Ups and Downs
By Leonard Klingen©2019 Community Associations Institute
GETTING OUT FROM UNDER an elevator maintenance contract is not easy. These contracts are generally well-written and provide opportunities for termination or rescission only under very narrow circumstances. That said, careful pre-contract review and analysis and post-contract monitoring will go a long way toward providing some ammunition when termination is necessary. Additionally, if these contracts are written for the maintenance of condominium elevators, the laws in a number of states provide certain avenues for termination.
To start, theie contracts must ensure that the service provided keeps the subject elevators in compliance with state safety requirements. These requirements are governed by ASME A17.1, ASME A17.3, and ASME A18.1. Such contracts typically are offered by the manufacturer of the installed equipment or by independent maintenance companies, and are often characterized by evergreen and right of first refusal clauses.
But don’t be fooled. Owners do have the ability to negotiate the terms, conditions, and scope of these contracts if they do so prior to execution. It is also important to remember that entering into a service contract will not place all responsibility for the elevators on the maintenance contractor. The owner continues to play an important role in maintaining the elevators, and failure to do so could result in an expensive service call
Regardless of the scope of the service contract, none typically cover the following:
▋ Keys dropped in the pit
▋ Debris or foreign objects in car or hall door sill tracks
▋ Stuck buttons
▋ Flooding in machine room, car, or pit
▋ Vandalism, misuse, and trapped passengers as a result of misuse
▋ Building power outages
▋ Car enclosures, hoistway enclosures, and most other appurtenant equipment
These issues remain the responsibility of the building owner, and care must be taken to properly monitor elevator usage and maintain the equipment to minimize such incidents.
The two most prevalent clauses are the self-renewing or evergreen clause and the right of first refusal. An evergreen clause automatically renews the contract for an additional three or five years if the owner does not opt out within a narrow timeframe, usually no less than 90 and no more than 120 days before expiration. These clauses are enforceable and, if they cannot be completely eliminated during negotiations, it may be possible to soften them by, for example, removing the no-more- than-120 days parameter.
The right of first refusal allows a contractor to match any competing offer prior to expiration or termination of the current contract. One way to defeat this clause is to present the contractor with a legitimate offer from a competitor that contains terms unacceptable to the present contractor, such as single-year duration and non-automatic renewals.
Elevator maintenance contracts do allow an owner to terminate for cause, but only after having notified the contractor of the deficiency and having provided a window, typically 30 days, to rectify the defect. Needless to say, an owner must keep proper and accurate records to provide the basis for alleging a deficiency. Examples include failure to timely conduct code-required inspections and maintenance failure to timely respond to calls, and failure to provide the maintenance items set forth in a signed agreement.
If a contract is not terminated during the narrow window between 90 and 120 days prior to expiration, an owner has three options:
▋ Accept the contract extension and hope the contractor commits a material breach. This approach requires vigilance and accurate recordkeeping.▋ Negotiate with the contractor or remove or soften the evergreen provisions, which the contractor is unlikely to do because an owner’s failure to cancel has already locked in the same contract for an additional term.▋ Ignore the fact that the contract has self-renewed and enter an agreement with a new contractor at the risk of being sued by the rejected contractor.
▋ Accept the contract extension and hope the contractor commits a material breach. This approach requires vigilance and accurate recordkeeping.
▋ Negotiate with the contractor or remove or soften the evergreen provisions, which the contractor is unlikely to do because an owner’s failure to cancel has already locked in the same contract for an additional term.
▋ Ignore the fact that the contract has self-renewed and enter an agreement with a new contractor at the risk of being sued by the rejected contractor.
There is a surprising lack of case law that directly addresses issues raised by self-renewing elevator service contracts, but such clauses are not unconscionable and will be enforced.
Leonard Klingen is a Florida state-certified building contractor, board certified construction lawyer, and senior partner at The Barthet Firm. www.barthet.com.
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