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HOAs and Management Companies – Does your contract say what you think it says?

Many boards of directors for community associations engage management companies to help the board operate their community. These relationships arise from written contracts negotiated by the parties. It is essential that homeowners’ associations and management companies have their contracts reviewed by their experienced HOA attorney.

When determining the terms of a contract, Virginia courts employ what is known as the “plain meaning” doctrine. This doctrine basically means that when an agreement is clear, a court will look to the ordinary meaning of the words of the contract itself. Consequently, the parties need to ensure that all of the terms they believe are part of an agreement are in the written contract itself.

A recent Virginia Supreme Court case presents a prime example of why it is important to have your association attorney review contracts between community associations and management companies. In Condominium Services, Inc. v. First Owners’ Association of Forty Six Hundred Condominium, Inc., a condominium association (“FOA”) sued its former management company (“CSI”) for breach of contract and conversion of funds. As a result of these alleged improprieties, FOA terminated the management contract in accordance with the procedures outlined in the Management Agreement. The agreement specified that either party could terminate the agreement without cause upon 90 days written notice. It further specified that FOA could terminate the agreement with cause upon 30 days written notice.

Normally, this case would be open-and-shut: FOA had cause to terminate the agreement, it gave written notice, and it terminated the agreement 30 days later. But CSI focused on another provision of the agreement. In a different section, the agreement stated that FOA’s Bylaws were among the documents “governing [the] relationship” between FOA and CSI. FOA’s Bylaws stated in pertinent part that FOA could not change management agents or undertake self-management without the approval of 3/4 of the members present at the meeting where the issue was presented for a vote. CSI contended that, because the contract referenced the Bylaws, and because the Bylaws required a vote of the members to change (or terminate) management companies, FOA did not comply with all of the requirements for termination.

Neither the trial court nor the Virginia Supreme Court was persuaded. The Virginia Supreme Court agreed with FOA that although the Bylaws were incorporated into the Management Agreement, the Bylaws were referenced only in the section relating to CSI’s responsibilities. The Court held it was clear that the purpose of the reference “was to identify documents that CSI, as the management agent, needed to be aware of and comply with in performing its duties and responsibilities under the Management Agreement.” Accordingly, the court held that the only requirements for termination of the agreement were contained in the section of the agreement specifically dealing with termination. That section did not reference the Bylaws. Therefore, the contract did not require reference to the Bylaws with respect to terminating the Management Agreement.

This case illustrates why it is so important to have all of your contracts reviewed by your experienced community association attorney. Without this critical eye ensuring that all of the necessary terms are present in the written contract, you may risk the exclusion of some terms altogether.*

Thanks to William & Mary Law student Brian Kelley for his help with this blog post.

Tarley Robinson, PLC, Attorneys and Counsellors at Law

Williamsburg, Virginia

jt photo 240x300 Getting rid of an LLC member can be difficult without an effective operating agreement

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John Tarley

John is the firm's managing partner and chairs the firm's small business, zoning, and litigation practice areas.

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Filed under: General Interest, HOA, HOA litigation, John Tarley, Unit Owners Association by John Tarley

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