Take It To The Board with Donna DiMaggio Berger
Take It To The Board with Donna DiMaggio Berger
Why Every Contract Needs to Be Reviewed with Becker’s James Robert Caves
"Most people don't read the fine print until it's too late." This warning from Take It To The Board host, Donna DiMaggio-Berger sets the stage for a crucial conversation with guest and Becker shareholder James Robert Caves about common contract mistakes threatening community associations across Florida.
Drawing on decades of experience drafting, negotiating, and untangling problematic contracts, Donna and Rob reveal why the distinction between proposals and contracts matters, and how seemingly innocent "boilerplate" language can become a community's worst nightmare. The discussion exposes how vendors strategically include provisions that protect their interests while limiting their liability – often capping damages at the contract amount regardless of the severity of potential future harm.
Among the most dangerous contract provisions are those related to termination rights. Rob strongly advises against agreements that automatically renew and can only be terminated for cause, creating what he calls an "endless loop" where associations remain trapped in unsatisfactory and even dangerous relationships.
Their conversation tackles particularly problematic contract types – telecommunications agreements with decade-long terms, elevator maintenance contracts with right of first refusal clauses, and the emerging trend of non-competition provisions appearing in landscaping and pool maintenance agreements. Through real-world examples, including a $2,500 maintenance contract that resulted in $100,000 damage, Donna and Rob demonstrate why contract review priorities should be based on risk assessment rather than contract value.
Providing practical negotiation strategies while identifying must-have provisions you need inserted into your contracts, this episode delivers essential knowledge for board members and managers who want to protect their communities from costly contractual disasters.
Conversation Highlights:
- How boards can ensure the proper legal entity is signing a contract—and why that’s critical
- The difference between apparent authority and actual authority when directors or managers sign agreements
- Key clauses every vendor or service contract should include
- Termination clause traps and what to watch for
- Common red flags that pop up in community association contracts
- The enforceability of non-compete and non-solicitation clauses in vendor agreements
- What makes a contract “illusory” and how to avoid them
- A practical rule of thumb for deciding which contracts require attorney review—beyond just the dollar amount
Related Links:
- Article: Association Contracts
- Online Class: Condo/Co-op Board Certification Class
- Podcast: Mastering Construction Contracts: Essential Insights with Steve Lesser
Hi everyone, I'm attorney Donna DiMaggio-Berger, and this is Take it to the Board, where we speak condo and HOA. Most people don't read the fine print until it's too late, but in the world of community associations, the fine print in a contract can be the difference between a smooth partnership and a costly disaster. On this episode of Take it to the Board, I'm joined by my law partner, Rob Caves, a seasoned transactional attorney located in Fort Myers, Florida, who has spent decades drafting, negotiating and, when necessary, untangling problematic contracts for his community association clients. Today, we're going to break down the most common pitfalls, the must-have provisions in your contracts and negotiation strategies that every board member and manager should know about before signing on the dotted line. So, Rob, welcome to Take it to the Board.
Speaker 2:Great Thanks, Donna. Thank you for having me.
Speaker 1:So happy to have you. We have not talked about this topic in four seasons, Rob. Can you believe it?
Speaker 2:Wow, I figured this was, you know, your third or fourth episode on contracts.
Speaker 1:No, it's the first, and so we're really going to spend a little time breaking things down. Why don't we start with some of the verbiage? You know, we hear a lot of terms that are thrown about, and one that gets tossed about a lot with clients and managers and vendors is proposals versus agreements versus contracts. Vendors is proposals versus agreements versus contracts. Is there any distinct difference, rob, between a proposal that a vendor gives you versus a contract or agreement?
Speaker 2:Oftentimes, yes, a lot of times, vendors will have a proposal which is really more of a marketing document. Nothing wrong with that, but it oftentimes doesn't contain all of the necessary material terms to be an enforceable agreement. So you know, you may get proposals from a number of different vendors for, you know, whatever service the association is out there looking to acquire, ultimately those proposals or those estimates, or whatever those marketing documents are called, will have to be reduced to a contract, to an agreement, for example, to the contract. But the proposal itself oftentimes isn't a binding agreement, it's really more of a. You know, it may contain business terms and it may contain scope of what's being proposed, but it's not going to be the document that is ultimately signed and enforceable, you know, between the parties.
Speaker 1:It sets out the full understanding of what you're both sides are agreeing to. I think it's an important distinction. I've had clients say we've signed the proposal. Of course I'm going to talk about that today, about clients who call us after they sign the contract.
Speaker 2:Exactly yes, one of my favorites.
