It's Not Nitpicking: No Contract Is Too Small for the Board's Lawyer to Review
Nov. 12, 2013 — Some condo and co-op boards have traditions — often informal and unwritten, so it's a stretch to call them "policies" — that only contracts above a certain dollar amount should be given to the board's attorney for review. But whether that threshold is $500 or $5,000, it's a mistake to use some arbitrary figure, since no matter how much money is involved, a vendor will naturally, and perfectly legally, write a contract that favors them should a dispute arise. Boards, equally naturally, have a duty to try to ensure the opposite. And since your building is the party that's laying out cash, one could reasonably argue that any disputes should tip in your favor.
"Many times, boards feel that their attorney is not needed to review and / or prepare a contract as long as the material terms of their agreement with a vendor," such as price and scope of work, "are listed in a contract or proposal," notes attorney Marc H. Schneider, managing partner of Schneider Mitola. "This is problematic because vendors usually provide boards with a boilerplate contract that is drafted in terms most favorable to the vendor." And it's the fine print and non-material terms in boilerplate agreements that cause the most problems, he says.
"Often what is being signed is nothing more than a purchase order that is missing key provisions needed to protect the co-op / condo and to make sure the work is completed as expected," says Theresa Racht, a partner in the law firm Racht & Taffae. "Other times, contract forms contain provisions disadvantageous to the co-op / condo, such as establishing jurisdiction in another state." It is only once a problem arises, she points out, "that the weaknesses of the contract come to inevitably costly light."
For example, she says, the standard American Institute of Architects (AIA) contract form contains provisions for contract termination in the event of a default by the contractor. The boilerplate form protects the contractor and any supervising architect — not the co-op or the condominium association. This imbalance is something a board's attorney will modify, she says, "so that should you have to terminate the contract, you can do so quickly and cleanly."
"Indemnify You? Indemnify ME!"
As well, many vendor contracts contain a provision that condo or co-op board must indemnify the vendor, rather than the other way around. "I recently had a scenario where a vendor contract required the vendor to provide staffing," Schneider relates. The contract required the board to indemnify the vendor for any claims relating to the removal of the vendor's staff person at the board's request.
"A staff person was ultimately terminated by the vendor, and a dispute arose as to the parties' rights and responsibilities," he recalls, adding, "This is a major issue that most attorneys would have corrected if provided with the opportunity to revise the contract."
Another major contract issue attorneys will watch for is vendor's insurance. "It is important that the proper insurance coverage be in place and that the contract require the association be named as an additional insured." Schneider says. Without language requiring the vendor to indemnify and hold the association harmless, a board "could be left defending a lawsuit stemming from the vendor's work. I have seen this occur many times."
He recalls one instance in which a person was allegedly injured because of a vendor's work. "The person sued the association. The association tried to require the vendor to indemnify and defend the lawsuit. The court ultimately held that since the contract between the association and the vendor did not require the vendor to indemnify, defend and hold harmless the association, the vendor was not required to do so. The association then had to defend the lawsuit, and the settlement of the suit was ultimately paid out of its insurance policy instead of the vendor's.
"Asking counsel to review and revise the document before signing," says Racht, "is far more cost-effective than having him or her resolve a problem during the work that could have been avoided if appropriate provisions had been added to the contract up front."
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