Shouldn't the Board Approve Contract Renewals?

Started by CarolR11 • 12 replies • 1774 views

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CarolR11 (Colorado)
Posts: 2,563

Posted:

Several days ago, I realized that I and the rest of the Board hadn't approved certain contract renewal proposals for a very long time. Now, we're a twin tower urban high rise so we have about 20 contracts and I know that no director has them memorized, including their renewal dates.

Asking our onsite PM, she replied that, well, their annual renewal proposal was the same as their previous contract, so the president simply signed the renewal contracts. I'm feeling uncomfortable about this, especially since our ex ( just happened with the annual meeting) president reads with poor comprehension.

I checked davis-stirling.com and it seems to say that the president, unless authorized by the Board at a duly noticed meeting, may not sign contracts. But the site doesn't specifically state contract renewals. We directors haven't given this authorization.

(Some are small-medium, but one is $30,000+ per year, and one is close to $200,000 per year!)

I do realize this is a very unexciting topic. But we just had an election and our new president is somewhat more knowledgeable about these matters than the last one. My gut sense is that in the name of "efficiency" and to make meetings shorter, the PM convinced the previous president that it was OK.

What's your take? Advice please!

TimB4 (Tennessee)
Posts: 21,062

Posted:

Contract renewals are still a contract.

If it requires a signature to be effective, then the decision to renew or not should have come from the Board. The only exception to that would be contracts that have an automatic renewal clause.

I believe that your President overstepped their positional authority.

GlenL (Ohio)
Posts: 5,491

Posted:

Short of major lawsuits trying to undo this, IMHO you need to let what has happened stand and move forward. Make a motion at the next meeting that no contract or renewal can be signed without a majority vote of the Board. Then you need to read all of the contracts and write their renewal dates down including by what date the company must be notified before a contract automatically renews. For instance unless we notify our waste hauler 90 days before the termination date of our intent not to renew, renewal is automatic.

Our former president each year would buy a generic calendar and mark all important dates for that year, which she would then copy and give to each Board member and the MC.

Studies show that 5 out of 4 people have problems with fractions

TimB4 (Tennessee)
Posts: 21,062

Posted:

As Glen pointed out, because the President signed the contract, the PM would have had the expectation that the President had the authority to sign the contract from the Board. Therefore, the contract is likely enforceable.

The issue is with the President and now the Board needs to decide what they want to do about it. This can be anything from simply informing the individual that they overstepped their authority to removing the individual from the Office (which would then require that someone else agrees to be President).

Note: the individual would still continue to serve as a Director and have 1 vote to cast on every issue brought before the board.

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Posted By TimB4 on 10/31/2013 1:33 AM
As Glen pointed out, because the President signed the contract, the PM would have had the expectation that the President had the authority to sign the contract from the Board. Therefore, the contract is likely enforceable.

The issue is with the President and now the Board needs to decide what they want to do about it. This can be anything from simply informing the individual that they overstepped their authority to removing the individual from the Office (which would then require that someone else agrees to be President).

Note: the individual would still continue to serve as a Director and have 1 vote to cast on every issue brought before the board.

Equally important is that the vendors would believe that the president was acting within the scope of his authority. Trying to rescind any contracts would be costly.

CarolR11 (Colorado)
Posts: 2,563

Posted:

Thanks to you all for your good replies!

I have no reason to try to rescind any of these particular contracts. The vendors are doing satisfactory work, imo. It's future renewals that we need to do correctly.

The president who signed them just was replaced last week at our annual meeting with a woman who has better judgment and more knowledge about Cali HOA's in general. So I'm just going to put it on the agenda that we must, once again, approve contracts as a Board at meetings.

All of our contract renewals, etc. go to the PM who's exceptionally efficient and likes to handle matters expeditiously. This, however, leads to some carelessness and short cuts. I'm pretty sure that she simply told the ex-prez that it's OK to sign these renewals as the PM is satisfied with the vendors' work and there's no change in the price of or the term of the contract--one year in most cases per our CC&Rs. Our ex-president blindly believes every single thing the PM says.

We did, within the last year get three new firms for some contracts, the PM brought us their proposals, we interviewed the firms' reps, etc. So new contracts have been done properly.

Our previous PM had her assistant make a binder of all of our contracts for every director, which I really liked. But a calendar would be very nice!

KellyM3 (North Carolina)
Posts: 2,239

Posted:

Carol,

Are the fees from the vendors changing along with these contract renewals? If the contracts aren't changing except for an expiration date, and the board is expressing satisfaction with the vendor services, I'd probably cut the president some slack. If the president is signing new deals with higher fees, the board should discuss the matter as the terms haven't been accepted by a board vote. But, when there's any question raised, a public discussion is merited.

CarolR11 (Colorado)
Posts: 2,563

Posted:

Thanks, Kelly. According to our PM, neither the cost nor term of the unauthorized contracts changed upon renewal. Since the board didn't review the contracts up for renewal, I don't know if other directors (we are 7) are satisfied with these vendors. I wrote that I'm satisfied, but that's just me. I doubt they've noticed that we haven't reviewed some for a long time.

I'll probably just meet with the new president & the PM and discuss it with them.

Here's what davis-stirling.com says about contracts in CA: "UNAUTHORIZED CONTRACTS

Contracts should not be entered into until they have been reviewed by legal counsel and approved by the board. Review and approval may be done in executive session.

Binding on Association. If an officer/director approves a contract without authorization from the board, the association may be bound by the unauthorized agreement. This is especially true if the contract is signed by two officers.