Speaker 1:Not the best idea. Let's talk about the parties. So I would think the starting point, rob, is due diligence that the vendor or the party, that the association that your client is looking to do business with, that they've done some due diligence on that party and that the name in the contract believe it or not, sometimes does not reveal an active corporation, an active business entity. Can you talk a little bit about due diligence in terms of who you're doing business with?
Speaker 2:Sure. So you know, we assume you're kind of to the point where you've interviewed a variety of different vendors, you've picked one, you've, you know, hammered out or started to hammer out the business terms and now you've got something in the form of an agreement or contract to look at. It's got names. At the top right it's got the condominium's name We'll come back to that and it's got the vendor's name and you have to check that or you need to have your attorney check that with the Florida Secretary of State's records. The Florida Secretary of State has a website called sunbizcom. It's very, you know, user-friendly when it's up and working and you can plug in a variety of different pieces of information to get information on a company, a corporation, an LLC. You know, whatever they are, their information, their name, and you want to make sure that the name on the contract is the name of the legal entity that's going to be bound by it.
Speaker 2:Sometimes you are working with entities that are using fictitious names, which is fine. There's nothing wrong with that. It's just the contract has to show that that the fictitious name or the doing business as name is owned by the real legal entity. Sometimes people forget to file all their paperwork with the state on an annual basis and you'll be contracting with a corporation that's dissolved because they didn't file their annual report. That may be a completely innocuous issue and a clerical oversight, or it could be evidence of something more serious. So you kind of want to, you know, run those issues down. So you want to make sure that the name of the company you're going to work with is properly reflected on that agreement and that they are an active corporation. Typically they're going to be a Florida corporation. They could be registered out of state and that can be verified as well. The other part of that I want to just touch on is a lot of times the vendor will fill in the name of the association as well.
Speaker 2:I know where you're going with this as a courtesy right, they're helping you out and they get it wrong because a lot of association names are very similar to other condominium communities, so you want to make sure that your name as the association is properly referenced in the agreement.
Speaker 1:I've seen that happen, rob, so let's talk about it. Let's say there's a mistake on the contract. Either the vendor is dissolved and the association did not catch it they did not ask you to review this contract ahead of time and they've signed on the dotted line, so they're doing business with. Either you know the contract's in the name of a fictitious name or it's in the name of a corporation that's no longer current, or, conversely, the association's name. They didn't catch it and it's not their name. What's the fallout from that? Let's say they get into a dispute. How important is that mistake?
Speaker 2:Well, it may or may not be very important. You know, if they've got the, for example, if they've got the association's name wrong, but the contract has been performed or partially performed and has been rat wrong because we're, you know, del Boca, that a dissolved corporation cannot maintain an action. So that could be very significant, although that's a depending on the reason, for the dissolution can be fixed by filing the paperwork and paying the fee to get reinstated. So that may or may not be, you know, a significant issue. But I think you want to take steps to just avoid all of that by doing your due diligence on the front end, making sure that the names are right, that you know who you're contracting with, that these aren't going to be issues that raise their head in the future, either by causing a problem or you find out about it because there is some other problem.
Speaker 1:You do realize that we've been talking for five minutes and we're still on the first paragraph of a contract, so this is one for people listening, so important to know that there is a lot to go through in these contracts. You did mention Del Boca Vista. That's just a name. I think that's the name from Seinfeld, isn't?
Speaker 2:it. That's the Seinfeld condo, right? I always feel like that's a safe one to use as an example Because it's a public domain. Exactly, if we say any other condo name like someone's, like, well, that's my condo.
Speaker 1:Why any other condo name like someone's like? Well, that's my condo. Why are you picking on me? Well, let's talk about Jerry's father at Del Boca Vista signing that contract, but he didn't bring it to anybody else's attention on the board. Can you talk a little bit about the authority that directors have to enter into contracts?
Speaker 2:Sure. So this is an issue that comes up quite often. We dealt with this a lot, frankly, after Hurricane Ian on the West Coast, where we had a lot of damage and people signing contracts kind of quickly and without the normal protocol. So there's a concept in contract law called apparent authority and a director, particularly an officer, so the president, the treasurer they have the apparent authority to bind the corporation, the association, to third parties. So a contractor who is getting a contract signed by the association president can rely on that president's apparent authority to sign that contract in their capacity as a president. That vendor is not obligated to ask for the minutes of the meeting where the board approved this contract right. So when the president signs that contract the vendor can rely on that unless they have actual knowledge that he doesn't have that authority. So that gets into a whole different set of issues.
Speaker 1:So Rob, just how dangerous is boilerplate language in a contract?
Speaker 2:Well, they wrote it and put it in there for a reason. So you know you hear clients say this is all boilerplate, or they say that as if it is not important. Someone took the time to write those provisions and put them in the agreement, so they're going to mean something and have some level of importance. I think it's important when associations are negotiating these agreements. Whenever I get them, what I always tell my clients is look, the business terms are the things you cared about when you were, you know, getting this proposal or agreement from a vendor.
