BUSINESS CONTRACTS: GIVING YOUR CLIENT LEEWAY COULD COST YOU BIG TIME

The Businessperson’s Dilemma In A Recession

Especially in a tough economy, it is understandable for a businessperson to give a client who is under contract a little leeway on his obligations, for fear we might lose him otherwise.  Conversely, it is also understandable to provide a little extra service when that client insists on it, for the same reason, namely, keeping the client.

But be careful.  That little bit of leniency could cost you the protections you thought you had by virtue of your contract.

An Example Of The Problem

Let me illustrate by telling you the story of one of my clients.  (The names have been changed, but the facts have not.)

Client was a landscaper/gardener.  After years of work, he had broken into the world of maintenance for large developments, a far more lucrative line of work than residential gardening.  He wrote his own contracts (his first and biggest mistake), which provided for a set fee for basic maintenance work but called for additional payment as to work not specifically designated as maintenance.

The HOAs always have a professional property manager, and that person deals with contractors on behalf of the HOA of the development.  Property managers are notoriously disreputable, and the property manager which Client had to work with with respect to most of his developments was no exception.

One of the major categories of work needed by all Arizona developments but specifically placed outside the scope of maintenance in Client’s contract was fire clearance.  The property manager began insisting that Client do this work for free, despite the language of the contract.  She threatened to take away all of his development jobs if he did not comply.  Hoping not to lose most of his business during a recession, Client did that work for free, though he made it clear that he expected to be paid at some point.

Eventually, Client realized he could no longer survive under this arrangement and billed the HOAs for the fire clearance.  He was promptly fired by the property manager from all his developments.  That move destroyed Client’s company, which had become dependent on the work that was taken away.

Client sued the HOAs and the property manager, but he ran into a number of arguments stemming from what he thought was his wise business decision to give the property manager and the HOAs leeway.  The other side’s main argument was that Client had waived his right to bill for the fire maintenance by doing the work without insisting on payment.  Client is no longer my client, but the case continues.  But he probably has no better than a 50% chance of getting by the waiver argument.

How Do I Prevent This From Happening To Me?

Two answers . . . My personal experience in my business is that, during this recession that the press would like us to believe is over, even good people are reneging more and more often, and the other not-so-good people are coming out of the woodwork.  As a  result, I stopped allowing accounts receivable, and I stopped allowing clients little dispensations.  In my experience, once it starts going bad, it’s only going to get worse.  So stop with the special favors.  They will come back to bite you.

But for those of you who insist that your business cannot work that way, then you need to insert language into your contracts that, if you allow the other side to get away with not honoring its obligation on one occasion, you have not thereby waived your right to enforce that obligation in the future.

That is one of the many provisions that seems to appear in very few contracts but which a good contract drafter will put in your contracts.

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