Association Contracts (Oregon Law)

One of the powers and duties delegated to the board of directors in an association is the power to negotiate and enter into contracts. In fact, one of the exceptions to the open meetings requirement is for negotiation of contracts. Boards can meet in executive session to negotiate contracts and then re-convene in an open board meeting to vote on approving a contract.

In its simplest form, a contract is an agreement between two or more parties where there has been a “meeting of the minds.” In order to have a contract, there has to be an offer, acceptance of the offer, and consideration; consideration means that there must be value given by each party to the contract. While some oral contracts can be enforced, an association should never enter into a contract that is not in writing.

There are a multitude of contracts that associations can enter into. The most common are: maintenance contracts, landscape contracts, cable bulk service agreements, building envelope/construction evaluations, construction contracts, employment contracts, attorney representation agreements, management company contracts, and association lending contracts.

If a contract is for services that will be ongoing, or for more than a few thousand dollars, the association should have the contract reviewed by an attorney. Before entering into a contract, the board must fully understand the goods or services that are going to be offered, what the expectations are for performance under the contract, how to terminate a contract, what it will cost the association to terminate the contract, whether arbitration is required, and if attorney fees are to be awarded to the prevailing party in a lawsuit.

If the association is entering into a construction contract, it’s extremely important that the contract be reviewed by an attorney. A lot of contractors use standard form contracts, which may have provisions that may not be favorable to the association. These form contracts are very lengthy and can be very specific with regard to payment, insurance, performance, and limitation of liability. Under no circumstances should the board use a bid as the construction contract.

The board of directors owes a fiduciary duty to act in the best interest of the association. When it comes to entering into contracts, the board needs to fully understand the contracts that it enters into on behalf of the association. Questions and concerns about contracts should be discussed with legal counsel.