It is common for homeowners associations to begin long-term contracts for services such as trash removal, landscaping, and other maintenance works. What associations do not realize, however, is that many of these contracts are set to auto-renew. Without knowing this, your community could find itself facing financial liabilities. Here’s how you should handle HOA vendor contract renewals.
The Problem with HOA Vendor Contract Renewals
A community can’t function on its own — it requires help from vendors and service companies. These vendors are typically hired by the association, with long-term contracts lasting for periods of years. You’d think that, when these contracts expire, that would be the end of it and the HOA can focus on renewals or hiring a new vendor. However, you’d be wrong.
Most of these HOA vendor contracts contain renewal clauses or terms that extend the service period. This means your HOA will continue to patronize the vendor whether you like it or not. You can get out of the renewal, though, but it usually means having to cancel the contract within a certain time before it renews automatically. If you notice the auto-renew clause too late and try to cancel the renewed HOA vendor contract, your association may incur penalties.
What to Watch Out For
Automatic contract renewal is the main problem with a majority of vendor agreements. Luckily, there are some things you can do to avoid getting your HOA in such a situation. Being prepared for this can help your association cancel a contract properly and avoid any surprises. Before signing or renewing contracts with vendors, consider the following:
- Contract Terms. The most responsible thing a community can do in regards to contracts is to evaluate the terms closely. This means checking for any auto-renewing terms or clauses in the contract. If you do find an auto-renew clause, you must take note of the amount of prior notice needed to cancel the auto-renewal, as well as any penalties or consequences you may incur should you fail to terminate the contract on time.
- Changes Upon Renewal. If you have a contract that is being renewed, it is also smart to make sure you look over any changes that will come with the renewal. It is common for there to be changes in laws or requirements to the new contract as needs, services, and even technology can change. Taking another look will ensure that you agree with the scope of work and have the right expectations.
After signing the contract, you’ll want to make copies of it for reviewing later on. It is also a good idea to adjust your schedule to include when you must cancel the contract before it becomes eligible for renewal. Additionally, because associations change board members regularly, newly elected directors may be unaware of contract renewals.
Current board members have a duty to pass on knowledge to incoming board members. The burden mustn’t be carried entirely by current or past board members, though. Newly elected board members must also be responsible enough to familiarize themselves with all vendor contracts.
Renewing Contracts with Vendors
Once your vendor contracting policy comes to end — and assuming you were able to cancel the contract before renewal — it is time for a new vendor agreement. You can either search for a new vendor or continue conducting business with your current one. If you do plan on renewing your contract, take these considerations into account:
1. Give Yourself Time to Plan Ahead
Before entering another contract with a vendor, sort out your plan ahead of time. This means discussing goals with your board and going over any concerns you encountered with the previous contract.
You may also want to address any pricing issues. It would be unwise to go into contract negotiations unprepared. Allow yourself enough time to lay out your objectives and concerns. This way, you won’t need to cram an entire month’s worth of review into one afternoon.
2. Check for Detailed Adjustments
Some HOAs may want to revise a contract after signing it, but this is usually only possible if both parties agree to the change. More often than not, you will have to wait until the contract’s expiration to renegotiate the deal and make necessary adjustments.
If you were unhappy with the nitty-gritty details of your previous contract, check what your vendor can do about them once the renewal season comes around. This can include frequency of service, terms of payment, delivery type, and available support. Don’t settle for anything less than what your community deserves. If your residents require trash collection twice a week and your vendor refuses to cooperate, then it may be time to consider a switch.
3. Ask for a Discount
When it comes to HOA vendor contract renewals, one of the most important considerations an association makes is pricing.
How much a specific type of service is going to cost can greatly affect your board’s decision. It can even be a dealbreaker, especially if the price range doesn’t fit within your HOA’s budget.
If you have a long-standing relationship with your vendor, you may be able to negotiate for a discount. This is one of the reasons why it is equally vital for an HOA to establish a healthy working relationship with its vendors. You may not like having to renew contracts every year (or every few years), but it does come with its fair share of benefits.
Some vendors may automatically give you a discount upon renewal to foster good relations, but others won’t. For this reason, you must take it upon yourself to request a discount.
Understanding HOA Vendor Contract Renewals
While HOA vendor contract renewals can be tricky, they’re not all inherently bad. The presence of a renewal clause in your vendor agreement shouldn’t immediately be a cause for alarm or termination. If you’re happy with your current contract, an automatic renewal can save you a lot of time and trouble.
On the other hand, if your current vendor agreement is more a source of distress than anything else, then an auto-renew clause can bring you more issues and financial loss. Now that you know what to look out for in vendor contracts, you can avoid any unwanted extensions.
The best way to remind yourself of automatic renewals is by adding the contract’s termination date to your calendar. Even if you know the contract renews and you’re okay with it, knowing the end date will keep you in the know and make sure you still agree with the terms.
Most associations turn to HOA management companies for help with vendor contracts and renewal clauses. If you arrive at a similar decision, make sure to keep us in mind.
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