To Sign or Not to Sign: What Every Corporation Should Look for in a Contract
Condominium Corporations are complex corporate entities, that are responsible for the management and oversight of physical property, financial assets and the living environments of hundreds to thousands of people, depending on the size of their buildings.
In addition to the Property Managers and the Boards of Directors who are responsible for the day-to-day governance of Condominiums, Condominium Corporations also rely on an extensive number of third party provides to service their respective buildings, including, but not limited to, repair, restoration and modernization contractors, superintendent services, security/concierge services, utility-submetering contractors, pool maintenance contractors, landscaping and snow removal/winter maintenance contractors, cleaning services, telecommunication provides, pest control contractors and many others.
The services of all such third-party providers are governed by binding contracts. Such contracts must be carefully reviewed and considered by a Condominium’s Board of Directors and Property Manager, before the contracts are entered into.
The following guide is intended to provide a brief overview of some of the pertinent contractual clauses Boards of Directors and Property Managers should be cognizant of when reviewing a contact. This guide, however, is intended for general information purposes only, and does not replace a thorough review of a prospective contract by a Corporation’s solicitor and, when applicable, a Corporation’s auditor and/or engineer.
Indemnification provisions are intended to specify which party, as between the Condominium Corporation and the third-party provider, will be responsible for any costs, losses or damages that may arise from or be related to the provider’s work. For instance, winter maintenance contracts customarily contain indemnification provisions specifying that the service provider will be responsible for any costs, losses or damages incurred by a Corporation as a result of or arising from the winter maintenance services such as, in the case of someone falling on slippery snow or ice and seeking damages for their injuries.
Properly drafted indemnification provisions shift the legal liability for such losses from the Corporation to the provider. These provisions are essential for the protection of the Corporation’s financial standing and viability.
Additionally, the specific wording of an indemnification provision is critical. Some indemnity provisions provide indemnification only if damages are awarded against a Corporation, and do not include indemnification of the Corporation’s legal costs in defending itself. Thus, under such a provision, the Corporation would remain responsible for its own legal costs, which could be significant, and would only be indemnified by the provider if/when a judgment is issued against it.
Other indemnity provisions include indemnification of the Corporation’s legal costs for defending the claim. Many other indemnity provisions also oblige the provider to include the Corporation as an additional insured under its insurance policy. These types of provisions provide the most thorough protection to the Corporation as they provide the Corporation with insurance coverage and include indemnity of the Corporation’s defence costs and any damages awarded.
When reviewing indemnification provisions, Boards of Directors and Property Managers should ensure that the indemnity provision extends to indemnity of legal costs for defending a claim, indemnity of any damages awarded in a claim and a specification that the Corporation be listed as an additional insured under the provider’s policy. Condominium Corporations should also ensure to always request the provider’s Certificate of Insurance, confirming that the Corporation is listed as an additional insured under the policy, before executing the contract.
In Ontario, every construction project must have a single constructor. Under the Occupational Health and Safety Act (“OHSA”), the constructor is the party responsible for protecting all the workers on site from health and safety hazards and for ensuring that all the requisite safety protocols and compliance guidelines are in place. A constructor can be any designated party, including the site owner (i.e. the Condominium Corporation), depending on the degree of the Corporation’s involvement and oversight over the day-to-day progress of the construction project.
In order to limit a Condominium Corporation’s liability exposure and clearly delineate the respective responsibilities of the Corporation and the provider, it is strongly advisable for all construction contracts to clearly specify that the general contractor for the project is the sole and only “constructor” as that term is defined in the OHSA.
Parenthetically, we note that a Condominium Corporation may still face liability exposure for any personal injuries sustained on site, as the owner of the site, under the Occupier’s Liability Act. Thus, a complete elimination of all liability exposures is not possible. Rather, a Corporation’s goal in reviewing construction contracts should be to minimize (rather than eliminate) the Corporation’s liability exposure as much as possible, within the bounds of the law.
Ensuring Compliance with the Condominium Act
When entering into contracts, Property Managers and Boards of Directors should always be mindful of the applicable requirements of the Condominium Act and ensure that the contracts entered into by a Corporation are compliant with the Act.
For instance, if the contract in question is in respect to an addition, alteration or improvement, to the common elements, a change in the assets of the corporation or a change in a service that the corporation provides to the owners, depending on the cost of the contract, the notice provisions of s.97 of the Act may be triggered, requiring the Corporation to serve a notice on all owners, before entering into the contract. To ensure that this requirement is complied with, Boards of Directors and Property Managers should carefully consider whether the contract triggers section 97 of the Act. If so, the Corporation should either make sure to serve the section 97 notice and wait the requisite 30 days from the date of service before executing the contract OR should ensure that the contract contains a provision specifying that the contract will not come into effect until and unless the section 97 notice requirements are satisfied by the Corporation.
Similarly, for contracts that include an access license being granted to the provider (for instance in contracts for installation and maintenance of digital interactive screens in a Corporation’s common elements), the Corporation should ensure that it has a valid access by-law in its governing documents, as required by subsection 21(1)(b) of the Act, before entering into the contract.
Term and Automatic Renewal Provisions
A contract should always specify the precise date that the contract commenced on and the term of the contract. Customarily, many of the contracts Condominium Corporations enter into are for lengthy terms, usually ranging from 5 to 10 years (i.e. telecommunication contracts, submetering contracts etc.). Boards of Directors and Property Managers should always ensure that they are comfortable with the length of the term of the contract.
More importantly, Boards of Directors and Property Managers should carefully review and consider any Automatic Renewal Provisions that may be included in a contract. Such provisions generally specify that if the Corporation fails to provide its notice of termination by a specified deadline in advance of the expiry of the term of the contract, the contract will automatically renew for a new term of a specified time (i.e. 1 year or 5 years). Essentially, therefore, a Corporation may find itself bound to a new contract for a new prolonged term, due to an oversight of failing to formally terminate the contract in advance of the expiry of the contract’s initial term.
Generally, we recommend against automatic renewal provisions. We advice our clients to insist on term provisions that specify that the contract will continue on a month-to-month basis, once its initial term expires.
Termination provisions are arguably one of the most important provisions in any type of contract. There is nothing more aggravating to a Condominium Corporation than being bound to a third-party provider, with whose services the Corporation is dissatisfied, for a prolonged, or even an indefinite, period of time, due to a binding contract that precludes the Corporation’s right to terminate the contract.
Irrespective of how favourable a contract may sound in theory, there is always the possibility that in practicality the provider’s services will be dissatisfactory or a possibility that a better deal from another third-party provider may be presented to a Corporation in the future.
Boards of Directors and Property Managers should always ensure that a contract includes termination provisions that allow the Corporation to terminate the contract both for cause and without cause. For-cause termination provisions should always specify what constitutes “cause” and should further specify that the Corporation should have the sole and unfettered discretion, acting reasonably, to determine whether cause arises. Termination provisions should also contain a clause allowing the Corporation to terminate the contract, at any time, without any cause, upon providing a specified amount of notice (usually 60-days) to the provider. Finally, Boards of Directors and Property Managers should ensure that the contract does not contain any excessive financial “penalties” imposed on the Corporation for terminating a contract before the expiry of the contract’s term, without cause.
At Deo Condominium Lawyers, we pride ourselves in our industry- expertise. If your condominium is considering entering into a new contract with a third-party provider, we welcome you to reach out to our team to review the prospective contract and ensure that the your Corporation is compliant with the Condominium Act, as it applies to the contemplated contract, and that the Corporation’s best interests are protects to the fullest extend of the law.