Properly Terminating a Vendor Contract

Often a vendor just does not quite "work out". It may be a carpet cleaner, pool cleaner, water extractor, landscaper or any other outside vendor you may be using. Sometimes the vendor is hired after careful research and other times in an emergency. When things don't work out, you notify your regional who tells you to "fire the vendor", and you then notify the vendor verbally or in writing that their services are no longer needed. However, the problem is that terminating a contract often requires following the detailed terms and conditions within the contract. Possibly there is a curative period, penalty to be paid, liquidated damages, type or form of notice, or a specific number of days' notice is required. Failure to follow the often-complicated contract terms could result in the contract continuing, or your company having to pay for work that is no longer being performed. Remember that most vendor contracts were written by the attorney for the vendor, so beware!

Researching the Vendor

One of the benefits of being active in your local apartment association or property management association is exposure to many different vendors of products and services for the property management industry, and you also hopefully get to meet some of their customers. Some of these products are innovative and work out very well, while others are the "latest thing" that have not been tested or used sufficiently by others in the industry. Some are downright illegal in Florida, but will the salesperson tell you this? Doubtful. Avoid the temptation to jump on the latest, newest thing, and take your time to ask other members and associates about the product, problems, customer service etc. With many contracts, if the price seems too low or below the general market rate, something may be wrong.

Commitment Term

While the longer the commitment term, the lower the price in most cases, try to keep the commitment term short with newer, untested vendors, as longer, better priced contracts can usually be negotiated later if the product or service is working well for you. Promises by vendors that ending a contract is "no problem" or "no big deal" cannot be relied upon. It is said all the time by the salespersons for the vendors but will not hold up once that contract is signed. Once the contract is signed, the terms and conditions rule, while the salesperson could be long gone.

Who is the Contract really with?

The two main forms of management consist of ownership management and third-party management. In most single-family home management, it is third party management, and with multi-family, it varies greatly. The management agreement or contract with the Owner determines the parameters of to what the management company can or cannot bind the Owner. While that may seem simple, the vendor often could not be concerned about this. The vendor wants a signature on a contract, and that signature can be unexpectedly binding upon a party that was not the intended party. Under law, there is apparent authority and actual authority. A maintenance tech who in reality lacks actual authority may have "apparent" authority to deal with a vendor. When this is the case, a person with apparent authority could end up binding the Owner or management company, and this liability is often hard to escape in the event of litigation because of the apparent authority problem.

The Property Management Agreement

A quality property management agreement should clearly spell out what the third-party manager can and cannot expend or contract for on behalf of the Owner. While this may not solve a problem between the management company and the vendor, at least management can prove to the property Owner that the Owner had given management permission to contract or expend money on behalf of the Owner, and ultimately the Owner may be the responsible party and pulled into a lawsuit against a management company. Often property management agreements cannot anticipate everything that may occur down the road, so it is crucial that unless the management agreement clearly spells out the rights of the management company, no contract is signed or money expended unless a separate agreement is signed by the management company and the Owner, or the vendor contract is directly with the Owner of the property. If the authority of the management company is not 100% clear, no contracts should ever be signed.

The Vendor Contract

The contract will list the parties, the services or products provided and the details, the cost, payment terms, other terms of the contract, and often termination of the contract. Most vendor contracts are written by the attorney of a law firm representing the vendor and can and often do include very hard to understand legalese. In a typical consumer relationship, vendors are often required to make a contract clear and easy to understand. In a business-to-business relationship, both businesses are expected to understand the contract, and if they do not, they should be hiring an attorney. A judge will not be sympathetic to your company if you failed to hire an attorney to explain a contract to you or interpret it prior to signing. Remember, this attorney needs to be YOUR attorney, not that of the vendor, and sometimes not that of the Owner either.

Who is allowed to enter into Contracts?

Your company needs to have a clear and set policies on who is allowed to "sign on the dotted line". Every year we have cases in which employees of the management companies sign contracts binding the management company and often the Owners. If the regional manager tells an employee to sign a contract, that employee should retain a copy of the email, as months later, this may be crucial evidence. While it may sound silly and trivial, every year we see employees scammed by the phony "yellow page" ads. While usually these can be addressed easily, the contract for supplies or services may be a much larger one, when many thousands of dollars are at stake. That simple signature by the maintenance tech could result in your company exclusively buying thousands of dollars worth of product from one company for maybe years.

Contract Terms

Effective Date:

When does the contract actually begin or end? If it begins before you may have properly terminated an existing contract with another vendor, you may be liable for paying two vendors at once.

