Legal Briefs Condos Handcuffed by Self -Renewing Contracts

Legal Briefs

 Although there seems to be no shortage of talking heads touting the beginning of  the end of the economic decline, associations (like the average consumer) are still struggling to do more with less.  

 It just so happens that service providers, like the mall retailers, are now  advertising some bargain-basement prices. Unfortunately, because of the use of  unfavorable contract terms, such as “evergreen clauses,” many associations will not be able to cash in on the savings being offered.  

 There is nothing more frustrating than being “locked in” to a contract, and not having the freedom to take advantage of a good deal from  another service provider. I know you have heard this before, and it is  sometimes harder to implement than lecture about, but a careful read of any  contract before signing could pay off big in the future.  

 Board members are typically very astute regarding negotiating the price and  services that will be offered, but the fine print toward the end of the  contract is often overlooked. And if there is one contract term that all  associations should watch out for it is the dreaded, but often used and concealed, “evergreen clause.”  

 An evergreen clause is a clause that allows a contract to self-renew unless  either party notifies the other of an intention that the contract NOT renew. The language used is invariably a bit tricky as well. A typical clause used in many service contracts, especially contracts for laundry service, looks  something like this:  

 This contract will automatically be renewed at the end of the five (5) year term  for an additional five (5) year term unless terminated by either party by  giving written notice to the other party at least ninety (90) days, but not  more than one hundred twenty (120) days prior to the end of the then current  five (5) year term.  

 So, mark your calendar, four years and nine months from signing someone is going  to have to remember to cancel the contract. Unfortunately, in that time there  will likely be many changes to the board, and possibly even a new manager at  the helm. Thus lies the problem; no one is goingto remember that a given contract is going to automatically renew in five years.  In fact, a copy of the contract may not even be around.  

 Avoid Long Contracts in General

 For this reason, even if a contract does not contain a self-renewal clause, associations should avoid signing contracts for excessively long periods of  time.  

 Five years is a long time to contract for garbage disposal. This is especially  true as garbage service providers and companies offering similar services do not typically invest in any special equipment at the property to provide  their service. Laundry providers do typically supply machines and related  equipment to the property, so there is more of a justification for those providers to use contracts containing  longer terms.  

 To avoid the “evergreen” dilemma the best defense is still a good offense– strike the clause. Insist that the contract not self-renew, and ensure that the  contract has a termination provision which affords the association a way out if  service goes south. A clause that allows either party to terminate the contract  with 30 to 90 days notice, for any reason, offers the most flexibility for associations.  

 There is no reason that associations should be forced to take the risk of an  unfavorable contract automati-cally renewing by accident. There is simply too  much at stake and such clauses offer little, if any benefit to associations.  

 If the service provider wants to extend the contract, that can be done with a  simple request to the association to sign an extension agreement. The burden of  renewing the contract should be on the provider, not the association, which is ultimatelyjust the customer in the transaction.

 If you cannot remove the clause entirely, make the renewal contingent on the  provider giving written notice of the renewal date with ample time for the  association to opt out.  

 Don’t get stuck in contract purgatory – review all contracts (even the fine print) before signing, strike any  self-renewing provision, and avoid excessively long terms whenever possible.

Mark S. Einhorn, Esq., is an attorney with Marcus, Errico, Emmer & Brooks, P.C., in Braintree, Massachusetts.

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