Why Your Next Contract Could Cost You Thousands

Co-op and condo boards often move too quickly when hiring contractors, which can lead to problems later on. Contractor-written proposals can lack board protections like indemnification and the ability to recover attorney's fees. Signing these inadequate contracts can leave a board trapped with a contractor doing subpar work — or just not showing up. In this episode, J. David Eldridge, partner at Taylor Eldridge & Endres, walks through how this can happen, and what it could cost your building to escape. He reveals the warning signs boards miss and why even routine renewals deserve careful scrutiny. If you've ever wondered whether spending money on legal review is worth it, Eldridge’s real-world examples make the case crystal clear. Habitat’s Paula Chin conducts the interview.

The business of running a building is demanding work that requires making endless decisions — some that can quickly lead your board into a quagmire of legal difficulties. Legal Talk interviews New York's leading co-op/condo attorneys to find solutions, and get some guidance, on these challenges. For more co-op and condo insights, sign up to receive Habitat's free newsletters or become a Habitat subscriber today!

Transcript

Paula Chin: Welcome to Legal Talk, a conversation about governance issues that New York's co-op and condo boards are tackling today. I'm Paula Chin with Habitat, the New York City magazine for co-op and condo board directors, and my guest today is J. David Eldridge, a partner at Taylor Eldridge & Endres.

Every building is familiar with the process of hiring contractors for repairs. You have several of them submit bids and proposals, and you select one, and then you sign a contract. But boards often move too quickly, which can land them in trouble.

David can you tell us about this? 

J David Eldridge: Sure. Two of the things that I hear a lot when I'm given a contract to review is Hey, can you review this for us? And I find out that it's already been fully executed. Or they'll say, Hey, how do we get out of this contract? The big area for me is when boards go out to bid and get estimates and proposals, and they're generally just a document from the contractor that's written by the contractor that talks about the work that's gonna be done and the cost of the work.

Boards will sign that and say, that's great, and send it to me and say, Dave, can you make us a contract? And the answer is, that is the contract. So unfortunately, boards often end up getting stuck with the results of a very short and insufficient proposal that ends up being a contract. And what are some of the problems with these things?

First they're written by the contractor, for the contractor. They don't have any of the critical items that we would require in demand such as indemnification. They're bereft of any obligations with regard to insurance. A lot of times they have automatic renewals involved. There's no ability to recover attorney's fees.

So these are the things that we're stuck with and forced to live with for the next year or two years, or three, depending on the nature of the contract. 

Paula Chin: Getting stuck with these, like you said, can that say the work isn't up to par or there are problems with this? I imagine signing one too soon also may limit your ability to have the contractor come back and do the job right? Is that correct? 

J David Eldridge: It does. Boards are always trying to keep the legal fees down. They often will just look at something and say, oh, that's just the landscaper or the snow removal guy. It's the same as last year. We'll just sign it.

In doing that, they didn't realize that there were other things in there and some things that were removed and scope of work may not be defined. In this particular case, the contract price did not include a bunch of other things that they were going to need, which were all add-ons and extra fees and costs.

They're now stuck with a three year contract with a poor performing contractor who's not doing a great job. They can't get rid of him. There's no termination. It's a three year contract. They're stuck with the guy not showing up when he is supposed to, doing inferior work. That's the contract. We had no way to get rid of him.

It's very expensive to take them to court for something like that. The fees generate very quickly. They ended up actually having to pay the contractor a fee to get out of the contract so that they could hire another contractor to do more work for less money. 

Paula Chin: Wow. So obviously one of the, things board need to realize is trying to save money on the front end could cost you on the back end. Are these problems with small projects as well as say, facade work or something more substantial? 

J David Eldridge: It really depends on the board and the property manager and how they handle these things.

Generally when it's something major, like a huge construction project or an ongoing something with the sewage or the sewage treatment plan or something of that nature they'll typically be wise enough to have us look at them for them. We have lengthy contracts and rider that we can customize and adjust.

But no all of them get fooled and get complacent and will sign these proposals and not realize that's the contract. That's what they're stuck with. They'll come to us afterwards, but it, it happens in all the communities from Manhattan to Montauk. And that's why it's so important to guide and counsel these boards and to inform them.

And that's one of the great things about Habitat is that there's some way for these guys to get the message. You're not gonna save the $200 and having me review your contract, that's gonna cost you about 80 grand later down the road. 