Speaker 2:You know those legal provisions, those boilerplate provisions are what we really care about, as you know, your attorneys, because those boilerplate provisions usually involve things like term termination, evergreen provisions, insurance requirements, indemnification, and they can include, depending on the form of the agreement, very onerous language that's detrimental to the association. So whenever, particularly, the other party is telling you, oh, don't worry about it, this is just boilerplate, you know they should set off alarm bells because they're trying to get you to just not read, understand and push back on certain provisions. And I find one of the values of having counsel— review agreements is it's identifying the issues in the agreement. Sometimes you can't get that language changed. You know it's a red line for the vendor and that may or may not be a deal breaker for the association. But now the association knows.
Speaker 1:Are there certain vendors that they really will not change their boilerplate?
Speaker 2:Yeah, there are some. I do a lot of telecommunications agreements and there are some out in that market won't name names in this setting that their agreements are almost you know, take it or leave it. We're going to talk about those types of contracts later. But and I still think there's value in reviewing that type of agreement with counsel, because you kind of know where the landmines are. But some vendors they are, or sometimes there's provisions in their agreement that they will not agree to touch. A lot of times the indemnification language vendors won't agree to make changes there. Or like the force majeure language, limitations on liability or kind of the high points where they just say that's what our lawyers recommended, we won't negotiate off of it. And again, very rarely do I come across a provision that I tell a client you know it's against my advice to sign a contract with that language.
Speaker 1:It happens and one option at that point is you know there's a lot of competition, so there's often another vendor out there that will be a little more flexible with what you see as a deal breaker.
Speaker 2:Like, for example, one of the provisions for me is a contract that the association cannot terminate without cause on reasonable notice. You know agreements that are evergreen, that renew automatically and can only be terminated for cause, and I have a strong opinion that that is just unacceptable. Now sometimes, depending on the nature of the agreement, particularly like management company agreements we may negotiate like a window of time when they first start Like we won't terminate for six months but after that we can terminate on 30 days notice. You know that's a business decision. That's not unreasonable. But provisions that say you can't get out unless there's a breach forever or practically forever, because you have to terminate under some specific window, those are really problematic. I say that there are some agreements where that's just the facts of life, like telecommunication agreements where they've installed, you know, $5 million worth of wiring in your community. You know you're not going to get out of that agreement. You know on a 30-day termination notice for 10 years or whatever.
Speaker 1:Well, that's a little different, though. That's the investment they've made. But let's say it's a landscape contract and they're saying uncured breach. You know, you get in that endless loop of you put a notice, then they've got 15 days to either cure or prevent the cure, and they do a little bit of that, but then they're in breach of something else. It's an endless loop, I guess. And the problem is all the while the client is paying, the association is paying for bad service, in their opinion.
Speaker 2:Getting away from the technology contracts and I do a lot of those, so sometimes my brain is wired for that. But in the service contracts management, legal, although those are different, you know, counting, landscaping, whatever All of those contracts are providing services, but they're all really relationship and in my opinion you should be able to terminate any of those agreements on reasonable notice because, like the landscaping one is a perfect example. You know when you lose faith in the vendor but you can only get out through the uncured default under the. Exactly like you said, you're in that endless cycle. You never get out of it. The client gets angrier and angrier, the owners are yelling at the landscapers. It's just a bad situation.
Speaker 1:You shouldn't have to trap people into doing business.
Speaker 2:No, and it's a bad situation for the vendor. I mean, I understand why they don't, you know, want their clients to be able to just terminate them willy-nilly, but you know that's just not a good situation for anybody and good in my experience, good vendors, reputable vendors, will agree to reasonable termination provisions. I agree Again, they may want a startup window, that they don't want you to be able to fire them on 30 days notice for some window of time at the beginning and again, I don't volunteer that, but I understand why it would make sense. But after that the association should be able to exercise their rights to terminate an agreement because they're unhappy with the service. You know, the example I give is like sometimes you just don't want to see that person's face again. Right, you know the relationship's broken down.
Speaker 1:So automatic renewal, the onerous termination provisions, those are some of the red flags. What about limitation of liability? And I'll give you an example, rob, I had a contract cross my desk recently. It was for a product and you know it was a relatively small amount in terms of the association purchasing this product. But it was what the product was going to be communications for security in part and there was a limitation of liability on the contract amount. Well, we all know that some of the biggest ticket damage awards are related to premises liability, particularly if there's personal injury or wrongful death as a result of a breakdown in security protocols. And you know, I spoke to the client and said this is just not going to make you whole, not even going to be close to making you whole. I would assume you use a keen eye when looking at limitation of liability in terms of what the potential liability might be under that contract.
