Pre-Turnover Contracts – Condominium Association Members Right to Cancel
Can a condominium association decide to terminate a contract entered into by the developer prior to turnover? If so, what contracts are subject to termination? What are the specific procedural and voting requirements in order to terminate the agreement? What are my options?
To answer these questions, it requires the review and analysis of an experienced condo lawyer into the Condominium Act (Florida Statute Chapter 718), the contract in question, the association’s governing documents, and applicable case law.
Section 718.302(1) affords condominium association members with a statutory right to terminate an agreement entered into by a developer prior to turnover “that provides for operation, maintenance, or management of a condominium association or property serving the unit owners of a condominium.” Does this include servicing contracts? Can associations terminate a telecommunications contract (i.e. Comcast) or an agreement providing beach club services to unit owners?
Well, according to Comcast of Fla., L.P. v. L’Ambiance Beach Condo. Ass’n, Inc., the short answer is yes. 17 So. 3d 839, 842 (Fla. 4th DCA 2009). However, each contract is unique and requires its own analysis. In Comcast, the Fourth District Court of Appeals affirmed an association’s termination of its cable television service contract because the agreement provided cable television service to all unit owners, the cost was part of the monthly maintenance fee, and the service provider (i.e. Comcast) was required to service and maintain the cable television. Id. Therefore, the contract was one for the “operation, maintenance, or management” of the condominium association. Id.
Great! I am able to terminate my developer contract… Now what?! Well, generally speaking, if the association operates only one condominium and the unit owners (not directors) have assumed control of the association, the unit owners can cancel the contract by a vote of 75% of the voting interest. § 718.302(1)(a). It is also important to review the association’s declaration and by laws to determine whether a) the association is required to provide the services it seeks to terminate; and (b) if any additional procedural and/or voting requirements exist.
Recall, an association’s statutory right to terminate a pre-turnover developer contract only concerns agreements “that provide for operation, maintenance, or management of a condominium association . . . .” § 718.302(1). What if your contract does not apply? Often times, a contract outlines the parties’ termination rights. It is imperative to analyze the contract to determine whether it calls for termination (a) with or without cause, (b) upon a material breach specifically delineated in the contract, and/or (c) with service contracts, upon the breach of certain, defined performance standards.
Performance standards outline the required “success rate” the service must achieve in order for the service provider to comply with the agreement. For example, a telecommunications contract may provide that video services and internet bandwidth must achieve 95-97% performance or be in breach of the agreement. If the service is not performing as contracted, it is vital that associations place the service provider on notice and provide an opportunity to cure (pursuant to the contract), prior to termination.
In assessing its termination rights under a pre-turnover developer contract or other agreement, associations should seek the advice of legal counsel at inception to ensure it has the authority to do so, and is complying with all procedural and voting requirements. In doing so, associations avoid being found in breach for terminating an otherwise binding agreement.