Can the Board Terminate Pre-Turnover Contracts?

By November 24, 2019 Condo & HOA Law

Q: Our homeowners association recently turned over from developer control, and we learned that the association has a 15-year contract to maintain the clubhouse elevator and the rates are not market rates. Can we terminate this contract now?

H.H., Stuart

 

A:   Possibly, but this question is very fact sensitive. First, it is important to note that the Association has the authority to enter into long term agreements provided the agreement satisfies the Board’s business judgment duty. The relevant statute is Section 720.309, Florida Statutes, which provides that “any grant or reservation made by any document, and any contract that has a term greater than 10 years, that is made by an association before control of the association is turned over to the members other than the developer, and that provides for the operation, maintenance, or management of the association or common areas, must be fair and reasonable.”

As you can see, your contract satisfies the elements of the statute because the term is longer than 10 years and the agreement provides for the maintenance of the common areas. The difficult part, however, is whether the agreement is “fair and reasonable”. In order to know this, you would have to know what market rates were at the time the agreement was signed, whether the Association was required to obtain bids for this service, and whether the other terms of the contract justify a deviation from market pricing. And even then, note that the statute does not provide the express right to terminate – meaning you may be required to file a lawsuit and obtain an order declaring that the contract is unfair and unreasonable.

Finally, note that the law in condominiums is very different. In a condominium, the statutes actually provide that the membership can terminate pre-turnover contracts without penalty and irrespective of whether the terms are fair and reasonable.

 

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John C. Goede Esq. is co-founder and shareholder of the Law firm Goede, Adamczyk, DeBoest & Cross, PLLC.  T o ask questions about your issues for future columns, send your inquiry to: info@gadclaw.com.  The information provided herein is for informational purposes only and should not be construed as legal advice.  The publication of this article does not create an attorney-client relationship between the reader and Goede, Adamczyk, DeBoest & Cross, PLLC or any of our attorneys.  Readers should not act or refrain from acting based upon the information contained in this article without first contacting an attorney, if you have questions about any of the issues raised herein.  The hiring of an attorney is a decision that should not be based solely on advertisements or this column.

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