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 Bureau of Real Estate (Cal. Admin. Code, Title. 10, § 2792.21) 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 60-90 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.
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