HOA Contract Defined
A Homeowners Association (HOA) contract is a legally binding agreement between the residential community’s members and the association itself. This contract lays out the rights, duties, and obligations for both the homeowners and the HOA in order to ensure that the community runs smoothly and efficiently. It is a contract that is essential for the overall organization of a community managed by an HOA .
HOA contracts generally include agreements on various aspects of community living, such as services provided, rules and regulations, communication, and resolving disputes. They are enforced by the HOA’s governing board and can be amended if necessary, typically with a vote from the membership or board approval.
Essential Elements in an HOA Contract
Each contract will vary based on the specific circumstances and intent of the parties, but there are basic elements that all HOA contracts should contain. Any North Carolina attorney should be able to draft language similar to, but not identical to, the following:
1. Introduction
a. Nature of the relationship – what is being bought and sold here?
b. Identify the parties – full names of the HOA and seller
c. Describe the property
d. Provide any other identifiers – deed book, PIN, etc.
e. Describe the services/sale
2. Rules and regulations
a. Identify the means by which rules and regulations are adopted or changed
3. Fees
a. Describe any costs and how they are assessed
b. Describe how changes in fees occur
c. Include limitation on fees
4. Maintenance responsibilities
a. What is the HOA responsible for maintaining?
b. What is the buyer/resident/homeowner responsible for maintaining?
c. Discuss common areas and limits thereof
d. Describe how maintenance will be performed
5. Dispute Resolution
a. What happens in the event of a dispute?
b. Is mediation mandatory?
i. If so, how long is the mediation period and how many sessions must be attempted?
c. Is binding arbitration necessary?
i. If so, what rules govern the arbitration?
ii. Must both parties agree to arbitration or not?
d. Must a dispute be settled in court before another method of resolution is used?
6. Force Majeure
a. What happens if an act of God, war, insurrection, terrorism, etc. same list as in Force Majeure b. halts performance of this contract?
7. Additional Provisions
a. What else do you want/need to discuss?
b. Anything covered by North Carolina lease requirements?
Why a Solid HOA Contract is Important
A well-structured HOA contract is essential for all parties involved in the community association management process. Homeowners association management companies and the board members they serve need clarity and transparency about the roles and responsibilities each party has when a contract is in place.
If there is a lack of clarity within the contract, the risk of a discrepancy in how services are rendered will inevitably cause conflict. This is a frightening prospect for homeowners association management companies, because if the board perceives that something is wrong with the way services are being rendered, it could result in a termination of the management contract. This is a serious threat to the future of HOA management companies, as it is both time consuming and costly to develop new associations.
Conflicts can also occur when the board feels there is a problem with the rating of services within the HOA contract. We have heard horror stories where contractors only made it to 80% of board meetings and still sought payment for 100% of hours worked.
This is why HOA contract samples are so important. Any homeowner association management company worth their salt should offer model contracts to their clients so that everyone involved has a clear understanding of which services will be rendered.
Let’s look at some model contract provisions that you should be confident you can commit to when developing contracts for your clients. Take the time to sit down with board management and discuss the drafted agreement and any potential issues the contract may fail to address.
Model Contracts: What They Do Clear Expectations: What Will and Won’t Happen Text Box Feature: Outlining Common Services "Subject to the terms and conditions of this agreement, the manager shall provide to the association management services and assistance in the governance and operations of the association [insert general services]."
List of Services Rendered: Regular and Special Meetings with Board Emergency Association Manager Services Day-to-Day Management Fee Ranges Bid Reviews with Board Providing Help to Owners Much More…
Standard Contract Terms and Conditions Termination Clause Unusual or Unexpected Fees A Clear Guide to Dispute Handling Dispute Resolution What do you use to prevent a situation? Deal Breakers
Procedural Details Right to File Liens Disclaimer of Association Liability Insurance Requirements Security Provision Indemnification Clause Miscellaneous Items Entire Agreement Severability Amendment in Writing Only Wiring Options in a Written Contract Effective Date
Dispute Resolution Why would Boards and Management even use these HOA contract samples? Contracts imprinted with company names and addresses can be misleading. Show boards what actually is expected. Each community association is unique, and so are the services they hire managers to provide. Equip boards with sample service agreements that include a range of examples tailored to their needs.
HOA Contract Sample Made Easy
When it comes to drafting HOA contract samples, the same foundational process applies. The first step is to conduct a comprehensive needs analysis and identify the governing documents and bylaws required to govern the community. A thorough assessment of the current and potential future state of the community will allow the governing body to identify the key terms that need to be captured in the HOA contract. The governing body should analyze the material terms that are necessary in order to address the unique needs of the community.
In certain situations, it is worth considering retaining a professional HOA contractor or association management company. Though this requires an upfront investment, a quality HOA contractor or association management firm can efficiently draft an HOA contract that provides thoroughly described terms and conditions for the parties to agree upon .
