Contract Clues: How Affordable Housing Providers Should Approach Contract Negotiations

Contract negotiations are critical in ensuring your housing organization actually receives the products and services it requires.

“In some cases, housing organizations think a contract gives them a certain service or need, and something totally different happens,” said Stephen Brown, a partner with Wilson Elser

In the context of contracts, the negotiation of terms is a give-and-take process between parties to reach an agreement. Negotiations often center around the contract’s proposed timing, terms and conditions, goods and services, liabilities and responsibilities, and costs and compensation.

One of the most critical aspects of contract negotiation, said Martin Ween, senior counsel with Wilson Elser, “is to understand what it is that you’re getting, and what it is that your giving.”

      Stephen Brown                Martin Ween 

Contract Clue: Be specific to avoid disagreements 

The consideration portion of a contract is the bargained-for exchange of something of value between both parties.

“Know what you are contracting for and what you’re going to be giving in the contract, and put it in writing as clearly as possible to avoid problems later,” Ween said of contract consideration.

For example, say you’re looking to enter into a contract to purchase ice cream. The party selling the ice cream offers to sell you ice cream at a specific price. That’s a contract consideration, but are you purchasing a cone, a cup, or a pint of ice cream?

“You need to be specific with respect to what it is you’re getting,” Ween said.

Terms that seem clear from your point of view might be more complex than you think. In the ice cream example, you might assume you’ll receive a cone made out of sugar, but the contracting party could instead make the cone out of a sugar substitute. If you want a sugar cone, you need to outline that clearly in the terms and conditions of the contract. You also need to be specific about what you’re giving up in return for the ice cream.

There may be a verbal understanding of the give-and-take between the parties involved, Ween said, “but if you don’t put it in the contract with specificity—clearly indicating what both parties are getting— there’s going to be a dispute down the road, and that’s what you’re trying to avoid.”

A contract is supposed to confirm an agreement, not cause disagreement, he said.

Disagreement between parties after the contract is signed can lead to “big problems,” Ween said, including arbitration or litigation.

Contract Clue: Negotiate as a team

It’s prudent to consult with legal counsel while you’re negotiating a contract and, in some cases, before starting the negotiation process to ensure there are no issues before the contract is signed.

The contract negotiation process should be a team effort. Even if the contract is simple, a second or third set of eyes is crucial, Ween said. Not everyone involved has to be an attorney—it can be a subject matter expert within your organization or just someone else on your team.

Ween suggested that before starting negotiations, your team develop a written list of the terms your organization wants to be included in the contract. Then use that list as a preliminary agreement or memorandum of understanding. When you put down your organization’s contract expectations in writing, you’re more likely to catch something you didn’t intend when you were initially talking about it.

“And then have your counsel, in conjunction with you, formulate a formal contract from that [written draft],” Ween said.

Sometimes, your housing organization will be presented with a pre-prepared contract with terms you can't negotiate, known as contracts of adhesion. In adhesion contracts, one party has significantly more bargaining power than the other. For example, when buying a car from a dealer, there's little to no wiggle room to negotiate contractual terms.

"If you can't meet certain terms, the car dealer won't sell to you," Ween said. "Sometimes these situations happen to housing organizations, but even if you can't change the terms, you should have the contract reviewed to understand your liabilities, exposures, risks, and responsibilities. You need to understand what you're getting into before entering into a contract."

Scenario: Lack of specificity in lawn mowing contract leads to ordinance violation

A housing organization contracted with a mowing company to service multiple properties in two municipalities. The contract didn't specify the grass length after mowing. The housing organization later learned that one of the properties violated a local ordinance in one municipality because grass grew too long between mowings.

In future contracts, the housing organization will include language requiring the grass length to be mowed according to the local ordinance.

"That way, if the ordinance is updated, we are still in compliance, and it will be [the mowing company's] responsibility to know what the local ordinance is for each property," the organization's executive director told HAI Group.

The housing organization is looking to put the onus on the mowing company to abide by the ordinance, a form of risk transfer.

"In this scenario, the mowing company should be the expert [on grass length requirements] and should hold your organization harmless" against fines or penalties, Ween said. "Your contract, when negotiated properly, can protect you from these scenarios."

There's plenty more to say about risk transfer. We'll dig deeper into hold harmless agreements and subrogation in future HAI Group Contract Clues editions. 

Editor’s Note: This is part one of a nine-part series exploring contract best practices from a public and affordable housing perspective. A contract is a legal agreement involving two or more parties who agree to mutual rights and responsibilities. Contracts are necessary to protect your rights when entering into an agreement with another party. A best practice is to seek legal counsel regarding contract questions and recommendations.

Includes copyrighted material from a company under the HAI Group family, with its permission. This post is for informational purposes only and is not intended to provide legal advice, and shall not be relied on as such. We strongly recommend consulting with legal counsel or an appropriate subject matter expert