Each year, the Board of Directors for Michigan condominium and homeowners associations make a multitude of difficult decisions regarding what work needs to be done within the association, what vendors to hire to perform various tasks, and how long those contracts should exist. Examples of the common contracts that the Board of Directors may execute on a routine basis include:
- Landscaping Contract
- Snow Removal Contract
- Maintenance Contract
- Construction Contract
- Property Management Contract
- Insurance Contract
- Accountant Services Contract
- Attorney Services Contract
Regardless of the type of contract, each contract the Board of Directors signs on behalf of the association will often contain certain common provisions. While not exhaustive, this article details some basic or common provisions that the Board of Directors should consider before executing any contractor / vendor agreement.
The contract should identify the specific parties to the agreement. If a contractor intends to subcontract all or most of the work, the association may want to identify or know who specifically will be performing the work and who will be responsible to the association should something go wrong. Also, correctly identifying the proper parties also allows the association to ensure that the vendor is in good standing with the State of Michigan and that the contractor / vendor has appropriate licenses and insurance, if applicable.
- Effective Date
Each contract should specify the effective date of the agreement or the date that the contract begins. Some contract provisions require action within 30, 60 or 90 days. By clearly identifying the effective date of the agreement, this reduces the likelihood of an argument in the future as to when the agreement was executed and when the work was to be performed.
- Scope of Work
One of the most important provisions in any vendor contract will be the specific scope of work that the vendor will perform on behalf of the association. For example, a landscaping contract should specify the location of the common elements or common areas the contractor will be responsible for maintaining and what type of maintenance is required. For exmaple, the contract should state whether the landscaper is responsible for tree trimming, leaf removal, mowing, pruning, placing burlap over landscaping in the cold months, mulch, edging, planting flowers, etc. For a snow removal contract, the snow contractor should know specifically how quickly snow must be plowed, when will salt be used, where salt will be used, how much salt will be used, whether salting costs extra or is it included in the overall price and whether the contractor responsible for plowing sidewalks or walkways, etc.
The scope of work should be as detailed as possible and identify the specific actions the vendor is contractually responsible for performing. This will ensure that if such specific actions are not taken, then the association has specific language in the contract it can articulate that the contractor failed to perform or, if things become more contentious, the specific items the contractor breached in the agreement.
- Term of Contract
Not only is the effective date important, but the specific term or length of the agreement should be clearly identified. The association should also consider possible options to extend/renew beyond the initial term of the agreement. In our practice, we see expired contracts, but the parties continue operating under the previous agreement until some negative event happens. Associations should be proactive when determining the initial term of the agreement and what happens afterward if the parties continue after the original term of the agreement expires.
Each contract should include the specific compensation that will be paid to the contractor or, at the very least, how compensation will be calculated. Some associations require an invoice from the contractor with any supporting documentation before payment is required. Also, some associations require that the work be inspected and approved before payment is made. Often payments are to be made in monthly or quarterly installment payments, so the agreement should specify the installment payment schedule. Having specific payment terms with an invoicing and payment schedule should be clearly articulated within the agreement. Also, the association should be aware of any default provisions that include interest, attorney fees or costs.
- Vendor’s Responsibilities
The association will typically want a contractor to assume all responsibilities for taxes, insurance or licenses as required by federal, state or local laws for the protection of its employees or independent contractors. The association will also want the contractor to obtain any necessary or appropriate permits in order to perform the work. The contract should specify that the contractor agrees to perform all work in a professional and workmanlike manner with minimal disturbance to the association or its members. Finally, the association may require the contractor to provide any and all lien waivers, if applicable.
Prior to the commencement of any work, the Association will want to confirm that the contractor provides the association with appropriate insurance. Insurance often includes a comprehensive general liability policy, protections for bodily injury, property damage liability coverage, worker’s compensation, and comprehensive vehicle coverage with a contractual liability endorsement. In addition, the association may also want the contractor to name the association as an additional insured. It is important to require that the contractor maintain all such insurance coverages throughout the duration of the agreement. The association may also wish to specify that the failure by the contractor to comply with all such terms specifically constitutes a material breach of the agreement.