Speaker 2:Absolutely. You know a lot of agreements you'll see will have language that says you know the vendor's liability is capped at the value of the contract, right, right, or is, you know, has a bunch of exclusions for the types of damages that can be awarded. You know only direct damages. No, you know incidental or consequential damages and for the association it may not have a lot of direct damages because you're not a business, so you're not losing. You know lost profits or product or anything like that. So that's an important provision one, to try to negotiate better protections for the association. And two, going back to what we were talking about earlier, depending on what the vendor is willing to do, understanding the risks that are inherent to the agreement, based on those limitations, maybe, depending on the nature of the agreement, there's a conversation you need to have with your insurance professionals to see what kind of insurance coverage you could have if claims were brought due to that vendor's actions that expose the association to liability, so that there may be further protections just beyond what the contract would provide for.
Speaker 2:You know the limitation of liability section in most contracts. You'll see them. They're usually in all caps and bold because they're highlighting that they're seeking to, you know, limit their liability through the agreement. They're going to be enforceable if those provisions are in the agreement and that's another provision that some vendors may or may not have an appetite to negotiate. So I think, depending on the nature of it, you know, if it's limiting it to, you know just the value of the contract. Depending on the type of service or product you're purchasing, that may be very insufficient to protect the association. The other thing that is a reality is, depending on the nature of the damages that are incurred, that vendor may or may not have the ability to pay those damages, regardless of what the contract says. So that's always something to be aware of, particularly if you're working with a very small company or a new company. Again, not a reason to necessarily not contract with someone, but it's a reason to understand what's in your agreement.
Speaker 1:You know you could pay $7,000 for an engineering contract to have a report and then be subject to a damage award of millions of dollars if that report was somehow flawed. So you're right, there has to be some tie-in between the service you're contracting for and the potential risk associated with that service. I will tell you, despite the disclaimer and the bold language, Rob, I think most lay people gloss right over that limitation of liability language.
Speaker 2:You know it's funny. You say that. I think when you put stuff in a contract in bold and caps, it almost encourages people to skip it. It's a weird psychological effect. I think your brain just says, well, that's just not standard, it's back to boilerplate, you can't change it, you just kind of gloss over it.
Speaker 1:So I've asked you what you don't like. What do you insist on in almost every one of your contracts? I'm going to start off with saying one I do. I like a mutual, reasonable, fault-based indemnification clause Okay, and I'm going to say that again. Mutual, reasonable, fault-based indemnification clause Okay, and I'm going to say that again mutual, reasonable, fault-based.
Speaker 2:Usually we find onerous unilateral and almost ridiculous indemnification provisions. Yep, I 100% agree with that. You know, it's interesting because when you see those one-sided indemnification provisions, so the association's indemnifying the vendor for everything under the sun and, if you're lucky, maybe not for gross negligence, which makes no sense because they're the ones doing stuff right. You know, under most agreements the vendor's doing things and the associations are writing a check. Why would the association indemnify the party that's doing things?
Speaker 1:Well, that has the knowledge, Right, that has the skills, and you're absolutely right. But again, we started out saying these contracts are created by their attorneys to protect those vendors.
Speaker 2:But to your point. You know well-drafted indemnification provisions. Like in a perfect world, the association has no indemnification obligation and the vendor has to indemnify us. But that's just not realistic. So when you have that mutual provision excludes negligence, so you don't get indemnified for your own negligence, you're being indemnified when you are when a claim is brought, indemnified for your own negligence, you're being indemnified when you are when a claim is brought against you and you are not negligent. So that means you're kind of an innocent party. So that makes sense.
Speaker 2:I really push for we touched on already termination without cause on reasonable notice. I push for appropriate insurance provisions. Where we get insurance certificates we're named an additional insured. It has specific insurance limits, minimums in the agreement that they are obligated to maintain and if they don't that's a breach. You know that protects the association and gives you certainty that this party one. If you have reasonable but significant insurance policy obligations, it gives you some validity that, ok, this company we're contracting with is valuable. You know a real ongoing concern that has you know appropriately purchased insurance policies, not a guarantee of anything, but at least it gives you some additional level of comfort. The other thing I you know red flags that just really push against are evergreen provisions. You know this agreement, you know renews automatically and you see these in landscaping agreements. For some reason it's like they have initial three-year terms and they renew automatically for three-year terms and there's automatic price escalation built in. I mean it's like it's wild.
Speaker 1:You know what, rob, before you step off that topic. Some clients like these automatic renewals because they think, well, you know what, we won't have to go back and we won't have to negotiate on them. But I think there's more risk involved with them, particularly when they tie the termination and they limit your ability to terminate on the you know, 90 days before the end of the first renewal period, it gets very complicated, oh yeah.
