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The Importance of Understanding HOA Contracts

10/08/2015

Home Owner Associations (HOA) are common throughout the country. When work needs to be performed, a formal contract is required. However, there will likely be distinct differences from one contract to another. If you move into a neighborhood with an HOA, whether buying or renting, as a member you have the right to review all contracts that pertain to your home or common buildings and/or amenities.

Renovation Projects

To better understand the importance of HOA contracts, consider renovation projects, which are done all the time. While some projects are minor, others are major. As a member of the HOA, you have the responsibility to know what is going on. Based on that, you have the right to review the contract to better understand the full scope of work. This provides you with an opportunity to raise concerns over price, schedule, and other aspects of the contract that could easily be hidden in the fine print.

Typically, a contractor is going to create a contract that focuses primarily on money while making more generic references to the work being done. In reviewing an HOA contract, you might find general descriptions of work, so you need to know more. For instance, rather than detail work for repainting buildings, such as removing shutters, sanding rough spots, caulking holes, power washing off dirt, priming, and painting, the contractor may term the work as nothing more than “building painting.” Obviously, this does not suffice.

A well-written HOA contract for contractor work should offer much more. This legally binding document should address warranties, insurance, bonding, licensing, inspections, materials, labor, and so on. Especially for larger and more complex jobs, it would be worthwhile to have an attorney review the contract as well. That way, you and other HOA members have peace of mind that the work will be performed correctly.

Contract Clauses

Clauses are one aspect of a contract that can be confusing. However, because it is common for an HOA contract to contain a number of clauses, you should seriously consider having it reviewed by a reputable attorney. For instance, with the “Obligations of Each Party” clause, the contractor usually agrees that all labor and material will be provided but that the designated HOA representative, usually the president, must approve everything in writing. Included in this clause will be the payment arrangement, which is to be adhered to unless there is a viable dispute.

Another clause used in HOA contracts is the “Deadline for Performance.” This clause usually has a phrase that reads “Time is of the essence” to indicate that work needs to be completed on schedule barring any unforeseen delay, such as poor weather, broken equipment, delay in the delivery of materials, and so on.

Warranties are another important aspect of HOA contracts. For this, you need a warranty for labor and another warranty for materials used. The warranty on labor comes from the contractor overseeing the project whereas the warranty for materials falls back on the manufacturer. The bottom line is that without some basic knowledge of HOA contracts, members of the association could face potentially legal challenges.

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