First and foremost, it is important to understand an association cannot get out of a contract just because the board changes its mind or finds a better deal. By the same token, an association cannot get out of a contract because they do not get along with contractors or their employees.
When it comes to terminating or getting out of, a contract, an association’s rights, and abilities are set forth in the contract itself. For this reason, it is imperative that boards read through and understand all association contracts and have them reviewed by legal counsel prior to signing. Generally, if a remedy is not spelled out in the contract itself, it does not exist.
If your community is contemplating terminating a contract, we recommend you first take the following steps:
- Review the contract for validity. The first way to get out of your contract would be if you do not have an enforceable contract to start with. Make sure the contract was signed by both parties, and both parties are obligated to do something under the agreement. For example, the contractor is obligated to perform specific work described in the contract, and the association is obligated to pay contractor for the work.
- Review contract for termination rights. Many contracts in the community association industry contain provisions setting forth termination right of both parties and specifically allow for termination after notice is provided. However, you must provide termination notice exactly as required in the contract or it will not be valid. This means notice is sent out the correct number of days prior to termination; notice is sent to the correct address, and via appropriate delivery system (e.g., U.S. mail, or email, or certified mail) or as otherwise may be specified in the contract.
- Determine if there is an “anticipatory breach” by the other party. If the other party has given an indication it is not going to uphold its end of the deal under the contract, this may present justification for termination, especially if you stand to incur damages if the other party does not perform.
- Investigate whether fraud exists. If the other party provided you with false information prior to execution of the contract and the association relied on this information when signing the contract, the association might be able to terminate the contract on that basis.
- Has the contract been breached? Has the contractor failed to comply with any of the requirements set forth in the contract? If so, this may be a basis to terminate the contract, but only if the contract itself contains provisions addressing this situation.
Termination of contracts and breach of contract claims are complicated, and the law surrounding contracts is very technical. These situations are almost always dependent on the facts and circumstances. Therefore, seeking the advice of legal counsel is highly recommended before trying to get out of a contract.