Has your HOA board decided to stop paying your vendors? What are your options as a board and what should you really do? Below is an article from the Davis-Stirling.com Newsletter by ADAMS | STIRLING PLC regarding failure to pay vendors that may shed some light on this issue.
Failure to pay vendors: Can we do that?
QUESTION: I have a board that is refusing to pay vendors, including the management company. Is there a Civil Code stating they have an obligation to pay vendors?
ANSWER: There is nothing in the Davis-Stirling Act stating “Boards must pay their vendors.” However, there are plenty of other statutes and legal principals to address nonpayment. The primary one is contract law.
Contract Law. A contract is “an agreement to do or not to do a certain thing.” (Civ. Code §1549.) Assuming contracts (either direct or implied) exist between the association and unpaid vendors, Civil Code sections 1549-1701 apply. If a board refuses to pay vendors, they are in breach of contract.
To win in court, unpaid vendors must prove (i) they entered into a contract with the association, (ii) they performed their duties under the contract, (iii) the association breached the contract, and (iv) the vendor suffered damage. (Richman v. Hartley (2014) 224 Cal.App.4th 1182, 1186.)
Case Law. In a 2005 case, the association was required to levy a special assessment to satisfy a judgment in favor of a vendor after the board refused to pay for work he did for the association. (O’Toole v. Kingsbury Court.)
RECOMMENDATION: If your board does not have any money, they had better plan on a special assessment, reducing expenses, and raising dues.
If it’s not a matter of money but, rather, a dysfunctional board, your vendors should send a letter reminding directors of their contractual obligations and making it clear the matter will be put before a judge if they don’t pay their bills.
Boards don’t like to be sued, especially when know they will lose. Also, insurance carriers will not defend a breach of contract action. That means the board will be defending a losing case out of pocket.
Thank you to attorney Jennie Park for preparing a response to this question.
For more knowledgeable information regarding the business of HOA’s, visit: The Davis-Stirling.com Newsletter