Sunday, February 26, 2017

Breaking up is hard to do: PART I- How to Navigate Management Company Transitions

Hopefully, most of us enter into relationships with the expectation that they will last. However, for those of us past adolescence, we realize that even long-term relationships can end and, even when they were good for a long time, the manner in which they do can overshadow everything that preceded that ending.

In the next few posts in this Breaking Up blog series, I will discuss the various transitions a board can face including transitions from the developer, from former counsel and from a long-standing predecessor board.

In the context of a community's relationship with professional management, the stakes can often be quite high.  More and more volunteer boards have come to rely upon professional management to undertake the daily operation and administration of their communities. For some boards, this reliance is reasonable and a balance is struck between the directors' responsibilities and that of their licensed manager. However, for a growing number of communities, the professional manager has supplanted the board with the staff, contract vendors and professionals, and, in extreme cases, even with the members. What these boards may not realize, is that the ultimate responsibility and accountability will legally and stubbornly cling to them regardless of their efforts to transfer much of the operational control to management. As such, it is time for boards to become more proactive about how a relationship with a professional advisor might end and what can be done before that happens to insert some clarity into that process.  Otherwise, the transition can be difficult and even damaging to the community.

One of the first and most obvious steps a board can take is to ensure that its management agreement is properly reviewed by legal counsel prior to signing.  If your board would like the ability to terminate, with or without cause, at any time throughout the term of the contract, then the contract must provide the association with that right. If your Board would like to have the ability to control the handling of association funds and records, then that must be spelled out as well. The time to discuss what you want the relationship to be and how its ending should be handled, naturally, is before you sign on the line.

Equally important, the board must retain a copy of the executed management contract. Many boards are dismayed to learn that they have not retained possession of a copy of their management agreement, which can be problematic if problems surface and they must ask the management company to provide that agreement to them or to their attorney. Most large management companies these days provide an impressive array of services which can include all aspects of the financial operations for the community, in addition to the infrastructure maintenance, insurance procurement, collection of delinquent accounts and interaction with vendors and professionals. Most large management companies also offer technology which can streamline operations and make them more effective by taking advantage of available technology.  However, when it comes to receiving copies of all those digitized records at the end of a relationship, some companies are better than others at achieving a graceful departure and some refuse to deliver the records altogether and assert that those records belong to the management company, not the association for whom the records were created.

Florida law requires management companies to turn over the association's records at the end of the relationship, even if a monetary dispute exists.  It might be tempting to use the leverage of those records and the crippling effect their absence will create for the community and the new manager or company coming on board, but it is in the manager's or management company's best interests to resist that urge. As with most things in the community association arena, what goes around comes around and new boards often bring back the management company which their predecessors ousted; that is unless a less than gracious departure left a sour impression.

As for the board's responsibilities in this process, it is analogous to a marriage. A fine-tuned prenuptial agreement can prevent a lot of unnecessary pain down the road and, if you were the partner who did not handle any of your personal finances, it helps to learn how to write a check and fast. Boards need to ensure that a management company transition does not place the association's operations in jeopardy.  While a perfect management company fit can last for decades and be mutually beneficial for both parties, it is important for boards to at least consider the possible end of the relationship at the time they are entering into each new contract.

4 comments:

  1. The best assurance in selecting a management company for your association, is to request a complete list names and contact info of ALL associations (CONDOS AND/OR HOA'S) a management company that is being considered and have a 'committee' of BOD members and owners as to call, visit, and ask key questions to Board members of these referred associations.
    Remember that the management company is going to be managing not only your association but also your MONEY! Oh yeah, you can have all financials handled by an independent accounting firm, instead of the management company! Doing this will give some peace of mind!

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  2. The best way to evaluate a management company is to have them respond to an RFP. Also, I would want to remove the Indemnification clause in the contracts.

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  3. An indemnification clause is a necessary part of doing business as the manager is serving as the board's agent and can be exposed to liability and risk as a result. However, that indemnification must be reasonable.

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  4. Our association did not put out an RFP, nor did we get 3 quotes/bids, only one. Our board accepted a standard "boiler plate" pricing proposal, however we did have a lawyer review the contract . As a board member, I did not support this decision due to lack of competition and lack of a pricing proposal/bid from 2 other companies that wanted the opportunity. Am I liable as a board member if owners object and pursue litigation?

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