Paula Chin: Can you tell us some examples of buildings that have made this error? Say a smaller project like landscaping or a big one like facade work.

J David Eldridge: Yeah, there's a whole bunch of them. You're stuck with that proposal. There's nothing there. There's no timeframe for when they're supposed to do the work. There's no end date for when the work is supposed to be completed. There's nothing in there about the scope or the design or the materials or anything of that nature.

It just said, we're gonna come and we're gonna fix this and this is what it's gonna cost. But when they don't show up, when your engineers are telling you that you need extra things done or certain things to comply with code, none of that's in there. And of course, the contractor's gonna charge extra for doing any of that, which really should have been in the initial contract to begin with.

Paula Chin: So going back when you talked about indemnification and certificate of insurance. Say you have a $5 million policy that isn't good enough, right? It, you have to specify what the insurance covers. Is that correct? 

J David Eldridge: Yeah. Most boards are trained to weigh a certificate of insurance as their winning key.

Oh, look, the contractor has a $5 million insurance policy, and he does. Without a little bit more investigation though, what they don't know is that, and the example I have it was a roofer, with a $5 million contract and the board was just crowing about how protected and secure they were. And something just wasn't right.

 We did a little bit more peeking behind the scenes and he did have a $5 million policy, but it expressly excluded any roof work. So a roofer performing roof work with a policy worth $5 million that doesn't cover roof work is worthless. And they found that out the hard way. 

Paula Chin: There's a law that specifies if there's a fall and even not at a great distance, like a roof that you can be held responsible. Is this related?

J David Eldridge: Yeah. That's the 240 Labor Law. New York has a very special place. If you're at any kind of a height, and that could include standing on a bucket, or a milk crate, the owner has a statutory obligation to ensure the safety of the workers. The liability is statutory and automatic. So if somebody's on a ladder and they fall and they didn't have protective equipment or a harness or anything of that nature, the landlord will be included in that suit as having contributed to the injuries.

Paula Chin: I know that this is called the Scaffold Law. Do you have any particular advice for boards? Clearly they should be aware of that law, but what else should they know? 

J David Eldridge: Yeah your best bet is to stick with quality contractors and really check references.

That makes such a huge difference, because they're all marketing and selling, and you get what you buy and pay for. But those are the kinds of things that we as attorneys wanna make sure that they're protected from no matter what. And that's why we're so stringent on the indemnification provisions, the hold harmless, the recovery of legal fees. So if the contractor doesn't do something that he should have, and there's damages to property or injuries, the community is not shelling out of their own pocket to pay for lawyers and their insurance company being the first one on the hook. We like the contractor's insurance company to be on the hook.

We want the contractor paying the board's legal fees and the engineer reports that we have to pay for. So that's one of the things that we're always so stringent about, is making sure the community's really fully protected. 

Paula Chin: I would imagine that contractors aren't absolutely required to have this kind of insurance.

Is that correct? And if, for example, they say, no, we won't meet your terms, then you have to, I presume, go and find somebody else. 

J David Eldridge: Yeah, that's not uncommon. Look, everything is expensive. These contractors are trying to make a profit and a living. They want the cheapest insurance that gives 'em the most that they can get.

 There have been a number of times when we've gone back and forth and had our own broker review everything and just double check, that's not gonna be sufficient. We need you to get a little bit more. Many of them will purchase the extra insurance because the job is worth it. But we have had times where the contractor said, nah, I'm out.

I'm not gonna spend that kind of money to get this policy that you want. 

Paula Chin: And clearly it's worth it to, like I said, put in more work on the front end so you don't get caught short on the back. 

J David Eldridge: Yeah, the devil's in the details and "penny wise and pound foolish" is real. A couple hundred bucks here and there up front, talking to experts and getting a quality contract in place is literally worth its weight in gold.

 I mean, I've seen it save hundreds of thousands of dollars. And I've also seen it cost hundreds of thousands of dollars that would've never been spent, had somebody taken 40 minutes to look at a contract, say, oop, you're missing these five big things. But in New York State Supreme Court, that's a very expensive and timely it's gonna be a long, expensive road.

Paula Chin: David, I think this has been really informative for our viewers and listeners, and thanks so much for joining us today. 

J David Eldridge: Oh, it's my pleasure. Thanks so much for having me.