March 2011 – February snowstorms revealed the best and worst when it came to associations’ contracts with vendors in Chicago. The worst case? One snow-removal company already under contract with an association suddenly demanded $1,200 to remove snow, though it normally charged about $100.
That raises a question: When one of your vendors suddenly makes demands not included in your contract, what are your remedies? What if your landscaper, under contract, suddenly demands you pay double? Can you terminate the contract immediately? Are there times when you have to renegotiate? Here, we provide answers.
Start With a Stern Letter
Your first step should be to notify the vendor that you consider it in breach of your contract. “If your management company has already sent a letter trying to resolve the dispute, you should refer the matter to your attorney,” says Ben Solomon, an attorney and founder of the Association Law Group in Miami Beach, Fla., who advises more than 500 associations and also represents developers through his second law firm, Solomon & Furshman LLP. “Your attorney can send a letter letting the vendor know he’s in breach and demanding he come into compliance. You have to let the vendor know he’s in breach.”
Solomon did just that with a lighting contractor that was supposed to install holiday decorations for a Florida association by Thanksgiving. “He’d installed the majority of the holiday lights, and that was satisfactory for the association,” explains Solomon. “But he wanted to get paid in full, and he wouldn’t remove the lights until he got paid. The contractor wrote some nasty letters to the association, but as soon as we got involved with rebuttal letters, he quickly came in and got his lights. This was a prime example of how this vendor was bullying our client. As soon as we stepped in and let him know he was in breach—not the association—he stepped up.”
However, there may not always be time for letters. “I’ve seen times where an association was stuck between a rock and a hard place, and it has to serve its residents and neighborhood,” says Jenny Key, the Austin, Texas-based vice president of RealManage, an association management firm that oversees properties in Arizona, California, Colorado, Florida, Louisiana, Nevada, and Texas. “If there’s an emergency situation where you’ve got to get snow removed or the roof back on, you’re sometimes left with no options.”
If you’re forced to go with a price hike after an emergency, you can try to sue to recover the additional costs. “If you have a contract with a vendor and it refuses to perform unless you pay more, that’s a breach, and you can sue the vendor,” explains Jed L. Frankel, a partner at Eisinger, Brown, Lewis, Frankel & Chaiet PA in Hollywood, Fla., who advises community associations. “You treat that contract as discharged because the vendor breached. Then if you have to get a different vendor for more money, your damages would be the difference between the contract price and the price you eventually paid for the same services.”
However, a lawsuit may not be worth your money and grief. “Sometimes when boards feel they’ve been treated unfairly, they want their pound of flesh,” says Key. “But look at the cost. Unless you can prove your case, you’re going to spend a lot of association dollars on something you may not win. And it’s important to separate whether there was there a legal misdeed or whether you’re just mad. Just because a contractor did something unethical doesn’t mean it broke the law.”
Solomon agrees a lawsuit may not always be smart. “Deciding whether to sue is very case-specific,” he says. “There are some issues that won’t make good business sense or be cost-effective to fight, and those are a hard pill for associations to swallow. You may have a good legal claim, but even then there’s no guarantee you’ll win. And if it’s going to be time-consuming or expensive, you may want to take your lumps and move on.”
Other Ways Around Vendor Disputes
Even if you decide not to sue, the vendor may sue you after such a dispute. Then it’s time to get your insurance company involved.
“If your association gets sued, your first thought—at least here in Florida—is that you have to let your insurance carrier know,” says Solomon. “Most associations have insurance, and it could be breach of your policy not to notify the insurer of a lawsuit. In addition, under a lot of insurance policies, the insurer will provide a no-cost legal defense. So if you get sued by a vendor, let your insurer know to see what it’s going to do about it.
“I can’t tell you how many times I’ve met with clients who’ve brought a lawsuit to me from another law firm that was representing them, and I’ve asked, ‘Did you provide this to your insurance carrier?'” explains Solomon. “The client will say, ‘My attorney didn’t mention that,’ but the association has already paid $50,000 in legal fees. Contacting your insurer is a very efficient way to deal with vendor disputes.”
And don’t forget to implement measures to prevent future problems. “The first thing that’s really critical is to have contracts reviewed by competent counsel,” says Frankel. “A number of vendors don’t care about servicing. All they want to do is sign an association to ‘gotcha’ contracts. Those are the one-sided contracts that say things like, ‘You have to cancel in writing 180 days before the contract expires.’ Once you’re stuck in a contract like that, it’s tough to get out even if the vendor says it’s going to raise your rate.'”
Finally, be sure to carefully choose all vendors. “Generally, good managers are going to use contractors they trust, have worked with in the past, and have vetted,” says Key. “However, sometimes board members want to use a particular vendor, and they don’t vet it. They’re looking at how quickly the vendor can get the job done and the price. But if it’s a cheaper contract than other contractors bid, you’re probably going to have more problems. If a written agreement is in place and the manager and board have done a good job of reading the fine print, there should be no surprises. If there’s nothing that says the vendor can charge additional fees, it can’t. But what vendors can legally do and what they do is sometimes different.”
Matt Humphrey is president of the Alameda, California-based HOAleader.com, from which this article was adapted.