Community association management contracts play a crucial role in defining the relationship between community associations and their management companies. This is the second installment of the series focusing on some key provisions of community association management contracts. In the first post, we discussed the concept of indemnification and indemnification provisions in such contracts.

As discussed previously, community management relationships are often memorialized by written management contracts.  While these contracts may look routine and boilerplate, community management contracts are binding legal contracts that have serious implications for the parties, including community associations.  

In this post, we will discuss the topics of (i) terms and (ii) notice provisions.

Terms: Beyond Merely Start and Stop Times

A critical topic that needs to be clearly addressed in a community management contract is the term of the contract. The term is the length of the contract.  In general, this means the length of time that the community management company will provide management services to the association and the length of time that the parties will have obligations to one another under the contract. Notably, some provisions of the contract will often survive termination of the contract, such as, for example, the provisions regarding indemnification.

The term of the contract sounds straightforward, but it is important to review these provisions carefully. First, it is advisable to define a clear start and end date for each term of the contract. Often, a community management contract will contain an automatic renewal provision. Notably, Virginia’s General Assembly recently passed legislation in both the property owners’ association context as well as the condominium context on the topic of termination rights for community management contracts containing automatic renewal provisions. We will discuss that recent legislation in a future post in this series.

Clearly defining the term of the contract is essential because the parties need to understand when their contractual obligations begin and when they end. Often, a community management company and association will negotiate for several weeks or longer before signing a community management contract and agreeing on a start date for the term of the contract.  If the term of the contract has not yet commenced, the community management company will generally not have any obligation to perform its agreed-upon duties, such as the issuance of covenant violation correspondence or the payment of liability insurance premiums, for example, unless the community management contract provides otherwise.  The parties will also want to understand when the contract term ends.  By way of illustration, a community management company will want to be sure of the date of the term’s conclusion through which it must perform under a community management contract, even if a termination notice has recently been issued.  Failure to continue to perform its obligations, such as the payment of utility bills or insurance premiums, could have serious negative consequences and lead to legal liability.

The parties should also ensure that the community management contract addresses whether or not there will be a termination fee in the event that the community management contract is terminated or not renewed at the end of the term.  Moreover, the term provisions should address what happens if the community management contract is renewed.  For example, how long will the new term be?  What will the new management fee be, and how will that be calculated? 

The community management contract will also often want to address whether it is an exclusive agreement.  In other words, is the community association permitted to retain other community management professionals for other purposes, such as financial management, for example? Or, alternatively, is the community management contract exclusive between the parties such that the community management company is the only permissible community management company that the community association may engage during the term of the contract?

Notice Provisions

Another critical aspect of a community management contract is the “notice” provisions.  ”Notice” provisions are the provisions in the community management contract referring to how one party gives “notice” to the other party under the community management contract. 

Often, a commercial contract will have specific notice provisions that set forth how notice is to be given and to whom in order for “notice” to be deemed given under such a contract.  In a commercial contract, there will likely be various rights that may be exercised or obligations that may arise after one party to the contract gives “notice” to the other party, but what does “notice” mean exactly?  It is important to note that failing to adhere strictly to a notice provision, even if notice is received by the other side in a timely fashion, could result in a court finding that such purported notice was not sufficient for the purposes of the contract.  This failure to properly give notice could have serious potential consequences, including legal liability.

In a community management contract, it is critical to review the notice provisions to understand what notice is required, to whom it is required to be given, and when such notice is required to be given.  Often, the notice provisions will set forth the specific method of how to deliver the required notice: e.g., U.S. mail, electronic mail, commercial courier, or hand-delivery.  Additionally, the notice provisions will often list the required recipient(s) of such notice, for example, the President of the Board of Directors, the attorney for the community association, or an officer of the community management company.  Notice provisions often typically contemplate how the designation of a required recipient of notice may be changed by the receiving party.

It is critical to review a draft community management contract with legal counsel before signing one.  Reviewing draft community management contracts with legal counsel can help the community association better understand and manage its risk, as well as help it understand its rights and obligations.  Additionally, if a community association desires to terminate or take some other action with respect to a community management contract, it is also prudent to discuss the procedure and implications of such with counsel. implications of such with counsel.