Considering a New Management Company In With the New

Considering a New Management Company

Any number of things can happen to make an association question its choice of management company. The company the board originally hired might be making mistakes, or there might be personality conflicts that threaten the all-important management/board relationship. Or the reason to change management could be something as simple as a disconnect between the manager and the board members, who don't feel as though they are getting the service they signed up for. Even when the reasons are simple, however, changing management companies is not a transition to be undertaken lightly. It's a big decision, and a difficult process to navigate for even the most well organized, professional boards and agencies. It's important to make the decision with full knowledge of what's involved and a commitment to minimize disruption of a community's daily business.

The Love Affair Is Over

No board ever signs a contract with a management agency expecting that the relationship will last forever. But, just as some personal relationships occasionally go bad, so may those relationships between an HOA and its managing agent or firm. The reasons could be many—and given the headache it can be to switch after a years-long relationship, it should probably take more than just one for a board to seek better service elsewhere.

That doesn't mean your HOA's management company shouldn't work for it. Tony Smith, the current president of the Institute of Real Estate Management (IREM) explains that every association board transitions itself every few years, since it will rotate out with newly elected members. Because of this turnover within a board, a management company has to continually remind the client why they are the best fit for the job.

"After a few years, the sitting board may likely have little connection to the original decision to hire management company 'A' and may feel a need to seek alternatives," he says. "Management which fails to resell itself to each new board member should not be surprised when the account goes into play."

A board's grounds for seeking new management can be simply that they don't trust the old manager to do the job they need him/her to do.

"An HOA board might consider changing agents or companies because they lack confidence that the company can achieve goals and objectives in common with the client," says property manager Edward Frank of Arthur Edwards, a management company in River Vale. "If a management company is achieving common goals and objectives with the client, then the board should never need to make a change."

Paul Santoriello of Taylor Management Company in Morristown agrees that boards fire their agents because they aren't getting an acceptable level of service.

"If the services that are required or desired are not being provided for by the current managing agent, the board is just not getting the services that they contracted for," he says. "Of course, there are the obvious reasons why a board would want to fire a management company—such as if that company does something inappropriate or unethical, for example, or if they just make too many mistakes."

There are other, more involved, motives for looking for new management. For instance, a board may feel that they could get a better price elsewhere (sometimes forgetting that most often, you get what you pay for). Another example might be political differences or personality clashes between board members and the professionals they hire to manage their community.

"Sometimes a new board will get on and take control of the community, and maybe the majority of the board will then be new members," explains Santoriello. "These new members might not particularly care for the manager or the management agent. There are also times when the personalities of the managing agent just don't mesh well with board members."

One more reason could be that the board senses turnover of managing agents within the company that they hired. It isn't unusual for the management company to change their staff every few years, but if the company is switching managing agents on a community too often, then a board will often see fit to seek another company altogether.

"Within this high burn-out business the constant turnover of managers will often force the board to seek a new relationship in the hopes of stabilizing personnel," Smith says, adding that if the board decides to stick with the same management company, they may ask for a different manager from that company.

Research for the Big Change

Before making the leap to a new management company, a board should research its options. If it doesn't weigh the choices intelligently before hiring someone new, a board might be getting a company that's even less satisfactory than the one they just let go.

"A board should, without hesitation, ask for all references for the management company—not just three references or only the ones that have nearby locations," advises Frank. "When we're asked to bid on a property, we provide a list of every property that we manage and invite the client to speak to every single one of them."

Smith counsels board members to do tons of research - unless they want to go through the process again next year - and says, "The board should make every attempt to interview and communicate their concerns to potential candidates." He also suggests that board members look inward and conduct a failure analysis to see if any of their internal actions might have contributed to the bad situation that landed them in their predicament in the first place.

"This takes a level of courage and commitment that is somewhat rare," he admits.

According to Smith, a board's research should include at least two interviews with the company and the personnel who will be assigned to the account, a visit to the office of the firm, phone calls to references, including a couple of ex-clients, determining the professional designations of the organization, asking the length of time in business and determining the company's ability to specifically address areas of community concern and provide solutions.

Santoriello offers the advice that, if the board doesn't want to contact all the references, simply ask the company to randomly give you clients that start with certain letters—say, "D" or "S"—and call on those clients. He cautions against calling only those clients that the potential management firm designates since this allows them to cherry-pick their favorite clients with whom they feel they had the greatest rapport.