Speaker 2:It's like an automatic renewal where you can't terminate without cause and you can only terminate it no more than 90 days but no less than 45 days before the renewal term.
Speaker 2:It's like a word problem to figure out when you have to deliver notice. So you know, an evergreen provision where you can't terminate without cause is the recipe to get locked into a bad arrangement. If there's automatic renewal but you can terminate at any time on reasonable notice, I have less concern because you can still get out of it even if it renews. Although I do have practical concerns with automatic renewal because I think it allows boards to kind of fall asleep at the switch and the contract automatically renews and the price automatically goes up and you're not going back out to the marketplace to see if there's better options out there. Now maybe you know you put it out to bid and you still go with the same vendor, but you, you know, negotiate better pricing or better service or whatever. The same vendor, but you negotiate better pricing or better service or whatever. So I think it encourages laziness on both parties' part, but particularly on the vendor's part. If you're not pushing them to get the most out of your agreement, there could be some inefficiencies there.
Speaker 1:Let's talk about lengthy terms because you do review a lot of telecom and tech contracts. Now I realize they have to make their money back if they're investing and they're laying cable and fiber and all the rest of it. But 10 years, 15 years on some of these contracts, what do you think?
Speaker 2:They give me pause, to be blunt, particularly telecommunication agreements that are bulk agreements, where the association is purchasing both bulk video and internet. The question on whether or not bulk video as an ongoing desirable product for most associations, I think is an open question. It's an open question today and I think it gets more and more questionable as we look to the future. Now I will say this With a lot of the providers I work with or our associations work with and I review their agreements, they are putting in technology reviews at certain points, you know, three years into the agreement, five years into the agreement, or annually after three years, to where the association can drop the video for a preset percentage discount on the price, thinking that, you know, maybe the bulk video, the cable model, is not really desirable at that point in time. I will speak, for example, in the community I live in we just went with a bulk provider but only bulk Internet. They did not purchase bulk video, even though the provider we went with sells bulk video. If family, home, community, varying age groups, people are relatively tech savvy, so they could say well, I went with YouTube TV or I, you know, bought the video from the provider, or I kept Comcast or whatever, versus, you know, maybe condo buildings, more seasonal residents, maybe rentals. They say, well, we want the bulk video package because that's what the people who occupy our units expect or it's convenient. So it's a varying situation.
Speaker 2:Bulk video, though, I think, does have an expiration date on it. I just don't know if we know if it's in the next three years, five years, 10 years. But back to your original point Three years, five years, 10 years. But back to your original point. Those long agreements you know are significant because the association is, you know, buying into that for that period of time. The problem, though, particularly with a new provider installing their network, you know they're not going to price it competitively without that. You know period of time to make their money back it competitively. Without that you know period of time to make their money back. That being said, I see a lot of providers who are not putting in new systems still wanting 10-year agreements, and that may be an opportunity to push back and say well, you know, we've already gone through the build-out, you've already gone through the initial buyback period for your system. Why do you need a second 10-year deal? So sometimes those second deals, for example, you may be able to get a shorter period of time.
Speaker 1:So let me give you an example of another type of contract that typically has lengthy term, and that's these elevator maintenance contracts. Has lengthy term and that's these elevator maintenance contracts which often I should say almost always contain a right of first refusal. So the elevator company gets in, they are maintaining the elevators, but they tuck in that little clause that if you're going to modernize the elevators where there is also a lot of money to be made because they're overhauling it, both the functionality and the aesthetics they get to exercise your right of first refusal. Do you try to yank those right of first refusals out?
Speaker 2:Always in every type of contract, you know, because that's not what we're, you know, negotiating for right. It's for this service today, not some future service. And those right of first refusals I'm seeing them in more and more types of agreements, including telecom agreements, but elevator contracts are maybe not to make a bunch of industries angry. The only contracts I can think of that are worse than elevator contracts are laundry contracts, for some reason. Yeah, they're a whole different animal unto themselves. So elevator contracts are really very onerous.
Speaker 2:I find that very hard to negotiate changes to. And that modernization issue raises issues because, depending on what your service agreement says, you may not be contracting for the modernization, but if the modernization overlaps with the service agreement, you may have a problem with them servicing in an elevator they didn't modernize right. So I think you have a bunch of issues there to be very careful with. And I'll say this I have partners in a Fort Myers office on the West Coast that handle elevator issues as part of their construction practice. So whenever I get an elevator contract I give it to someone else.