- Indemnification and Hold Harmless
In the event of any issues or damages, the association will want protections such as indemnification and a hold harmless provision for any and all claims arising out of or related to the work performed by the contractor in the agreement. Such indemnification often includes any and all costs, fees, attorney fees, or otherwise. Moreover, in the event of any damage caused by the contractor, the contractor should be responsible to repair any damage to grounds, structures, roads, irrigation, or personal property. The association may also wish to specify that the association has the right to invoice the contractor for any repair, replacement or reconstruction of any damage and withhold any payments owed to the contractor for such repairs, replacements or reconstructions.
In a perfect world, no one would need to terminate a contract early. However, in the real world, the association will want a termination provision just in case something happens and termination is warranted. The termination provision should require some form of written notice to the contractor at a location agreed upon by the parties with sufficient time for both parties to adequately wrap up any lingering work or items that need to be addressed. Most often we see a 15-day or 30-day notice requirement to terminate an existing contract. Sometimes a contractor will want to include a ‘cure period’ in case the association’s issue can be resolved efficiently and economically. Whether the association will agree to a cure period is up to the Board of Directors.
- Governing Law
We often recommend that associations specify that the contract “shall be governed and construed in accordance with the laws of the State of Michigan.” While not often, we sometimes see issues in cities close to the border with other states. This avoids any ambiguity if an out-of-state contractor performs services in Michigan and makes a claim that the parties ‘contracted’ for services in the other state. Also, the association may also wish to specify the particular jurisdiction and venue if a dispute arises (often a local Circuit or District Court).
- Successors and Assigns
The agreement should bind and inure to the benefit of the parties themselves and their representatives, predecessors, successors, assigns, agents, shareholders, officers, directors (in their individual and representative capacities), subsidiaries, affiliates, parent corporations, if any, joint ventures, heirs, executors, administrators, and trustees.
- Joint Efforts and Legal Advice
To avoid an argument that the contract was drafted by only one party and therefore any ambiguities in the contract are to be construed against the drafter of the agreement, the contract should state that it was prepared through the joint efforts of all the parties to the agreement. The agreement should also specify that the parties agree that they have each had the opportunity to seek and have sought counsel from attorneys with respect to signing the agreement or the meaning of it.
- Authorized Representatives
Given that the association is a corporate entity and most often is contracting with another corporate entity, the agreement should specify that the parties represent and warrant that each of the representatives executing the agreement is fully authorized to act on behalf of their respective party.
- Integration Clause / Entire Agreement
Each contract should contain an integration clause. An integration clause specifies that the agreement constitutes the entire agreement between the parties with respect to the matters addressed within the contract and supersedes all prior agreements, discussions, understandings, oral representations and documents regarding the subject matter of the agreement. This helps to avoid any ambiguity that the contractual language governs the relationship of the parties.
The association will want to protect itself from any argument regarding waiver. Some typical language is “Any failure or delay of any party to enforce, or require performance of, any of the provisions contained with the contract shall not be construed as a waiver.” Simply, each party, notwithstanding any such failure or delay, should have the right to insist upon the performance of any and all of the provisions of the agreement. In practice, this mostly arises when a poorly managed Board of Directors is replaced by a more active, better managed Board of Directors and some company is performing some, but not all, of its contractual obligations.
Another common contract term is severability. This provision is triggered in the event that if any provision of the agreement is found to be unenforceable or invalid for any reason, then that part of the agreement will be severed from the balance of the Agreement, however the validity and enforceability of the remainder of this Agreement will in no way be affected or impaired.
Each contract should have a provision regarding how to amend the agreement. Typically, this requires that any change in the terms or conditions of the agreement may be modified only by an instrument in writing duly signed by all the parties.
While the above terms are not exhaustive, they are a good start at common provisions within most contractor / vendor contracts in Michigan condominiums and HOAs. If your Board of Directors requires assistance reviewing or revising a particular contract, please seek legal advice from a competent and reputable condominium or HOA attorney.
The team at Hirzel Law, PLC is composed of award-winning real estate attorneys that can offer quality representation for Michigan clients. Regardless of if you are a commercial real estate developer or individual homeowner, our real estate attorneys can help. We fully understand how unique and complex the challenges that our clients may face, and our real estate attorneys are prepared to help in whatever way necessary. Contact Hirzel Law online or call 248-986-2921 (Farmington) or 231-486-5600 (Traverse City) or 616-319-9964 (Grand Rapids) to learn how our Michigan real estate lawyers can help protect your Michigan real estate investment today.