He also says that a board should talk to professionals who provide services in the industry, since these folks will have an idea how the company operates in terms of speed of payment, courtesy to customers and overall reputation.

"Sit down as a board and determine what you're looking for, then put together a request for proposal (RFP), send it out to a number of management companies who have good reputations and ask for pricing," Santoriello suggests. "A critical step would be to go to the management office, preferably unannounced, and ask lots of questions. Ask about the size of the company, the location, any hidden fees that might exist, how the banking process works, how many associations the company handles and how many sites they might have lost."

After the research is done and the board makes the decision to hire a new company, there remains the unpleasant task of giving notice to the old company to let them know that their services are no longer required. The contract signed by both parties should confirm the exact notice a board needs to give the old firm, but typically 30 days is what's required.

"There are contractual obligations that must be looked at," cautions Frank. "Most contracts do have termination clauses that dictate how the process is to take place, such as when the managing agent is supposed to stop work, when they are supposed to transfer information to the new firm, and how they should make it available for the new company."

If an association has the financial means, Frank suggests having an overlap between the old manager and the new one, to facilitate the transition.

"This allows the outgoing company to still maintain their responsibilities to the association, with certain limitations, while allowing the incoming company to start getting familiar with the community itself, the transitioning of all records, meetings with various boards and committees and staff just to become aware of how that particular association functions. But we find that sometimes the client doesn't have that financial luxury to do that kind of overlap."

Santoriello agrees. "Nine out of ten times, there will be no overlap simply because most associations can't afford it," he says.

A Smooth Transfer?

What about transferring confidential material from the old management company to the new one? What about records and contract information? How does the board let all the vendors and suppliers know about the change?

"This should all be addressed in the termination checklist of the departing manager," advises Ed Boudreau, a specialist in association management who served as 2002 president of the IREM and is the current chairman of Capital Consultants Management Corporation. "The board must be prepared to inform the current manager of who and where to transfer custody of the new records and bank accounts. For everyone's protection, this process is best done in writing to all parties."

What this means is that the departing company basically provides a property transition list that includes everything the new management company will need in order to begin its new job.

This list would include "Everything from a unit owner list roster to legal documents to contracts to the keys to the men's washroom," jokes Frank. "A lot of times, if a management company has been there for awhile, there will be boxes and boxes of records, some of which might be in different locations."

In cases such as these, it's important that the new company has a checklist of items to ask for, so the outgoing company can go on the search for all of the documents pertaining to that client.

Vendors and suppliers should receive dual notification, according to Santoriello, from both the outgoing and the incoming management companies, as should shareholders and unit owners, so they can understand what's going on—not to mention knowing where to send their monthly maintenance checks.

The board itself should sit down to set its own policy on who will be providing direction throughout this somewhat confusing process.

"The board should appoint someone to act as 'point' in dealing with getting the new manager up to speed," advises Boudreau. "It will serve no purpose to have each board member contact the new manager with their pet issue. A priority action list can be provided to the manager of the issues the board deems most urgent."

If the board has done its homework, then they should rest assured that the management company they hired is capable of doing the job.

"Qualified managers will have little problem getting up to speed on a new account — this is what they do every day," says Boudreau.

A board should offer its concerns and provide executive direction. But then they should have faith that the new manager they hired will work to obtain all contracts, past meeting minutes, insurance policies and other correspondence files.

When it comes down to it, it's up to a building or HOA to decide whether they're in the market for a brand new management company, and whether they can handle the paperwork, logistics, and transition—or whether they'd rather stick it out with their current manager and/or firm and work out the problems in the first place. How your community handles it will depend on how well everyone works together, your administrative patience, and level of organization prior to the switch.

Domini Hedderman is a freelance writer and a former property manager.

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  • The Board has the authority to change management. However they should be in compliance with the Open Meetings Act and ratify the decision at the next membership after they reached their decision in the executive session. My board just fired management and is now self-managing. They are calling themselves The Management Team which is a Breach of Duty. There isn't anything in our governing docs that says the Board is Management. It does state the board can self-manage and that is very different. They now want compensation. At the meeting I will stand in front of everyone and inform them the Board is Self-Dealing! They are telling us that they want free maintenance. Then they won't need a W9 because they won't show income!
  • If the management company is collecting money doesn't require a real estate license ?