“Evergreen” Contract Provisions Set Contract Traps for Unwary Boards

September 15, 2010 by David C. Swedelson

Lately, a number of our firm's clients have contacted us regarding disputes they are having with vendors or their management regarding termination of their relationships. One association was very dissatisfied with the laundry room service/equipment provider, and when they went to terminate that relationship, they received a letter from the laundry company's attorney advising that the contract had recently renewed for an additional five-year term. To make matters worse, there was no provision in the agreement for terminating the contract for cause.

Another client wanted to get out of their contract with their management company, wrote a letter of termination, and was then advised that the contract had renewed for another year (and the manager never told the board when the deadline was to terminate). And this was after the board had been asking the management company for a copy of their contract. The management company denied that it had any obligation to advise the association as to when the contract term ended or when or if there was a deadline for termination.

Attorney John Shaffer of the Marcus, Errico, Emmer & Brooks law firm located in Massachusetts recently wrote an article on this very subject, as apparently his clients are facing some the same issues as ours. Follow this link to read John's article. John provides some good advice on how to deal with an evergreen provision in a contract.

When the board receives a proposed contract with an evergreen provision that automatically renews the contract (they're called evergreen provisions because the contract could virtually last forever), the board has options.

First, the board could just say no. Most vendors will relent and agree to a more reasonable termination provision. If the board is putting a contract up for bid, tell the vendors upfront that you are not going to agree to an evergreen termination provision nor an extended term of contract, and that the board wants the ability to terminate the contract for cause.

If the contractor or vendor won't agree to eliminate the evergreen provision, and the board really wants this vendor, then make sure that the vendor agrees to give ample notice of the termination cutoff at least 60 days before the deadline.

It is not always a good idea to sign the contract the vendor gives the board as there may be provisions that can come back to haunt the association. It is always a good idea to have contracts reviewed by the association's legal counsel BEFORE the board signs the agreement.

Posted by David Swedelson. To ask questions or comment on this blog post, contact David at dcs@sghoalaw.com.