Speaker 1:Well, I mean. This is also, though, where I think the transitions on boards, Rob, plays a factor, because this board today may only be looking at that contract, with their current need, which is we need to maintain these elevators, and they're not thinking that they're locking the association into a right of first refusal for a modernization project that's seven or eight years down the road, and so this is why it is important once again hope we're driving home this point that there be not only discussion with your lawyer about all of these terms, but also amongst yourselves about what's on the horizon for the association.
Speaker 2:No, absolutely. I think this raises issues of internal governance, questions of good governance, of good record-keeping, of understanding what all contracts you're a party to at this association, what are the expiration dates on those contracts or the renewal dates or termination options? And you know, for a big condominium building or a master plan community, you could have dozens of contracts of varying sorts and keeping up with those you know is a significant undertaking that you know I think associations really need to think about. How are you both maintaining those agreements but monitoring them?
Speaker 1:You know you're right, rob, that we're seeing provisions in certain types of contracts that we never saw before, like that right of first refusal. Okay, never saw that in a telecom contract usually, but now it's in there. You know what else I'm seeing these non-solicitation, non-competes in, like a landscaping contract or a pool contract. Have they all gotten together and just started working off of a boilerplate? Talk to me a little bit about those type of provisions regarding non-solicitation. Certainly, for management companies, this is where these provisions first started and it does make sense in the management context. But for these other vendors I'm a little confused.
Speaker 2:Yeah, I am too, and you know there was pushback at the federal level. There was a rule adopted by the FTC, I believe in 2023, outlawing non-compete agreements and employment contracts. Doesn't really go to what we're talking about, but it ties together. That rule, while it is on the books it was adopted and finalized is on hold pending litigation in the federal court, so it doesn't apply today or is not effective today. You know, I think it's just another protectionist act by vendors, protectionist act by vendors.
Speaker 2:You know I was actually reviewing an agreement for golf course management agreement that includes, you know, the superintendent and the groundskeeper and all of that and they had a similar provision and there's a limited number of people that do that, and those people changed companies and there was a question on could they hire this new company or not? They worked around it. But when you're talking about a pool technician or a landscaper, it doesn't make much sense that those people's skills are, while they're skilled, they're not the type of skills we need to protect companies from those people moving from one company to another. So I would push, you know those are the types of provisions you would work on pushing back, on trying to remove or limit if possible, and if not, it's something that you just need to be aware of and put on your radar. The issue, though, is how do they get enforced, because you may not know who your landscaper employs.
Speaker 1:Well, it's funny you say that because I typically say if I can't get it out, I insert the word knowingly. Because, just to your point, how do they know if your new company has employed somebody from the old company?
Speaker 2:You know those are also the types of provisions you only see enforced. Often let me say see enforced when there's some company has broken up, there's bad blood, someone's mad at somebody and they're looking to you know, draw a little blood, yeah, exactly. So you want to get out of that as best you can Now with the management company agreement to your point. You know I always try to take everything I try out, but that's not an unreasonable provision.
Speaker 2:You know the management industry is a relationship business. It is a, you know, labor-intensive business and you know hiring, training, licensing managers is a significant undertaking. I understand that. A significant undertaking, I understand that. So the idea that you don't want your if you're a management company, you don't want your association client terminate your agreement, then hire your manager in-house, because that is a bad business model I mean again, I don't represent management companies but I understand the issue. So what you see oftentimes in those provisions is that you can't do that. But if you do, we're going to agree up front on what the buyout is On what it's going to cost.
Speaker 1:But you know it is important to distinguish management agreements from these other type of agreements we're talking about, because the management company, the manager you've employed, they're your agent, so that's an agency relationship. I understand the need to indemnify your agent, think about that. But these other affiliated companies, even if they're a management company, affiliated pool or landscaping or they're third-party vendors, that's different.
Speaker 2:As you said before.
Speaker 1:They've got the knowledge, they've got the skills. They're performing the service and you're relying upon them. They're not taking direction from you, the way your management company is as your agent. I did want to circle back because I made a little note about the indemnification. More and more people are getting a little clever in putting in the vendor and, let's even say, the management company. They'll indemnify you if they are a judge solely liable for X, y or Z. That's a really high standard. A judge means you've gone to court, a judge has decided on it, or a jury Solely means solely so. In a premises liability context, you could potentially have a vendor or management company found responsible for 99% of the issue. That's not 100%.
Speaker 2:Yeah, I have seen them in, not on the West Coast. They have not made their way into the management company contracts. I've been reviewing that I recall, but I have seen that solely a judge language and other agreements and have sought to push back on it. The problem there too, not just with the 100 percent, you know 99 and 1 percent liability is very few cases go to judgment. Most cases, vast majority of cases, settle at some point in the proceedings and that raises issues unless the parties come to an agreement on, you know whether or not that indemnification provision is or isn't triggered, you know. But with management company agreements you know kind of to identify and illustrate the differences. You know often we will discuss in management company agreements about the manager, particularly for onsite management, that the manager is, you know, insured by our policies as well, that they're a named insured, that they're on our fidelity bond in addition to whatever policies they carry, so that there is insurance coverage on both sides. That hopefully resolves a lot of those types of issues.