Pricing:

Is this clear? Can the amount change over time? If a vendor's cost for a product or service increases, are you agreeing to pay this increased cost? You must make sure that there are no clauses which may cause a price to change and your company being forced to pay, unless this is agreed upon.

Parties:

Who are the parties to the contract? The ownership entity? The management company? If something says, "XYZ Management" or "Mountainview Apartments", are either of these legal names? The name listed on the contract should be the actual legal entity name as it appears on the Secretary of State's website. Sales Tax: Many vendors will try to sell you on their product by claiming that there is no sales tax, because they are based out of state. Many Owners and management companies do not know that Florida law requires you to pay USE TAX no matter where you bought the product. That company in Virginia who you think is saving you 6% in sales tax may not be required to collect the tax, but under Florida law, you are required to pay it. Please read our article on this. Each year, the Florida Department of Revenue is bringing in millions of dollars in taxes and penalties from companies who thought that they did not have to pay sales tax because they were dealing with an out of state company. If you buy from a company out of state, you are required to remit USE TAX to the Florida Department of Revenue. Few people or companies are aware of this.

Automatic Renewal Clauses:

You are so happy that the contract you have with your terrible landscaper is soon over. Whoops, it just auto renewed for another year, because you failed to read the contract carefully or follow the termination procedure. Missing a date by one day could be enough to bind you for another year. Auto-renewal clauses are routinely upheld by the courts, so read these contracts carefully, and follow the terms exactly.

Terminations:

If you love your vendor and everything is working out, the termination clause is really not too important. It is when things don't work out when you MUST strictly follow the terms and conditions of termination, and in some cases, the vendor must be given an opportunity to cure a problem whether you like it or not! All this is the real deal, and if you fail to follow the terms, you may end up paying penalties or paying multiple vendors.

Method of Termination:

The method by which a contract is terminated is usually governed by the contract. It may be certified mail, registered mail, express mail or email. Whatever the contract provides will govern. It has been so easy in the computer age to fire off an email. The message gets across, but if it is not consistent with the terms of the contact, the termination may be invalid.

Venue Clauses:

You have a dispute with a vendor who decides to take you to court. The problem is that the lawsuit filed against you is in Texas, as this is where the contract says that all litigation will be filed. The "venue" for litigation is where the lawsuit will be filed. If this is what the contract provides, you may be forced to hire a lawyer in Texas and make multiple trips to Texas in the event of a trial.

Binding Future Owners or Management Companies:

You may assume that the contract with your vendor is between your company and the vendor or the current ownership and the vendor, and you may be correct, OR you may not realize that the contract that was signed is a 10 year laundry equipment contract that ends up being a deal breaker in the event your Owner wishes to sell the property. With whom is the contract? Who will it bind? Will it bind a new Owner? You need to consult a lawyer.

Due Diligence prior to Management:

When deciding to purchase a property or third-party management, it is crucial to do your due diligence in finding out every single contract that is out there, who it binds, and all the details. Failure to do this could seriously take away some of the profits that you intend to receive when buying the property or managing the account. You must properly demand this information from the Owner of the property you will manage or purchase.

The Vendor Agreement:

Often when we get a new multi-family client managed by a third party, we are required to sign an agreement with the management company, under which we are being told that the company with whom we are dealing is a third party manager, and if for some reason we do not get paid, we are agreeing that we will not sue the third party manager. Ironically, most third-party managers do not use such a form, and they put themselves at risk with all the vendors with whom they work. If you do not have such a vendor agreement, call our office for some samples. You don't want to be stuck paying the bill of a broke or dishonest Owner for whom you managed.

Conclusion

What you just read above was only the very tip of the vendor contract iceberg. It is hard to comprehend how complex this all can become. A 25-page contract is not 25 pages just because someone was having fun. Who should review a vendor contract? A contract attorney. Unless your landlord tenant lawyer is an experienced contract law attorney, and most are not, he or she is probably not the one for the job. Who should pay for the review? This is between you and the Owner if you are third party managing. Never take these contracts lightly, no matter how well you may know the representative or salesperson working for the company. A short contract can be just as insidious and evil as a very long contract. When you terminate a contract, you often will have on your hands a very unhappy business which will do everything in its power to either enforce the contract or make you pay for termination.

Watch: Quick Tip — Terminating a Vendor Contract

Questions about a vendor contract or a vendor agreement? Contact the Law Offices of Heist, Weisse & Wolk at info@evict.com or 1-800-253-8428.