Avoid The One-Way Street: Navigating Asymmetric Attorneys’ Fee Provisions in Association Contracts
Community associations frequently enter contracts with vendors, contractors and service providers that include asymmetric attorneys’ fee provisions. These clauses allow the business to recover attorneys’ fees if they prevail in litigation, while the association does not have the same right. This imbalance can expose associations to significant financial risks in litigation. Proactively engaging legal counsel during contract negotiations with local vendors and contractors can help associations mitigate these risks.
CCIOA and attorneys’ fees
Under CCIOA Section 123(1), fees are shifted to the prevailing party in most litigation between associations and members.
"In any civil action to enforce or defend the provisions of this article or the declaration, bylaws, rules, or other governing documents of the association, the court shall award reasonable attorney fees and costs to the prevailing party. “However, CCIOA does not create mutual attorneys’ fee provisions in contracts with third parties.
Case law on fee-shifting provisions
Colorado courts generally uphold one-way attorneys’ fee clauses unless they violate public policy or are deemed unconscionable, a high threshold to meet. For example, in Butler v. Lembeck, 182 P.3d 1185 (Colo. App. 2007), the Court enforced a unilateral attorney-fee provision. “[A] contractual fee-shifting provision need not be mutual to be enforceable.”
In Klein v. Tiburon Development, LLC, 405 P.3d 470 (Colo. App. 2017), the Court declined to enforce a unilateral fee-shifting provision in favor of a non-prevailing party sanctioned for frivolous or vexatious conduct, citing public policy concerns. “[A] fee-shifting provision, like any contractual provision, may not be enforced as written if doing so would violate public policy.”
Thus, egregious behavior by a vendor can render a one-sided clause unenforceable. But such cases are rare. Because asymmetrical fee provisions are normally enforceable, prudent associations will prioritize negotiation to avoid relying on judicial relief.
Common contractual scenarios
Asymmetric fee provisions are common in contracts with vendors such as landscapers, roofers, snow removal services, and general contractors. A typical clause might read: “Contractor shall be entitled to reasonable attorneys’ fees incurred in enforcing its rights under this Agreement.” In disputes over issues like poor workmanship or delays, such clauses can significantly increase the association’s financial exposure, as they may face not only their own legal costs but also the vendor’s fees if they lose.
The ability to eliminate one-sided fee clauses varies by vendor type, influenced by market dynamics and bargaining power. Associations generally have little success in avoiding asymmetric fee provisions when negotiating with national companies and utility providers.
Community associations can have high success, though, when negotiating with local vendors and contractors such as local snow removal, landscapers, maintenance, and small construction firms. These providers are typically more flexible and motivated to secure contracts, especially in competitive markets. Organized associations, particularly those with legal representation and a willingness to walk away, can often negotiate favorable terms—securing mutual fee provisions or removing the clause altogether.
Vendors are more likely to revise contract terms when negotiations involve an attorney who can highlight enforceability issues or propose balanced language. If a vendor resists removing a one-sided clause, counsel can propose mutual fee provisions, such as “The prevailing party in any dispute shall recover reasonable attorneys’ fees.” Another option is a cap limiting recoverable fees, such as: “Attorneys’ fees shall not exceed $5,000.”
Conclusion
Asymmetric attorneys’ fee provisions in vendor contracts pose a significant risk to Colorado associations, given the enforceability of such clauses under state law. Proactive negotiation and informed decision-making are critical to protecting the association’s financial and legal interests. By engaging legal counsel, associations can mitigate these risks and secure more equitable contract terms.