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posted: 1/12/2013 5:40 AM

Automatic renewal contracts are enforceable

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Q. Our association entered into a five-year laundry room lease. The lease automatically renews for additional five year terms unless notice of nonrenewal is given to the laundry company. The lease says the notice has to be given within a specified period of time before the initial term or any subsequent term expires. We missed the deadline to give such notice. Is the automatic renewal provision enforceable?

A. Yes, in general, the automatic renewal provision is enforceable. Associations must be very careful when entering into a contract that automatically renews. Initially, associations should decide whether they want to enter into an agreement that automatically renews -- that is negotiable. If so, consider whether to agree to a provision whereby the contract renews for the same length of time as the original term, or whether subsequent terms should be for a shorter term. Associations must keep a time line of all contracts, particularly those that automatically renew, in order to know when to send notice of nonrenewal if that is the board's desire.

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Note too that some contracts include not only an automatic renewal provision, but also a right of first refusal. So, even if an association properly terminates a contract, the association would have to provide the vendor a right of first refusal on a contract with a new vendor. So, termination of the contract with the vendor may not end the relationship. This underscores the need for associations to have all contracts reviewed by its attorney.

It is also important to consult with an attorney before issuing notice of nonrenewal of a contract that automatically renews. There may be procedural nuances that the layperson may miss, resulting in a failed termination and possibly expensive litigation over the validity of the termination. In the worst case, the association may find itself with two contracts if a termination of the original contract is ineffective. That is, the association could find itself in a contract with the original vendor, and a contract with a new vendor that the association engaged when it thought the termination of the original vendor's contract was terminated.

Q. A practice has continued for many years in our association that I have questioned. That is, the proxy given by one owner to another, which designates who the owner wants the proxy holder to vote for in a board election, is counted as the ballot at the annual meeting. Is this correct?

A. No, this practice is not correct. A proxy is an agreement between two individuals that can designate how the owner wants the proxy holder to vote. However, the proxy is not a ballot. Rather, a ballot must be issued to the proxy holder at the annual meeting, and the ballot completed by the proxy holder in accordance with the instructions of the owner as described in the proxy. The ballot is then used to tabulate the votes; the proxy is not.

I do appreciate that many associations do as your association has done with proxies. However, this opens the door to a successful challenge of an election.

Q. The parkway trees bordering the individually owned lots in our single-family homes homeowner's association are primarily ash. We know the trees will likely die from emerald ash borer infestation. While many residents have replaced the trees, they are actually outside the resident's property line and are located in an area owned by the township. Can an association put a requirement in its declaration and bylaws that damaged or lost trees in the parkway must be replaced?

A. Initially, the association needs to review a survey to confirm that the parkway is actually owned by the township and is not part of the individual lot owners' lots. It is not uncommon for the parkway to be owned privately, but subject to an easement in favor of a municipality.

If the parkway is owned by the lot owners, the association's declaration should be reviewed to determine whether the association or the individual owners are responsible for the tree replacement. If the declaration is unclear, an amendment would be appropriate to clarify whether it is an association or owner responsibility.

If the parkway is truly part of the township-owned property, the association should approach the township about replacing dead trees, or to identify an ordinance, if any, that makes the individual lot owner responsible to replace the trees on the township-owned parkway. If there is ambiguity, the association could consider an amendment to clarify whether it is an association or owner responsibility. However, the township should be in agreement.

• David M. Bendoff is an attorney with Kovitz Shifrin Nesbit in Buffalo Grove. Send questions for the column to him at CondoTalk@ksnlaw.com. The firm provides legal service to condominium, townhouse, homeowner associations and housing cooperatives. This column is not a substitute for consultation with legal counsel.

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