Wednesday, September 16, 2009

Navigating a community association management agreement

The last community association management agreement that crossed my desk was 17 pages long with the attached exhibits. That is a lot to digest for anyone let alone time-strapped board members. The first piece of advice I can give you is to read the entire agreement and the exhibits setting forth the services being offered and the amounts being charged. If you simply can't do it, task a member or members of the board to do it and provide an analysis for the entire board. Of course, as with any contract, attorney review is important prior to signing.

Hiring a manager is the beginning of a partnership that will hopefully result in a better organized, more well-run community. As with any partnership or relationship, communication is key. Your manager must understand the full scope of your expectations as the customer and you must understand what you are being charged and why.

Specifically you will want to look at the following:

1. Term of the agreement. If you are new to this relationship you might not want to commit to a multi-year term with no ability to cancel other than for a material breach. A one-year contract with a 30-day cancellation with or without cause is best. I am not a big fan of automatic renewal clauses especially those that are highly convoluted and require you to send notice of termination 60 days before the sighting of the full moon before the end of the first term. You get the point that anything that makes it more difficult for you to move on from a dysfunctional relationship is not in your best interests;

2. Indemnification clauses. Many contracts I've seen require the association to indemnify the manager or management company for any losses, lawsuits, claims, demands, etc. resulting from the manager's course of performance without similar duties being placed on the manager. When I review a contract I insist on a mutual indemnification at the very least. In addition, given what we've seen with the lien/foreclosure crisis being experienced by so many associations, the manager must be willing to indemnify the association for any legal fees incurred on collection files wherein the manager's handling or mishandling of the ledger or mailings has compromised the collection file so that it cannot move forward; and

3. Scope of services being offered. You will be asked to pay a monthly fee that will encompass certain services and for other services you will be charged extra. You should know in advance whether or not your manager's attendance at your board and membership meetings is part of your monthly fee or is an add-on. The same holds true for services such as assisting with the association's audit and tax return preparation, handling and responding to document inspection requests, certified written inquiries and Division complaints, preparing the budget, handling material improvement projects and a host of other services. In the event of an emergency, does your management agreement obligate the association to use the manager (and pay extra) for him or her to serve as a general contractor of sorts for any repairs?

These are just a few of many different areas that need to be scrutinized before you sign on the dotted line and turn over the keys to your community. Tomorrow we will talk about warning signs that should tell you when you've made a wrong turn in this process.

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