Speaker 1:What type of contracts do you insist on including an incidental or consequential damage clause?
Speaker 2:Well, anytime that a vendor is going to do work or construction work on the property, you want to ensure that it's clear that they're going to be liable for damage that they cause, not just directly but also, if there's, you know, indirect damage due to you know they break something and then that cascades and causes other problems. You know you want to ensure that that is addressed. Now a lot of agreements are going to seek to limit consequential damages and just say that we're only responsible for direct damages. Limit consequential damages and just say that we're only responsible for direct damages, and that's going to really become a business decision for the board, depending on the nature of the agreement. So it varies. It really, in my mind, depends on what is the vendor doing. You know what type of work are they doing on the property.
Speaker 2:The problem is the more likely that there are to be significant consequential damages everyone knows that at the outset so the more likely the vendor is going to have bad language in their agreement on that issue, right. So it's kind of a tension and it goes back to, you know, one of those issues of trying to negotiate up front and if you can't make changes, understanding you know what the limitations of the agreement are, you know, going back to, you know your example about security contracts. You know having high risk, because that's where some of these big judgments come from when there's a breakdown in access control or whatever. When there's a breakdown in access control or whatever, those are also some of the security agreements with some of the worst damages language, because they know that their conduct can lead to, you know, extraordinary consequential damages depending on what happens. So there's another area where there's a tension between the parties because the association is going to want an aggressive consequential damages provision in an agreement they know creates risk, whereas the vendor also knows that and wants the exact opposite.
Speaker 1:It's so important to frame this discussion about contracts in terms of what is the party doing with whom you're contracting. I'll give you an example. I had a client years ago, rob, and they were just. It was a homeowner's association, small homeowner's association. They had paid a company to come out and do clean their French drains in their roads, and it was a small contract. I remember the president telling me she said listen, donna, it was only a $2,500 contract. We didn't think we should have sent it to you, but instead the company used the wrong method. I don't know if they were supposed to use a dry method or a wet method, but they used the reverse of what they were supposed to do. Long story short, it ultimately resulted in about $100,000 in damage.
Speaker 2:Oh, wow.
Speaker 1:So the question is when clients say to you, rob, look, we're a small community, you've got small communities like I do as well. Do we really have to send you every contract, rob? I mean, what if it's only you know, a $2,500 contract to buy patio furniture? That's a little different than a service agreement. But what do you say to clients who are trying to figure out from you how to budget for contract review?
Speaker 2:Right. No, I think that's a great point. It really boils down to not just the value of the agreement but what are they doing? And I think any time a vendor is coming on site and doing work to the physical plant of the condominium, the association or homeowner association I always have condominium brain. But you really have to take a step back and say we really need to review our exposure because they're going to be on site doing something, as opposed to your example. You know they're delivering, you know you're buying furniture.
Speaker 2:I mean, that's kind of a discrete, self-contained issue. You know is a material question in whether or not you want to engage counsel to review a contract and revise a contract because you know you don't want to spend more on legal fees than you do on the substance of the agreement. I get that there's practicality to it, but I think you do. Associations should upfront understand that contract well enough and what they're asking that vendor to do to gauge their risk, at least in a very general manner, so they can then say this is something we need to consult counsel with. But it's kind of one of those things hindsight's always 20-20. If you have a problem, you kind of wish you had had it reviewed. But I think issues like how much is the contract? Is someone coming onto your property to do work to something? Is the thing they're working on something that can damage something else?
Speaker 2:I have clients that have sprinklers in their units. One of the sprinklers is located in the closet where the air handler is and anytime a air conditioning company has to replace an air handle they have to turn the water off to the sprinkler system Because if you use a, I guess they have to weld something. They do the welding in there. Without doing that it sets the sprinkler off and it floods the building. So you know, replacing an air handler costs $2,700. Repairing the flood from the air handler when they set the sprinkler off, you know, the last time they did it was $300,000. So you know that $2,700 contract needs to be reviewed. You know, versus the guy replacing the sprinkler heads, you know, on your irrigation system, you know, maybe not.
Speaker 2:So I think some of this the association needs to kind of internalize what is this work and what are the worst case scenario and then kind of make a decision. Also, you know I've had community homeowner association communities in particular where we've worked with them on kind of form addendums to certain types of agreements. So maybe they don't have to come to this every time. But if it's a relatively small agreement, a lot of landscaping type stuff, where they just try to add this addendum to the agreement that has a couple of material terms, they find it important. You know, one size doesn't necessarily always fit all, but it gives them some level of comfort.
