This entry deals with contracts within your HOA that “automatically renew” for periods of time beyond that which was originally contracted for. Many contracts that an HOA Board signs with a vendor such as a landscaper, pool company, property manager, etc., are intended to “renew” after the inital period expires, unless you, the HOA, give notice of cancellation. Strictly speaking, there is nothing wrong which such renewal provisions but both your vendors and the HOA needs to know what must, by statute, be contained in such a contract in order for the auto-renewal provision to be valid. If the statutory language is NOT contained in the contract, then the auto-rewnewal provision is null and void per public policy. For purposes of this blog entry, I am referring to Utah Code 15-10-101 et seq.
Here are the basics. As always, before your HOA takes drastic measures to terminate a contract for failure to comply with the Act, please contact us to make sure your actions are proper. Otherwise you could be alleged to have breache your contract with a particular vendor. This blog entry is for information purposes only. Note that the discussion below is for contracts entered into after July 1, 2011, the effective date of the amendments to the existing Act. However, if you have a contract that was signed before July 1, 2011 and it contains an auto-renewal clause, the prior version of the Act applies. Again, please contact us if you want to discuss an existing contract.
First, both condominium and PUD association’s are deemed “consumers” under the Act. “Seller” means any person or entity providing service, maintenance or repair under a service contract. “Service Contract” means a contract for service, maintenance or repair in connection with real property; or that provide a benefit to the real property.
So, a HOA contract with an accountant probably does not fall under this Act but one with a landscaper will (Tip: a lot of HOA’s find themselves in contracts that just are not workable, affordable or beneficial over time. This Act may provide a way out of such situations but be very careful and please contact us first).
Second, there are strict notice requirements that must be in the contract in order to make the auto-renewal provision valid. In other words, auto-renewal clauses are permissble but only if the proper notice is contained in the original contract.
Third, keep in mind that the notice requirements for a service contract entered into after July 1, 2011 and which automatically renew after the expiration of the original term, fall into 2 categories:
(a) Contracts that renew for periods less than 12 months: The requirements of “b” below all apply except for the provision requiring that “notice be displayed prominently on the first page.”
(b) Contracts that renew for periods greater than 12 months (for example, renews for a 24 month period): The “Seller” must provide written notice of the automatic renewal provision prominently on the first page of the service contract. In addition, the seller must provide written notice to the HOA (1) personally, (2) by certified mail; or (3) by prominently displaying the notice of the renewal on the first page of a monthly statement. The Seller must provide the notice (described above) no later than 30 days (but not sooner than 90 days) before the last day on which the HOA may give notice of the HOA’s intention to terminate the contract.
Fourth, the wirtten notice must be in clear and understandable language and printed in an “easy to read” type size and style.
Fifth, if the above requirements are not complied with the automatic renewal provision is void and unconscionable as a matter of public policy and the contract renews on a “month to month” basis.
Obviously, I am not suggesting that you can or should try to “break” every contract that automatically renews. I do feel, however, that this statute is an important tool for an HOA to understand in order to help you avoid contracts that truly are not in your best interest.
Once again, thanks for reading this entry. We have a lot more to come! Best regards, John Richards
Utah HOA Law Blog 