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Questions & Answers by John H. Gettinger, Esq.

Question:

When entering into a contract with a management company does it make a difference if it states with cause or without cause?

Answer:

Yes it makes a big difference. The termination provision of the management contract will either permit the homeowners association to terminate the managing agent "for cause" or "without cause."

If the contract limits termination "for cause", the contract will define what constitutes a "for cause" termination. Typically, this will concern a breach by the managing agent of a material obligation under the contract. If this is the case, the association's ability to terminate the contract is limited to circumstances where it can establish this breach by the managing agent. Often this is disputed by the managing agent and the issue whether or not the termination is a proper "for cause" termination could subject the community association to expensive and protracted litigation between the parties. If a court should determine that there was not sufficient cause for the termination, the community association may be liable to the managing agent for money damages based upon the association's breach of the management contract.

If the contract permits a termination "without cause," the community association can terminate the agreement for any reason or no reason at all. There is no issue whether or not the managing agent has breached any of its material obligations under the contract. The board is free to terminate the managing agent at any time without liability to the managing agent.

If the contract permits both a termination "for cause" with immediate affect and a termination "without cause" after a stipulated period of time, even where our client believes that it has a good case for a "for cause" termination, we advise our community association clients to use the "without cause" termination so as to eliminate the risk of having to substantiate the "for cause" termination.

It is our feeling that a community association should not be "tied" to its managing agent (or any other vendor for that matter) and that all contracts should be freely terminable by the Board, upon a stipulated notice period, "without cause." If the Board is unhappy with the vendor and wants to move on and do business with someone else, why should the contract prohibit the Board from doing so.

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