Unauthorized Contracts. If liability is created because of the unauthorized actions of a director, the board may take one or more of the following actions: (i) remove that director from his/her position as an officer, (ii) censure the director, (iii) schedule a membership vote to recall the director from the board, and/or (iv) take legal action against the director for damages. Before taking action, the board should seek legal counsel."

Read more: Unauthorized Contracts http://www.davis-stirling.com/MainMenu/MainIndex/ApprovingandSigningContracts/tabid/1622/Default.aspx#ixzz2jiXwiJt6
from Davis-Stirling.com by Adams Kessler PLC.

TimB4 (Tennessee)
Posts: 21,062

Posted:

Carol,

One thing we do at the first meeting after our annual meeting/elections is for the Secretary to identify all contracts that will be ending during that year (including those on automatic renewal). You may want to incorporate this in your meetings.

Another thing we've done is create an Association calender that every Officer has in their pass-on binder. This calender lists everything that must be done in that month. It includes such simple things as "purchase software for issuing of 1099-misc" to what contracts may be ending in that month.

This may be helpful in making sure that everyone knows when things are due.

KellyM3 (North Carolina)
Posts: 2,239

Posted:

A contract with auto-renewal - if initially board approved and being legitimate - remains a board-approved contract at the time it rolls over as there is zero lapse that indicates the "end" of the contract. It takes a negative action to end the contract and I consider higher fees or lesser services to be such a trigger. If your board is silent on the particular auto-renewing contract, then that's a prime indication there is no trouble and no reason to create bureaucratic work. Something else will dominate your volunteer hours.

However, an HOA board can be as active and micro-managing or "hands on" as it chooses. If a person has the time.....

JH3 (Maryland)
Posts: 67

Posted:

Quote:

Posted By CarolR11 on 10/30/2013 7:00 PM
Several days ago, I realized that I and the rest of the Board hadn't approved certain contract renewal proposals for a very long time. Now, we're a twin tower urban high rise so we have about 20 contracts and I know that no director has them memorized, including their renewal dates.

Asking our onsite PM, she replied that, well, their annual renewal proposal was the same as their previous contract, so the president simply signed the renewal contracts. I'm feeling uncomfortable about this, especially since our ex ( just happened with the annual meeting) president reads with poor comprehension.

I checked davis-stirling.com and it seems to say that the president, unless authorized by the Board at a duly noticed meeting, may not sign contracts. But the site doesn't specifically state contract renewals. We directors haven't given this authorization.

(Some are small-medium, but one is $30,000+ per year, and one is close to $200,000 per year!)

I do realize this is a very unexciting topic. But we just had an election and our new president is somewhat more knowledgeable about these matters than the last one. My gut sense is that in the name of "efficiency" and to make meetings shorter, the PM convinced the previous president that it was OK.

What's your take? Advice please!

Gut sense is far from factual evidence. I would like to think that a PM would not be trying to convince a board one way or the other, as a PMs role is to provide information and advice, and allow the board to make an informed decision from that. That said, the board president is within their right to sign a contract or a contract renewal - but the board should ultimately vote and record it in the minutes that the president is taking that action, or is authorized to take that action.

There are contracts which renew automatically without signature, and those are approved at the time of the original signature, and it is up to the board to review the contact prior to renewal - to make sure it is a contract they wish to continue on with. If that review was not done, than that is on the board, and you'll have to address it next time around.

If there is no issue with the contract, and the president signs a renewal, and they were previously authorized by the board to do so, then I do not see an issue. However the authorization should be in the minutes somewhere, and by the sound of it, you may have to go through minutes of several years (back to when the original contract was signed) to find that authorization - assuming it was done properly.

I would only advise terminating contracts for lack of service, not for internal issues.

Unless there is a substantial reason to go back and look, just let it go, and get your renewal dates for every contract, and review them (or not) as those dates come up.

CarolR11 (Colorado)
Posts: 2,563

Posted:

Thanks, JH3. None of our contracts are on automatic renewal. As I wrote in OP, we (the Board) has never given the president authorization to renew contracts. This new "practice" just began within the past six months. Prior to that, all contract renewals were approved by the Board at open meetings.

Our PM and mgr. asst. direct our vendors so mgmt. knows about their performance quality. We directors would only have a general knowledge of the work that was done, e.g., the custodians seem to do a good job, the security officers are polite and seem diligent, the landscaping looks nice, etc. Our managers know a lot more about the details of the work especially that done by our engineers, pest control vendor, water treatment testing, etc. And if any residents have complaints, they would direct them to mgmt. That's why our PM certainly does make recommendations re: new contracts and why she used to make recommendations about contract renewals.

Yes, Kelly, the board is silent about these contracts because those up for renewal haven't been on our agendas. But, per yours & JH3's advice, I'm basically gonna back off--I think.

KellyM3 (North Carolina)
Posts: 2,239

Posted:

The main reason I'd not worry about renewals, if the renewal option was approved by the board when the contract was accepted.....

No group, in any neighborhood, gets complained to about the property operation more loudly or more easily than the HOA board and property manager. It's an American pastime. You'll know if vendors start failing in their operations....and auto-renewals are as easy to cancel as voting to renew a contract. The ball remains in your court but auto-renewals can give you - the volunteer - one less headache. But keep an eye on those terms.....any change in terms is a "trigger" to discuss HOA options, a point I've made clear with my board (they agree) and property manager.

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