Speaker 2:I think if the agreement is discreet a one-off, set price, set scope, you know, maybe it doesn't require significant legal intervention versus agreements that are ongoing, that are going to renew over time. You know that's a whole different animal. So I think that's another question. The association, you know, really should ask itself what is the time investment of this agreement. Is it the guys coming out on Saturday to pressure wash the driveways, or is this something that's going to go on for a year or more?
Speaker 1:Before we wrap up, let's talk about the very worst contracts, because we've been talking about pretty standard contracts. I mean, boilerplate is to be expected, but let's talk about contracts that may be illusory and also a contract of adhesion, and I'm going to give an example for our listeners. You know if you've ever clicked I agree on, like the Facebook update, or you know any of your social media.
Speaker 2:Apple's terms and conditions.
Speaker 1:Apple's terms and conditions no edits, no negotiation, just blind trust and fingers crossed. Right, I think you've just signed an adhesion contract, but can you just spend a minute or two, rob, talking about divorce?
Speaker 2:contracts. So an illusory contract kind of going back to the very beginning of the discussion, we're talking about proposals versus agreements and contracts An illusory contract is a contract that's unenforceable because it is so vague or nonspecific as to the material terms that you know it can't be enforced. So a contract that has no price or a contract that has no term, things like that, if you know you're not able to determine from the face of the agreement, you know what you're buying, for what price, over what period of time, you know something like that. So we often see that where there's no scope of work, no pricing, you know things like that. So that's going to be a loser. There's no enforceable agreement.
Speaker 2:So again, I think it goes back to you know, work out the business terms of your contracts with the vendor and then work with your legal counsel to finalize the agreement, whether it's negotiating off of the vendor's form or having your attorney drafted or whatever, and you'll avoid those illusory problems. Now contracts of adhesions are a whole different animal. You know there. You know that concept. You know the black letter law definition is it's a contract of unequal negotiating power. You have one party that is so strong in the negotiation that they can just tell you to take it or leave it. The classic example, in addition to like the software company's terms and conditions, are insurance contracts, for example.
Speaker 1:I was just going to say insurance, take it over, that's like the classic example are insurance policies or contracts of adhesion.
Speaker 2:It's not that they're not enforceable, they absolutely are enforceable, but you can't negotiate the terms.
Speaker 2:Typically this is what they're willing to provide you. What I tell clients with any contract outside of kind of the worst case examples we talked about is ultimately this becomes a business decision. You know, if you get a vendor that says and I've seen non-negotiable contracts in other instances, I've had a few examples where there's, you know, maybe one vendor who does a certain thing and they know that, and they say, like we got enough work and we're not going to like this is the deal, sign it, take it or leave it, and then the board has to make a business decision. Again, contracts of adhesion, you know, unless there's other evidences of fraud or unconscionable conduct or incapacity or whatever, they're enforceable. You know, just because your insurance company or some other vendor is unwilling to change their contract doesn't mean it's not enforceable against you if you sign it and agree to it, depending on the nature of the service you're seeking. You know, a contract of adhesion may or may not, you know, be expected or appropriate, but again it kind of boils down to a business decision.
Speaker 1:Try to avoid them and, when it comes to insurance policies, contact your public policymaker, because that's probably your best bet to go to your state rep or state senator and say what are you all doing about these insurance policies.
Speaker 2:Yeah, those issues are probably only resolved in Tallahassee, unfortunately.
Speaker 1:I think so, and in other state capitals as well. Rob, you have been so generous with your time. You're helping our listeners, I'm sure. Save headaches down the road, because miserable contracts can really impact quality of life in these communities for many, many years. Any final thoughts?
Speaker 2:If you're going to talk to your lawyer, talk to them before you sign the contract. You know we joked about that earlier but it's a joke because it's true I've had that happen. The other thing is don't feel pressure to sign an agreement you're not comfortable with, regardless of the circumstances. You know I'm located on the west coast of Florida. You know I'm located on the west coast of Florida. We've had serious, you know, hurricane situations from Charlie to Irma to Ian and Milton and Helene Community associations have had damage. But you know, even in the response to an emergency, there's time to take a step back. Understand what you're signing, not agree to contracts you're uncomfortable with. I think that is the two things I would take away for our association audience members is you know, even under the worst circumstances, you can take 24 hours to try to figure it out.
Speaker 1:It's great advice, Rob. Thank you so much for joining us today.
Speaker 2:Thank you.
Speaker 1:Thank you for joining us today. Don't forget to follow and rate us on your favorite podcast platform, or visit TakeItToTheBoardcom for more ways to connect.