Contract Formation In Homeowners’ Associations

With the exception of emergency repairs and dealing with nominal maintenance issues where management personnel may have general authorization to make expenditures up to a certain amount (i.e. $500 or $1,000), Association representatives who solicit bids and negotiate with third parties concerning contracts must be appropriately authorized by the association’s board of directors to take such action. Who is authorized to make such expenditures and the limit on the amount is a matter for determination by the board of directors and such action by the board of directors should be noted in minutes for the meeting where the action was taken.

State statutes and association governing documents typically provide that matters relating to the formation of contracts between the homeowners’ association and third parties may be acted upon by boards of directors in executive session meetings. The scope of the action taken in executive session includes meeting with consultants, reviewing and discussing contractor proposals, evaluating qualifications of competing bidders, and review of proposed contract language. The actual vote by the directors is considered part of the contract formation process and may also be conducted in executive session, but many associations prefer to conduct the actual vote in an open session of the board to demonstrate transparency to the members. Like all other matters that are acted upon in executive session board meetings, the action taken in executive session relative to a contract must be generally noted in the minutes of the next open board meeting. Sample resolutions that authorize the negotiation and entering into of a contact on behalf of a homeowners’ association may be viewed via: