association and/or management as well as the association’s indemnification of the contractor.
- Amendments. The contract should describe how it can be amended, preferably in writing executed by both parties.
- Termination. A termination provision should be included that provides for termination with cause after notice and opportunity to cure, or termination without cause.
- Recovery of Attorney Fees. The contract must provide for the recovery of attorney’s fees by the prevailing party if either party institutes legal action against the other under the contract.
- Governing Law. Especially in the case where contractors are incorporated in a different state from the Association, the contract should describe which state’s jurisdiction would prevail in a dispute.
Finally, watch out for predatory, or weasel, clauses. Associations who fail to review contracts can fall prey to automatic renewal clauses, hidden charges, and unfair dispute clauses.
An experienced attorney can ensure that an association is entering a sound contract where all the above essentials are addressed thoroughly prior to execution.
If your condominium, townhome, or homeowner association is considering hiring a vendor to perform work, do not hesitate to contact our law firm. Since 1985, KSN has been a legal resource for community associations throughout the Chicagoland area. We have multiple offices including downtown Chicago, Mundelein, and Naperville. Call 855-537-0500 or visit www.ksnlaw.com to get started.
This article is made available by the lawyer or law firm publisher for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By reading this article you understand that there is no attorney client relationship between you and the article author. This article should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. © 2019 Kovitz Shifrin Nesbit, A Professional Corporation.