Articles

Client Alert: Contracts 101 for Community Associations

Date: September 30, 2025
Understanding contracts is essential for directors and managers who aim to foster strong business relationships and ensure smooth operations within their community. Contracts, by definition, are legally enforceable agreements between two or more parties, where each party promises to do, or not to do, something specific in exchange for another’s promise. While courts have ruled that little more than this is necessary to make a contract enforceable, careful review and drafting is necessary to make every agreed-to term of the contract effective.

Generally, and aside from contracts for goods/supplies, community associations encounter two types of performance contracts: projects and services.  

Project contracts are typically used for one-time construction, repair, or renovation projects. The terms include detailed specifications, a specified start date and/or expected time frame for completion, and often a set price or price formula. Project contracts may also contain specific warranties for the work performed. Simple examples of project contracts would be the repair of a water pipe leak or painting/re-striping parking spaces. 
             
Service contracts are generally for services and utilities that are needed continuously or on a repeated basis. They usually run according to a “term” (e.g., four months, one year, two years) and may be automatically renewable. Service contracts define an ongoing business relationship and should include standards to measure performance.

In most jurisdictions, even a single sentence stating the work a party will do for a community association and what they will receive as a result, combined with the acceptance of someone claiming to be in charge of the community association, is enough to bind the parties and create obligations and liabilities – sometimes despite whether or not there was any document signed or the person did not have the authority to contract.

As circumstances like these can damage a community and waste its resources, it is important to specify some critical provisions in a community association contract. The principal terms are often the following:
  • Commencement and Expiration Dates: Clearly defining the “term” or duration of the contract is essential. For example, contracts for pool management are often just the few summer months, while contracts for professional community association management companies may be for one or multiple years.
  • “Scope”/Details of Work: Specific details of the work to be performed should be outlined to eliminate ambiguity as these terms also set the standard by which the work can be reviewed for compliance. It’s also important that every detail be put in writing as verbal agreements or modifications often lead to difficult litigation.  
  • Payment: Both project and service contracts are almost always going to be work in exchange for payment from the community association. As money is a critical resource, every contract should specify “who, what, when, where, why, and how” regarding the work, as well as specific payment terms: to whom payment is to be made; what form(s) of payment are accepted, when is the payment due and when is it late; where payments must be made or mailed; why any fee may be charged; and how much shall be paid. 
  • Liability, Warranty, and Risk Allocation: Contracts should address insurance requirements – both kind and amount – and indemnification to allocate risk appropriately. An agreement that a vendor will indemnify the community association if sued typically requires the vendor to defend the community association in court at the vendor’s expense. Separately, identifying the warranties a manufacturer, installer, or repair company provide for work or the materials used can be valuable for years to come.
  • Termination and Non-Performance Remedies: Most people do not make promises they do not intend to keep; however, should promises fail, neglecting to agree on consequences in advance can put a community between “a rock and a hard place” and drain its resources. As such, every contract should define the procedure for termination by the community association and specify whether cause is required. 

While details of these principal terms may vary between similar contracts, or be amended for year-over-year renewals, every community association contract should have language or a provision that fits each of these categories.

For directors and managers alike, understanding the basics of contracts is vital for effective community administration, governance, and operation. By familiarizing themselves with the types of contracts and their key provisions, community stakeholders can better navigate the complexities of contractual agreements, protect the community and its resources, and thus help foster a thriving community environment.

If there is ever a concern as to whether any contractual agreement or term therein is aligned with a community's goals and expectations, or if the conditions necessitate enforcement or termination, the community association should seek its attorney’s input as soon as possible.
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.