It is also important to ensure that the terms of an HOA contract are defined in a clear and concise manner, ensuring that the terms are easy to understand and that each party can agree to the terms without confusion or miscommunication. Too often, HOA contracts are drafted in ways that unintentionally obscure the terms of the agreement. This can lead to confusion after the agreement has been signed, which can lead to disputes between the parties. This can be avoided by ensuring all terms of the agreement are clearly articulated before the contract is signed.
Ultimately, creating an HOA contract sample involves a quality composition of the previously discussed sections. With the above guidelines in mind, you’ll be able to start drafting an HOA contract sample that will satisfy the needs of your community in a clear and concise manner.
Common Mistakes to Avoid in HOA Contracts
When entering into contracts, HOAs must be cognizant of a few potential problem areas that, if not addressed, can result in greater expenditures than expected or even legal action; either against the association, or against the individual(s) who had the responsibility to ensure the effectiveness of the contract.
1. Ambiguous Language
The contract should clearly state what is expected of each party before and after execution. Each party should be on the same page. Otherwise, the relationship between the association and the vendor may deteriorate once work has started. Failure to read and understand the contract fully will result in negative consequences to one or both parties. If the association is not willing to dedicate the time and resources to understand the contract obligations, it should hire an attorney to help prepare and negotiate the final contract with the vendor.
2. Old Contract Clauses
HOA attorneys are diligent in keeping abreast with the law and best practices in our industry. However, some vendors will use outdated contracts as part of their boilerplate form agreements. They haven’t updated their contracts to reflect changes in the law in their industry, and may be negligent in their performance of contractual duties as a result. Make sure to have your attorney review all boilerplate agreements to ensure they contain current law and best practices.
3. Complying with Local, State, and Federal Laws
Association contracts need to comply with the laws of the state in which the Association is located. Some states require that contracts to be entered into by an association must be in writing and signed by individuals with specific authority. Vendors need to know that the association can only enter into certain types of contracts. Associations cannot delegate Board powers to others unless specifically allowed to do so by statute. Board members cannot bind an association for services or other products without full examination of the contract terms.
HOA Contract Sample: The Template
The following is a sample HOA contract template derived from our document library. As with any of our contracts, references to the parties are to be made specific to the subject property and related HOA. For the purposes of this example, we will pretend that the subject HOA is a Texas non-profit and the management company with whom the client has contracted is also located in the state.
This HOA contract template is formatted for Word Documents with built-in Word fields. Since Word has a cumbersome method for locking down fields from content building, our firm recommends that you "Unprotect" the document before building content, and "Protect" once content is finished. Please contact our office for more information or additional documents.
THIS AGREEMENT FOR COMMON INTEREST COMMUNITY INSURANCE POLICY ("Agreement") is made and entered into as of [DATE] and is between [FIRST, LAST NAME OF HOA PRESIDENT], in his/her capacity as (the "Board President") on behalf of (INSERT NAME OF HOA), a Texas non-profit homeowners’ association ("Association"), and [FIRST LAST NAME OF MANAGEMENT COMPANY], a Texas Corporation ("Manager"). Manager and the Association may be collectively referred to as "Parties" and individually as "Party." This Agreement supersedes any prior agreements between the Parties.
RECITALS
A. On [DATE], the Association entered into a Management Agreement with the Manager for the purpose of engaging the Manager to provide certain management services (the "Management Agreement") . The Board President and the Manager hereby desire to amend the Management Agreement to clarify that the Manager shall act as the Association’s agent to obtain Common Interest Community Insurance on behalf of the Association under the terms of this Agreement.
B. All capitalized terms not defined herein shall have the meanings assigned to them in the Management Agreement.
C. This Agreement is made for the purpose of establishing a binding agreement between the Association and the Manager for the purposes of procuring an insurance policy through a licensed insurance agent (the "Common Interest Community Insurance Policy") which covers the Association’s obligations concerning common elements, and evaluating whether to proceed with litigation in the event of negligent or defective construction performed by a builder or contractor of the Association’s Property ("Evaluation Process").
D. This Agreement shall serve as the general framework of the insurance process as undertaken by the Manager on behalf of the Association. The Manager agrees to keep the Association informed in relation to all matters arising under this Agreement. Under this Agreement, the Manager will make the final decisions during the Evaluation Process unless otherwise agreed to in writing by the Association Board of Directors ("Board"). The Manager is authorized to take reasonable action on behalf of the Association during such time it takes to complete the Evaluation Process.
AGREEMENT
NOW, THEREFORE, in consideration of the covenants and conditions contained herein, the receipt and legal sufficiency of which are hereby recognized, the Parties hereby agree as follows: (Here, insert the management company insurance contract language).