Service Providers: Attempts to Unilaterally Modify Contracts

Attempts to Unilaterally Modify Contracts by Service Providers

Recently our firm has seen an increase in various service providers attempting to introduce new fees in the performance of their contracts with community associations.  These fees are typically introduced on an invoice, and accompanied with a short explanation that they are associated with some cost incurred by the service provider.  When assessed on a per-owner basis these fees may seem small or nominal in amount.  However, when aggregated across the community and across multiple years, these fees can add up to a mid-contract price increase of tens of thousands of dollars for a community association.  Owners and board members should be aware that the introduction of these fees is an attempt to unilaterally modify a contract and there may be a sound legal basis to reject such a modification.

Contract Law

At its most basic level, contract law holds that once two parties have negotiated and accepted the terms of a contract, the introduction of a change to the terms of that contract is to be treated as an “offer” from one party to the other, which must be accepted in order to be incorporated into the contract.  If a service provider introduces a new fee in order to continue performing under the original contract, this fee cannot be considered as part of the original contract and may be considered a breach of that agreement.

Contract Modification

Even if a community association has already paid an invoice containing the new fee, it is still possible the contract modification lacks what lawyers refer to as “consideration”, in that there is an insufficient bargained-for exchange to make the modification legally enforceable. A court may invalidate such a modification when examining the facts, despite the community association’s payment on a previous invoice.

Operating Costs

Parties negotiate to allocate risk at the formation of a contract.  When a service provider is entering into a multi-year contract with a community association, it is well aware of the risk of operating costs increasing over that time.  Unless the possibility of a price increase was negotiated into a contract from the start, a service provider has no legal right to unilaterally raise the price for its services during the middle of a contract.  Community associations should understand their rights and push back wrongful attempts to shift operating costs to the homeowners.