Connecticut Condominiums and Service Contracts: What Associations and Property Managers Need to Know

Under the Connecticut Common Interest Ownership Act, the condominium association is responsible for managing condominiums in Connecticut.  Included in this power and authority is entering into service contracts with other to provide services to the development.  Many Connecticut condominiums will hire a property manager to assume this duty.  But whoever enters into the contracts on behalf of the condominium must be careful

Most service contract forms for Connecticut condominiums are standard form contracts that are modified only with respect to matters such as the client name, any specific services to be provided, and the cost for those services.  Just accepting the standard form boilerplate can be dangerous to the association, though, and Connecticut condominium law expects more from an association.

Here are some of the things you should look at when evaluating a service contract:

Services Provided:

The most important contract provisions obviously are those addressing the nature and scope of the services to be provided, and the contractor’s fee.  To avoid misunderstandings and potential interruption in service, the service contract should provide a reasonably detailed statement of the type and frequency of the work to be performed under the contract.  The extent of detail obviously will depend on the nature of the services provided.  For example, a waste-removal contract normally would be expected to contain less detail as to the nature of services provided than a landscaping contract.  The manner in which the contractor’s fees are calculated, the frequency of payment, and any applicable late charge fees should be clearly set forth in the contract.

Term of the Agreement

Provisions about the term of the agreement (that is, how long it will last) are also important.  Under what circumstances can you terminate the contract for bad service?  When does it renew?  In particular, property managers and the associations they represent should be on notice for two items in particular:

An Evergreen Clause is a contractual provision providing for the automatic renewal of a contract from term to term absent notice by one of the contracting parties to the contrary.  Such provisions are common and generally will be enforced by the courts.  These provisions may be particularly problematic for a number of reasons.  First, they usually contain specific requirements as to the timing, content, and manner of notice required to terminate the contract.  Second, an attempt to terminate the contract other than in accordance with the contractual provisions will give rise to a claim for breach of contract.

An example of the inherent dangers of evergreen clauses is evident in USA Waste of Connecticut, Inc. v. Beit Bros. Supermarkets, Inc., 1999 WL 244110 (Conn. Super. April 15, 1999).   The contract in this case required USA Waste to provide refuse and recycling removal services for the defendant supermarket chain at two of its stores.  The initial term of the contract began on December 1, 1996 and terminated on December 1, 1997.  The contract also contained the following evergreen clause:

[T]his agreement shall be automatically renewed for like terms thereafter unless either party shall give written notice of termination (Certified Mail) to the other party at least sixty (60) days but not more than one hundred eighty (180) days prior to the termination of the initial term or any renewal term.

Apparently unhappy with the services it received during the initial term, on October 31, 1997, Beit Bros. sent a letter to USA Waste with notice of its intention to terminate the contract.  This letter was sent 31 days before the contractual termination date and not by certified mail.  Finding the contract terms clear and unambiguous, the court held that the attempted termination was ineffective and constituted a breach of contract.  The court awarded USA Waste significant damages, including liquidated damages and attorneys’ fees.

Liquidated Damages

A Liquidated Damages Provision is a contractual provision stating the amount (or a formula for determining the amount) of damages to be paid to the service provider upon its client’s breach of the contract. The provision most often is invoked following the client’s alleged improper termination of the contract. A liquidated damages provision generally will be enforced if the following conditions are satisfied:

1. The damage which was to be expected as a result of a breach of the contract was uncertain in amount or difficult to prove;
2. there was an intent on the part of the parties to liquidate damages in advance; and
3. the amount stipulated was reasonable in the sense that it was not greatly disproportionate to the amount of the damage which, as the parties looked forward, seemed to be the presumable loss which would be sustained by the contractee in the event of a breach of the contract.

CMG Realty of Connecticut, Inc.  v.  Colonnade One at Old Greenwich Limited Partnership et al., 653 A.2d 207, 36 Conn. App. 653 (1994).

Liquidated damage provisions should clearly state an amount to be paid in the event of an early contract termination.  The more common, and better, approach measures liquidated damages as a percentage of the amount that the service provider would have received if the client had not terminated the contract.  The following contract language provides an example of this type of provision:

In the event the Customer terminates this agreement … Customer shall pay to Contractor as liquidated damages, a sum calculated as follows:

(a) if the remaining term under this agreement is six or more months, Customer shall pay the greater of its most recent monthly charge multiplied by six, or its most recent monthly charge multiplied by one half of the number of months remaining on the term .…

General Considerations

Aside from these provisions there are some general principles to keep in mind:, whether reviewing the contract on your own or with a Connecticut condominium lawyer:

• All terms of a contract — even the terms of a form contract — are negotiable.
• Review all contract terms carefully. The failure to recognize a burdensome provision could cause significant problems for the association:  if you see something questionable, consult an experienced Connecticut condominium law attorney.
• Be fair and reasonable in your negotiations. For example, it is entirely reasonable for a service provider to insist on a liquidated damages provision reasonably related to its investment in the association and the uncertainty and financial disruption that might result from an early termination of the parties’ relationship. The goal always should be to determine an amount (or term) fair to both sides given the type of services at issue and the expected duration of the contract.

Before entering into any service contract, make sure the association understands what it is getting into.  This will allow the association to make an informed decision, and insulate you from later claims of ignorance if things go awry.   And, consider seeking the assistance of a Connecticut common interest ownership attorney.