Can homeowners inspect contracts an association has with its vendors? This is a question many HOA boards and homeowners ask. The answer, though, is not as clear-cut as you might think.
Can Homeowners Inspect Contracts?
First, it is important to understand the difference between executed contracts and contract bids. Executed contracts are contracts already selected and signed by the association board. Meanwhile, contract bids are contracts that are still under review or negotiation. Bids are those submitted by prospective vendors to the association. In other words, they have yet to be executed or signed.
State laws vary on whether or not homeowners can inspect HOA contracts. For instance, in California, Civil Code Section 5200 defines association records to include “executed contracts not otherwise privileged under law.” And Civil Code Section 5205 requires that HOAs make association records available to members for copying and inspection within specified timeframes.
In North Carolina, while Section 47F‑3‑118 of the Planned Community Act requires associations to make records available for inspection, the section does not explicitly include vendor contracts. The North Carolina Nonprofit Corporation Act also outlines members’ ability to inspect corporate records. However, “corporate records” do not include vendor contracts either.
State laws don’t take a universal stance on this matter. As such, individual HOA boards should check the laws in their state to avoid liability. It is also worth reviewing the association’s governing documents, especially if state laws are silent on the issue. And, as with most HOA businesses, it is best to consult a lawyer for further guidance.
Should Contracts Be Disclosed to Homeowners?
If state laws and governing documents don’t address the topic, the decision is generally up to the HOA board. When considering whether or not to make contracts available for inspection, it is essential to consider the pros and cons.
An HOA board might want to disclose executed contracts to members for transparency. It is natural for homeowners to question the board’s decision occasionally, especially since money is always involved. Homeowners want to know where their dues are going. They want to know that the board is making all the right decisions for the community. And allowing owners to inspect executed contracts can promote transparency and build trust.
Making executed contracts available for inspection also reduces conflicts of interest. It keeps board members in check because they know owners are privy to vendor information. If an HOA needs a new landscaper, board members will feel less tempted to hire a relative or friend for the job simply because they know them.
A big downside to disclosing vendor contracts is that it might invite unwarranted criticism from members. Homeowners don’t always know what is best for the community. They don’t see the negotiation details or the vendor selection process. Thus, what boils down as a good choice for the HOA may be viewed differently by homeowners who are just seeing the tip of the iceberg.
Contracts With Confidentiality Clauses
Sometimes, a vendor contract will come with a confidentiality clause. This clause might state that neither party (the vendor nor the HOA) can disclose contract details to third parties. In such cases, the HOA board should consult an attorney on how to proceed. The attorney might permit a requesting owner to view the contract but require them to sign a confidentiality agreement.
Can Homeowners Review Bids?
Most homeowners associations operate smoothly, with the board in charge of selecting vendors, negotiating bids, and executing contracts without member interference. But a handful of associations encounter owners who wish to be more involved in the vendor selection process. These owners usually want to inspect contracts before they are signed and executed.
So can homeowners inspect contracts that are still under negotiation?
Broadly speaking, members don’t have the legal right to inspect or review contract bids. While most state laws don’t require associations to keep bids confidential or a secret, this does not automatically mean that owners can access them. However, there are exceptions. Florida, for instance, permits the inspection of all official records, including contract bids that the HOA receives.
Building Trust Between the Board and Homeowners
More often than not, when homeowners want to see vendor contracts, it is not because they are challenging the board’s authority. Homeowners usually want to inspect contracts if they feel the board is unreliable or not doing its job correctly. The best way to counteract this is to build trust between the board and the owners.
But how exactly can the board build trust?
Avoid Conflicts of Interest
Above all else, the HOA board should make decisions according to the association’s best interests. That means choosing a qualified vendor that meets the budget and needs of the community. It also means avoiding all potential conflicts of interest, as even the perception of a conflict of interest can sully the board’s image.
Review the Bids Themselves
When the HOA receives contract bids and proposals, the board should review the bids themselves. While it is customary to seek the help of a professional manager or lawyer, board members should, at the very least, read through the contracts before signing. Check the fee schedule, the scope of services, and any clauses that might put the HOA in hot water. When negotiating, try to remove any early termination clauses or argue for one that won’t hurt the association. It is also a good idea to watch out for auto-renewal clauses.
Designate a Point Person
The HOA board should follow a standard vendor selection process. There is also a risk of muddying the waters when fewer people are involved in the negotiation process. As such, the board should appoint a single person to handle communication. Similarly, the board should request to speak with only one person on the vendor’s side. This way, everything is clear.
Of course, the point person should not make any promises they can’t keep or have no authority to make. It is also best that a board member signs the contract instead of a manager.
Can Homeowners Inspect Contracts? Answered!
When it comes down to it, HOA boards should check state laws and their governing documents for answers. While HOAs must maintain certain association records and make them available for member inspection, these records sometimes include executed contracts or contract bids.
Cedar Management Group offers vendor management as part of our value-added services. Call us today at (877) 252-3327 or contact us online to learn more about what we do!
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