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EVERGREEN CLAUSES
 QUESTION: Our HOA has a landscaping contract that has been "auto renewed" for the past 10 years. Can they do that?
ANSWER:
It is common for service contracts to contain "evergreen clauses." The
provision causes a contract to automatically renew for a specified
period of time
unless the board gives written notice to the vendor that the
association will not renew the agreement.
DRE Limitation.
Generally, all
original sets of CC&Rs have a one-year limitation on contracts. This
limitation is
required by the Department of Real
Estate (Cal. Admin. Code, Title. 10, ยง2792.21) to prevent the developer
from obligating associations to long-term contracts that may benefit the
developer but harm the association. If the landscape contract you
referred to was
for a one-year period that automatically renewed each year for one-year
periods, it meets industry standards.
Long-Term Contracts. If
the term of the landscape contract was for a period of ten years, it
undoubtedly violates your CC&Rs. That does not make the contract
illegal nor does it make it voidable. It means the
board that signed the agreement intentionally or unintentionally violated the
association's governing documents. Ending the agreement before the ten-year period has expired will be problematic.
Notice of Non-Renewal.
Evergreen clauses usually include a notice period of 45, 60 or 90 days
before the renewal date of the agreement. Following is an example:
The
term of this Agreement will extend automatically for successive 12
month terms unless the Association gives ABC Landscaping written notice
it does not want it renewed. Notice must be given at least 45 days
before the Renewal Date of any term . . .
I've seen evergreen clauses that require 120 or 180 days
notice before the renewal date. The danger with long notice periods is
that they usually expire before the board starts to focus on the issue.
By then it is too late and the contract has already renewed.
An easy way to avoid such problems is to eliminate evergreen clauses from
all contracts so they become month-to-month after their initial term.
RECOMMENDATION:
Board's should put together a binder of all existing contracts and set
up a calendar with reminder dates at least 60 days in advance of the
renewal notice cut-off for each contract. This will give the board time
to review the vendor's performance and decide whether to give notice of
non-renewal. In addition, boards should always have a contract checklist that includes legal review before any agreements are signed.
PET VIOLATION
 QUESTION:
I am being accused of having unauthorized pets. I only have a foster
dog (temporary). Does the board have a right to enter my home to check
to see if I have these non-existent unauthorized pets?
ANSWER:
The right to inspect for violations (with proper notice) is not
unusual. Check your governing documents. If your association's rules
limit the number of pets an owner may keep in their unit, it sounds like
you are in violation.
HOA DISSOLUTION
FEEDBACK
As noted in the article by Helene Fransz in last week's newsletter,
an association cannot disband if no
entity
is willing to take over their maintenance duties. One of our readers
wrote that their HOA wanted to dissolve and asked the County to take
over the common areas. The County's letter
in response is instructive. Also of interest is the paragraph on taxes. If owners
think they can escape maintenance costs by transferring their obligations to
a governmental entity, they are in for a surprise. -Adrian Adams
RESERVE FUNDING
FEEDBACK
BofA Lawyers.
A member of our HOA talked today with the number two lawyer in BofA's
corporate General Counsel's office in North Carolina. He was told that
BofA's only restriction is to not make loans to buyers in HOAs if 50%
or more of the members are delinquent. -Dick B
RESPONSE: Let's hope the BofA lawyer in North Carolina tells the BofA branch managers in California.
Funny Accounting.
Interesting article on reserve funding. Our HOA recently lowered dues
but accompanied in the annual budget was a half page disclaimer from the
company that we have used for many years. What can homeowners do about a
board that seems to use funny accounting tricks to make things appear
great but long term not so great? -Bill C.
RESPONSE: Get involved, talk to your neighbors, run for the board.
Manipulating Reserves. One would have to wonder
of the accuracy of those communities reporting 100% funding. I have
taken over accounts reporting 70-80% funding, only to find rigged
numbers and missing components. While many appear to understand the
concept of reserves, most do not understand the global aspect and ease
of which numbers can be, and often are, manipulated. -Vicki M.
RESPONSE:
In a perfect world, that would not happen. New boards should always
start their terms with a bit of skepticism and review all contracts,
bank reconciliations, and reserve studies with a critical eye.
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Adams Kessler PLC. Readers should not act on issues raised in our newsletters or website without consulting legal counsel.
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