Hiring HOA Vendors: Legal Considerations

The Board of Directors oversees the essential operations and upkeep of your community, but they can't manage it all by themselves. The property management team is responsible for hiring a diverse range of vendors, including painters, plumbers, electricians, landscapers, equipment repair specialists, and exterminators. Additionally, when dealing with capital improvements or unexpected repairs, vendors are necessary to handle those tasks effectively.

What are property managers looking for in vendors

It's prudent to avoid hiring family members or close friends of the property management team or board of directors. Selecting an unsuitable vendor can adversely affect service quality and expose the community association to potential liabilities, either due to the vendor’s actions or unfavorable contract terms. Should this occur, the association and its residents might face legal accountability and considerable financial costs.

1. Proven Performance

To find reputable vendors, seek recommendations from professionals who can direct you to providers with strong track records. Experienced board members or a well-established property management company can offer valuable insights into reliable vendors and help you make informed decisions.

Management companies often maintain solid relationships with trusted vendors and may even have vendor certification processes to ensure these providers meet the necessary service standards. These companies typically collaborate closely with the association’s lawyers to craft contracts that protect the community from potential liabilities.

2. Necessary Credentials

Selecting the right vendor is a critical responsibility. Ensuring potential vendors are properly licensed, bonded, and insured is crucial before entering into contracts or agreements. Boards have a duty to homeowners to contract only with qualified service providers.

Hiring an unlicensed vendor can lead to costly repercussions. Many states mandate specific licenses for services over a certain value. Lacking the appropriate bonds or insurance can result in financial and legal challenges, exposing the community to risks and penalties due to the vendor's actions.

Certain property management companies run proprietary certification programs that require prospective vendors to demonstrate they hold the requisite credentials. In cases where a management company doesn’t certify vendors, or the community is self-managed, it’s advisable to check the state’s licensing board website to verify if a vendor is licensed and if they have faced any legal complaints.

3. Vendor Employment Classification

Understanding whether vendors are independent contractors or employees is vital for any organization. This distinction helps in making informed decisions and avoiding unnecessary cost implications. To comprehend which classification aligns with your association’s needs, refer to IRS Publication 1179, which outlines the differences and expectations from clients hiring vendors.

Consulting with legal counsel or a proficient property management company can assist in choosing the appropriate type of vendor. Regardless of which vendor type is selected, it is crucial to formulate a clear services contract.

4. Enforceable Agreement

When engaging a service provider, solidify the commitment through a written contract. This document must clearly define the responsibilities of both parties and be enforceable by law. Involving an experienced attorney in the drafting process is essential to safeguarding the association’s interests and ensuring successful collaboration for all parties involved.