Firing HOA vendors can be a tricky task for many homeowners associations. The HOA needs to honor the signed agreement and cannot do so arbitrarily. What’s the best way to go about this? Here’s what HOA board members need to know.
In this article:
Firing HOA Vendors: Is It Allowed?
Can HOAs fire a vendor under contract? Yes, but there are caveats. Vendor contracts are legally binding agreements that both parties must honor and abide by. Even if the board members change, the HOA’s contract with the vendor is still in effect. The newly elected board must deal with the previously signed agreement. As a result, while firing HOA vendors is still allowed even if the contract remains, it will be a little difficult. The HOA has to exit the contract carefully without breaching the contract. Otherwise, this may lead to a lawsuit and cost the association even more.
How to Fire an HOA Vendor
Ideally, HOAs should select vendors carefully according to a certain set of standards. However, terminating the relationship is sometimes unavoidable. If the HOA wishes to end the contract, there are several things it can do.
1. Communicate With the Vendor
Firing an HOA vendor isn’t always the best first choice. After all, it’s hard to terminate an HOA vendor contract when it’s still in effect. The best initial course of action would be to communicate with the vendor. There could be some misunderstanding between the vendor and the board. The HOA might have certain expectations that the vendor doesn’t know about or vice versa.
To iron out the wrinkles, HOAs should talk to the vendor and clarify what their expectations are. The vendor may improve their performance and change the way they work to meet the HOA’s needs. Moreover, make sure to review the contractor’s service performance thus far to see if it warrants a termination. If it doesn’t, then it may be best to let the contract finish before hiring a different vendor.
2. Review the Contract’s Validity
If the communication doesn’t solve the issue or if the problem cannot be ignored, the HOA may want to pursue a termination. In this case, it’s time to review the vendor agreement. Any enforceable agreement must include the essential elements of a contract to be valid. State law may define these essential elements such as mutual assent, consideration, capacity, and legality. All of these need to exist for the contract to be valid.
Go over the contract and see whether all of these elements exist. If one of them is missing, then the HOA may have a chance to exit the agreement without breaching the contract. It’s the least risky method. However, the HOA board should review the contract with a lawyer so that they don’t act based on misunderstandings. This would result in a lawsuit and monetary penalties.
3. Review the Termination Clauses
The ideal contract will include a termination clause that allows the HOA to end the agreement without cause. If the contract signed has this provision, then the HOA can end the contract without going through complex processes. They can simply give proper notification according to the contract’s terms and then end things smoothly.
However, remember that ending the agreement without cause may sour the association’s relationship with the vendor. They may not be willing to work with the HOA in the future. Other vendors may also catch wind of this act and may not want to work with the homeowners association.
On the other hand, most valid contracts do not include this clause so the HOA will need to pursue a termination by mutual assent. In this case, the HOA can only terminate the contract if:
- There is a breach of contract
- The agreement becomes impossible
- One of the parties ceases to exist
The first method is ideal and is often the route most HOAs pursue. However, it will require the HOA to demonstrate that the contractor has breached the contract. Homeowners associations often demonstrate this by showcasing how the vendor hasn’t abided by the contract’s terms or showing that they have not fulfilled their job according to the agreement.
In addition, some contacts will include a termination clause that allows the HOA to end the agreement for poor performance. This gives the homeowners association an opportunity to end the agreement with the vendor if the work is sloppy.
Regardless of the method chosen, it’s best to go over the contract with an attorney. HOA attorneys can spot these provisions and help the board clarify the terms. They can also inform the HOA of any potential risks involved in terminating the contract.
3. Keep Vendor Performance Documentation
If the homeowners association is seeking to end the contract on the grounds of poor performance or breach of contract, they must keep proper documentation. This will serve as the HOA’s defense in case the vendor files a lawsuit for breach of contract. The HOA will also be in a better position to counter-sue using the evidence gathered.
Make sure to keep all kinds of documentation while recording the contractor’s work and actions. It’s not enough to write down what was done and who did the work. The HOA should also take photos and videos, noting down their dates and times. Remember to clearly record the vendor’s performance and actions. Moreover, store the files in a secure place.
When Should Communities Consider Firing HOA Vendors?
Terminating a vendor contract before the end date is a risky, but sometimes necessary, move. When should HOAs consider this option? Here are some considerations.
Poor Performance. If the vendor chronically provides poor performance and it’s not due to a misunderstanding or temporary operational issue, it may be time for a change.- Sudden Price Changes or Extra Charges. Some vendors include vague clauses that allow them to hike up prices or issue sudden change orders. This can cost the HOA a lot of money and may result in an increase in HOA fees or special assessments.
- Insufficient Insurance Coverage and Licensing. Without proper insurance or licenses, the HOA may face larger liability risks in keeping the vendor around. If the vendor cannot provide proof that they have these, it may be a red flag.
- Legal or Ethical Problems. Vendors involved in unethical or illegal activities can implicate or impact the HOA. Some examples include discrimination, fraud, or other serious misconduct.
- Inadequate Communication. If the HOA has lost touch with the vendor or if they are unresponsive, the job might become impossible or hard to fulfill according to the HOA’s expectations.
- Noncompliance. The vendor may not be following the HOA’s rules. They may also be violating local codes, laws, or authorities.
- Conflict of Interest. The vendor, community members, or HOA board members may have a conflict of interest that could jeopardize transparency and fairness.
That said, HOAs shouldn’t simply fire vendors arbitrarily. They should carefully consider whether or not the problem warrants a termination. Some issues are minor and can be worked out through communication or negotiation. For example, minor delays and small quality issues can be resolved and don’t significantly impact the community. Some mistakes may also be isolated cases and are not indicative of the vendor’s overall quality of work.
Ending Professional Relationships Gracefully
Firing HOA vendors may be complicated if the service agreement is still in force. Homeowners associations that go through with this decision should remember to tread carefully. They must make sure to read the contract’s terms and keep proper documentation. Ending the relationship on decent terms is not always possible, but avoiding liability certainly is.
It’s hard to manage vendor relationships and draft good contracts alone. With professional help from Elite Management Services, this becomes a breeze for homeowners associations. Call us today at (855) 238-8488 or contact us online to learn more!
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