The ABCs of Associations: Contracts

C Edition: Contracts

Much of an Association’s operations involve and revolve around contracts.  These contracts can be very complex documents originally drafted by an engineer that include hundreds of provisions.  They can also be single-page documents with bare bones information listing the work to be completed and the price for the same.  Despite whether a contract is complex or simple, it is incredibly important.

Under the law, contracts have essential elements – offer, acceptance and consideration.  Each of these elements can take different forms, but it generally boils down to a contractor or vendor’s willingness to perform a service for a specific price and the Association’s act agreeing to those terms.  The term “consideration” refers to the requirement that both parties of the contract must give up something whether it be money, time to perform work or not performing work.  This is meant to make sure the agreement is not illusory or more of a gift.

There is no requirement that contracts be in writing.  Contracts can be oral as long as they contain the essential elements.  Signatures on written documents are often not necessary provided that the parties performed under the contract.

If there is a contract, the parties are entitled to enforcement of the promises contained in it.  However, not all breaches are equal.  Breaches of minor terms are not grounds to terminate the contract.  Instead, a breach must be material (an important term was breached) in order for a party to begin the process to terminate it.  If the contract requires notice to be sent and an opportunity for the other party to cure the breach, the Association must give notice in order to terminate the contract. 

An association is like a business and contracts are not generally interpreted in its favor.  Instead, the parties are treated as equals when it comes to interpreting the contract’s terms.  If there are limitations to items such as damages in the contract, those will be enforceable unless they are against the law or public policy.  In other cases, provisions are impliedly written into the contract.  For example, vendors doing business with condominium associations for more than $10,000 a year are required to name the association and management as additional insured parties.  Additionally, every contract has an implied term of good faith and fair dealing that the parties intend to act under the contract.

As a general rule, all contracts are to be approved by the Board at an open meeting.  That being sent, the Board’s discussion of a contract for condos and common interest community associations can always be discussed in a closed session.  Some associations delegate the ability to management to enter into contracts.  However, that authority generally is limited to emergency situations or where the contract does not exceed a certain dollar amount.

We recommend that associations take compliance with all forms of contracts seriously.  Often, the best way to protect the association is before the contract was finalized.  In some instances, an association can use a pre-drafted rider to ensure that consistent provisions are included in all contracts.  In others, associations will want an attorney to review the contract to protect it.

Stay informed, stay compliant, and protect your association from unnecessary risk. Knowledge and compliance are the best defenses against legal and financial exposure.

Contact us for assistance!

Stay connected and up to date on other legal news by following us on social media! 

630-326-4930 | ccpchicago.com

The information contained in this article is intended for general educational and informational purposes only and should not be construed as legal advice. Because every situation is unique, readers should consult with qualified legal counsel regarding their specific legal matters. Receipt of this information does not create an attorney-client relationship with the firm or any of its attorneys.