Contractor Walks Away from Condo Job; Who Pays?

E.K. from South Florida writes:

Dear Mister Condo,

My condo association hired contractors to rebuild and replace balconies. They took a loan out of the bank and assessed the unit owners accordingly. The contractors walked away from the job three months ago and the windows for most units are closed. The condo association did not get these workers insured or bonded and say we still need to pay this assessment even though the contract is not in force and we are looking for someone new to do the job. My question is: Do we still have to pay on a contract that has been breached? Can I require the board to use my advanced payments on this assessment towards my monthly maintenance?

Mister Condo replies:

E.K., Wow! A lot of things have happened here and doesn’t sound like things went as planned. Let me try to break down the transaction into bite-sized bits so we can figure out what your next move may be. Associations hire contractors for work like deck replacements all the time. I am guessing they prepared a Request for Proposal (RFP), reviewed several bids, and then awarded the contract for work to the bidder they deemed the right choice. At that point, there is a contract between the association and the contractor. If that contract was breached, the association has the ability to pursue legal remedy against the contractor. The association would likely have relied on the contractor to provide proof of insurance for these workers as well as provide a bond for the liability if requested by the association, which is pretty standard stuff. Without seeing that actual contract, it is hard to say what happens when the work is not completed. It is very likely that whatever monies were paid to the contractor will need to be fought for in court to retrieve. Monies not yet paid will likely be withheld pending the outcome of the suit against the contractor.

The financial portion of this transaction is an entirely different matter. Once the association took out the bank loan, the association, including all unit owners like you, became jointly liable for making payments to the bank. That does not go away just because the work has not been performed. In short, that money is spoken for and you need to continue to make your common fee payments as scheduled. Depending on how the lawsuit goes against the contractor, it could be months or even years before the matter is settled. That is not good news for unit owners like you but it is not uncommon. Ideally, the contractor will either finish the work or the Board will reach an agreement to have the work completed with another contractor once they are released from the contract with the first contractor.

You have mentioned advanced payments on an assessment. Does that mean that the association levied an assessment as well as took out a loan for the project? That means they needed a lot of money for this project and that the Reserve Fund was very likely underfunded. The assessment monies are treated no differently than the loan. It was for a specific project that is ongoing. It should not be diverted from that project as it is already allocated for the project. The big picture here is that your normal monthly common fee payments may be too low to properly fund the Reserve Fund. Talk about rubbing a little salt in the wound.

So, E.K., my advice to you is to be ready for a protracted battle with the contractor who has failed to provide the new decks as promised. The courts are full of unfulfilled contracts. Your Board could have likely made a better choice for the deck contractor but given the finances of the association may have gone with a low bid that saved money but, ultimately, may cost the association much more due to legal costs and hiring yet another contractor to complete the work. I hope your new decks are a thing of beauty for you and your fellow unit owners to enjoy for years to come. I just hope you don’t have to wait too long for that to happen. All the best!