A cause, or breach, needed to terminate service contracts
Q: About 15 years ago, the developer of our condominium association entered into a five-year contract with a service provider that automatically renews for additional five-year terms. The contract just renewed. The board found another reputable company that will do the same work for substantially less cost. What can we do to terminate our existing agreement, and what if we just stop paying?
A: If this contract was entered into before turnover of control from the developer to the owners, there would have been an opportunity to terminate the contract shortly after turnover. However, the time period for that opportunity to cancel the contract is not applicable now.
Most service contracts do not have a termination without cause provision. Typically; other than termination before a new auto-renewal term begins, service contracts require termination for cause. However, written notice of breach and an opportunity to cure need to be given. If the claimed breach is cured, the contract continues. If it is not cured, then the contract can be terminated.
Many service companies are very aggressive, and often claim there was no breach or that the breach has been cured. This can lead to disagreement and expensive litigation. The legal fees for such a battle can easily surpass the potential savings with a new service provider.
Further, service contracts typically include a one-way recovery of attorney's fees provision -- in favor of the service company.
As far as the five-year term, some condominium declarations limit the length of contract terms to a couple or three years. The board should review its declaration. If the term of the contract exceeds such a limit, the association can claim the contract is void.
If the association just stops paying, the association would be in breach and, if not cured, the service company can sue for damages (and potentially its attorney's fees).
While I appreciate this contract was entered into by the developer, I do want to underscore that contracts should generally be reviewed by counsel for the association before signing. Counsel should be able to suggest changes to level the playing field.
Q: I live in a condominium. A board member delivered a resignation to the board with an effective date a week from the date of the resignation letter. The president accepted his resignation. Prior to the resignation effective date, the board member rescinded his resignation. How should this be handled?
A: This is governed by Section 108.10(g) of the Illinois Not-for-Profit Corporation Act, which is applicable to all Illinois condominiums, whether or not actually incorporated. That section provides that "(a) director may resign at any time by written notice delivered to the board of directors, its chairman or to the president or secretary of the corporation. A resignation is effective when the notice is delivered unless the notice specifies a future date."
Initially, a resignation does not need to be "accepted" to be effective. Here, since the resignation was not yet effective when withdrawn by the board member, I would suggest the rescission of the resignation was effective, and that this person remains a board member.
Q: A rule for our association requires owners to maintain a working fire extinguisher in their units. How can such a rule be enforced?
A: A rule like this relies on residents voluntarily following it, as tracking compliance would be difficult.
That said, a couple of ways come to mind. Owners could be required to complete an annual affidavit that they are in compliance. Alternatively, the association can conduct annual inspections; however, the right to do so is unclear, and that would be incredibly time consuming.
• David M. Bendoff is an attorney with Kovitz Shifrin Nesbit in the Chicago suburbs. 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.