IMPORTANCE OF HOA CONTRACTS

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Each year, thousands of homeowner associations across the country engage in complicated renovation projects that run the gamut from siding replacement to roof overhauls to dryrot repair to new decks and fences. Aside from the complexity of the tasks themselves, all need a carefully crafted construction contract that not only describes the scope of work and price but includes the fine print.

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Contractors typically present contracts that address what’s most important to them: the money. The scope of work described is usually very general, like “paint buildings”. The contract rarely includes the “how” details, which is the part most critical to the HOA. For this, get independent consultants to provide the scope of work. Local paint suppliers, for example, will provide custom specifications to fit your surface and location. They will even provide a free progress inspection service to ensure the work is being done properly so that the material warranty is not voided.

Similarly, take advantage of other knowledgeable consultants for complex and costly projects. While they aren’t free, they are generally worth their weight in gold in making sure the work gets done right. They can often steer you to reliable contractors and substantially lower costs..

Below is a list of contract clauses that should be included. Simply attach them as an addendum to your contractor’s contract and make them a condition of acceptance. You should have a knowledgeable attorney review the contract as well.

  1. Names and business addresses of the parties.
  2. Date that the contract is signed.
  3. A short narrative that summarizes the agreement. For example, “Nottacare Condominiums is hiring I.M Manly Contractors to remove the old siding and install new siding on Buildings A-D followed by a total repaint of all buildings. (see Scope of Work for specifics)”
  4. Obligations of Each Party: For example, the Contractor agrees to provide the labor and material to complete the scope of work (attached) in a timely and professional manner. All changes or additions must be approved in writing by the HOA President. The HOA is obligated to pay the Contractor in four progress payments within seven days of billing.
  5. Deadline for Performance. This clause usually includes the phrase, “Time is of the essence” to imply that work must be completed barring only unforeseen circumstances like material delay or weather. Working six different jobs at the same time is not a valid excuse for delay.
  6. Time Effectivity of the Contract.
  7. The Cost of the Work and Materials. This could either be a set price or an hourly labor rate with material at, say, cost plus 10%.
  8. Payment Schedule. Is it due on completion or in installments?
  9. Late Payment Penalties. Can interest be charged?
  10. Warranties. These come in two forms, material and labor. Material warranties come from the manufacturer and are subject to proper installation. That means that even though the material warranty is, say, 20 years, improper installation will void the warranty. Labor warranties are offered by the installation contractor and are usually relatively short, a few years at most. In either case, be crystal clear what the conditions for honoring warranties are and get them in writing.
  11. Terminating the Contract. Define under what condition either or both parties could terminate the contract. Breach of contract can be enforced by either. There should also be a mutual agreement clause to terminate.
  12. Arbitration or Dispute Mediation. If there is a problem that cannot be worked out, it’s usually in both party’s interest to have a trained mediator help sort it out rather than engaging dueling lawyers.
  13. Paying Attorney Fees. If the matter lands in court, the prevailing party should be entitled to payment of attorney fees and legal costs.

While the fine print seems cumbersome and unnecessary, these clauses ensure either performance or consequences for failure to perform.