Importance of Contract Review

In the course of business, every corporation, including community associations, must enter into dozens of contracts for services and materials, some of which relate only to a single project, and some of which may continue for many years (bulk cable contracts being the most typical example). And, with so many contracts and providers, it’s inevitable that one or more of those relationships will sour. At that point, many associations will contact their attorneys, to determine what can be done to get them out of the agreement, or to recover funds already paid to a non-performing party. Unfortunately, trying to resolve a contract dispute at the time of a breach is far less efficient than paying the necessary funds to have an attorney draft and negotiate an agreement with appropriate protections for the association from the outset.

In legal parlance, a contract is an agreement between two parties, where each party has certain obligations to the other, and where some “consideration,” or value, is exchanged. Typically, an association will offer to pay money to a vendor or contractor, in exchange for goods or services. The terms of the contract, which are usually in writing (in Florida, any contract for the sale of goods over $500, or where the services provided are not to be performed within the space of one year, must be in writing), govern the relationship between the parties. This is critical, because contracts are evaluated on their face, according to the plain language used, and external evidence of the parties intent may only be considered if the language is ambiguous or has multiple meanings. Otherwise, whatever a contract says is legally binding.

So, for example, as attorneys we are often asked whether a client may terminate a contract because a vendor is performing poorly. The only way to determine the client’s rights to terminate is to look for a written termination provision, and to see, under what conditions, the contract may be voided. Often, contracts are silent as to termination rights, or provide that they may only be terminated “for cause,” and then only after providing notice of a failure under the agreement and an opportunity to cure that failure to perform. Of course, the contracting party is always going to argue that they have cured their performance, even if that performance remains unsatisfactory—but at that point challenging such performance, and arguing that it amounts to a breach of the agreement, would require significant legal expense, and often the filing of a lawsuit. Many agreements contain limitations on suit that would prevent parties from challenging a breach except through specific means, such as mediation, or a non-jury trial in a particular venue. Some agreements may not be terminable at all, except in the case of a material breach—one that is so extreme that it essentially invalidates the entire agreement. For service contracts, those are few and far between.

Many community associations are reticent to have their written agreements vetted and negotiated by their attorneys, as they are concerned that the expense will quickly become unreasonable. However, most contracts can be reviewed and edited in a matter of hours, and the funds spent on several hours of legal work put in at the inception of the contract can often save many thousands of dollars spent to untangle the agreement when something goes wrong. Your attorney can ensure that the contract contains appropriate termination provisions (either for any reason at all, upon reasonable notice, or, in the case of a “for cause” contract, delineate the specific conditions that will constitute such cause). He or she can add language that reimburses the association for specific damages if the vendor’s breach causes harm. A contract can contain minimum insurance and indemnification language, as well as requirements of performance (such as completion targets, or response timeframes). As a general business practice, it is appropriate for any corporation to have their legal counsel review and comment on any significant written agreement, and this is part of the ordinary cost of doing business. A small investment at the outset of a business arrangement can prevent headaches down the road. We recommend you contact counsel to review any contract of significance.