Beware of Contracts That Automatically Renew

An article in the L.A. Times on January 12, 2014, highlights the importance of knowing the contents of the agreements that a homeowners association enters into. Frequently, homeowners associations find themselves bound to agreements that contain provisions that are not in the association’s best interest. This generally occurs because the
association did not have someone thoroughly review the contract before binding the association to its terms. Often, even if is reviewed, the person who performed the review was not aware of the meaning and ramifications of many of the provisions contained in the agreement. The situation reported involved a contract with a property management firm that the association was not satisfied with and did not want to continue using. The contract, which was prepared and provided by the property management firm contained an automatic
renewal provisions that extended the term of the management company’s employment by the association.

An association’s board of directors is responsible for the decisions regarding contracts that are entered into. The board should never blindly accept a contract that has been prepared and provided by a third party without carefully reviewing it and making sure that the provisions are understood and accurately and completely reflect the terms that are being agreed to. While this may necessitate incurring some expense for a professional review or consultation, that expense could save the association thousands in the long run.