Switching Management Companies The Break-Up

Switching Management Companies

Most co-op and condo boards that hire property managers, rather than manage themselves with in-house staff, are reasonably satisfied with them. After all, the managers are presumably trained and experienced professionals.

But now and then, a building or development wants to change its management company, or else its individual manager. What happens then? It could be a sticky situation. Professionals asked by this publication for some typical reasons to change managers offer several possibilities.

One reason might be that new board members, who have had links to particular managers in the past, have been elected. Another might be poor service and cutting corners on the part of the current manager. Yet another could be the suspicion of wrongdoing—financial records missing, for example.

“Sometimes a new board comes in that would prefer to contract with someone else and change things. They may have been elected on a change platform, which would mean that they want to bring new professionals on board,” said Curt Macysyn, executive vice president of Community Associations Institute of New Jersey (CAI-NJ).

“Associations tend to change management companies,” says Mary Faith Radcliffe, a principal of RCP Management in Princeton, “if they feel diminishing services, if they’re looking to implement new technology and they don’t feel the current company provides that.”

And some associations want to because of intangibles—because there might be a lack of chemistry between the board and the manager, or because the board believes a particular manager or management company—is the wrong fit.

What if the unit owners want to keep the same management company but want the company to change the individual manager?

This isn’t that uncommon. In fact, if an association gets in touch with a management company and tells the company that it wants to end the relationship, chances are that the management company itself may offer to change managers as a way to forestall such a drastic development.

“You might prefer a more aggressive style or a less aggressive style,” says Radcliffe. “Each company wants to have things done a certain way. Managers themselves have different proficiency levels. Some are computer-oriented, others are more hands-on and like to spend more in the field.”

And, of course, changes also happen because some particular managers decide to leave their company, or, for internal reasons, are reassigned to another building.

At any rate, in many large companies, management is a team effort—the manager’s supervisor also takes part in the decision-making process, and that supervisor is in charge of several managers. Therefore, in this type of situation, switching an individual manager can be much less painful.

Switching Management Firms

Now, to the more difficult of these situations: switching management companies. Each association board has its own reasons for doing so, but there are certain precautions HOAs should take—they shouldn’t hire a new manager just because he or she is “a friend of a friend.” They also shouldn’t hire a new management company if it will cost less than the old one.

One precautionary step that professionals recommend is talking to board members of other condos in your area. Also, remember that different management companies have different emphases—some may be strong on computer skills and record-keeping, others may be strong on people skills.

Attorney Paul Leodori of Leodori & Whelihan PC in Medford says, “You should be doing due diligence by talking to other communities in your area and seeing who they’re using. Once you get a list of names, talk to both the management company itself and the person they’re going to assign to you, to see if they’re a good fit.”

Tracy Franklin of MAMCO Management in Mt. Laurel points to other resources. “The most common is the CAI (Community Associations Institute, and its local chapter, CAI-NJ). They have directories. I’ve also seen boards form committees, and they will `shop’ associations that are similar to theirs to see how they’ve been managed.”

Macysyn stresses that you should review the company’s portfolio, then ask for references from the company after interviewing them

Finally, of course, the association board should talk to its accountant or lawyer before taking such an important step. And also, the company you eventually choose should have a presence nearby, not 50 miles away.

There are also books on the subject, such as How to Choose the Right Management Company for your Residential Property by Leslie Kaminoff, CEO of AKAM Associates. The book has a section on the 40 most important questions one can ask when contemplating a change in management.

The Transition

Say you’ve finally found a new management company you really like. What kind of notice should you give your original management firm?

That’s usually covered in the contract, say professionals. The most typical time seems to be 30 to 90 days.

“Thirty days is a little too short, 90 days is a little too long,” says Leodori. “For any activities that are ongoing, you may be able to phase in the new manager and phase out the old manager. The new manager will want to have a lot of documents—who the residents are, the general accounting for monies spent. It may take them 60 days to get up to speed.”

What about the transfer of confidential material handled between agencies? What about records and confidential information?

Radcliffe reminds us that “all records belong to the association.” In her experience, she says, the old manager will put his or her records on a computer disc, then sign it over to the new management as part of a “very organized process.”

Still, Leodori cautions that although most of these records are indeed the property of the association, depending on the size of the building or development, the board members may want to protect themselves by making a copy of those records themselves. That way, he says, if someone makes accusations, the association can say, “this is what we did, and here are our records.”

Thankfully, most managers are honest and won’t “lose” valuable records as payback for losing an account.

Vendors and Contractors

Then, after the changeover has taken place, there’s the matter of vendors or contractors that the building uses.

How are they notified of the transition? Usually, the new manager takes the lead in doing so in several ways: by making calls, by sending letters telling them who to contact now, by having meetings. In some cases, such as dealing with government-linked firms, you have to deal with the vendors in “their way,” by filling out their special forms.

Often, the existing vendors’ relationship with the association is protected by contract. But when the contract is up, or if there’s no contract, some managers like to bring in their own vendors and contractors, whether they are roofers, plumbers or landscapers.

“If there’s not a contract in place with a certain vendor, you usually go with what you know, because you they are going to do the job right,” says Franklin. Still, she does research the company the old manager used when she takes over management of an association.

Bringing Them Up to Date

Dealing with the vendors and contractors is one thing. But say you’ve hired the new management company and they’ve been with you a month or two. How do you bring them up to speed on the various issues that are important to your building or development?

This is usually no problem with an experienced manager or management company. Even if it’s a new management company, the new manager may know something about the development already, thanks to his work in the same community, or through contact with other managers, or knowledge of similar buildings or complexes.

The management firm usually talks to the president of the board. The board also can call a special meeting to which the representatives of the new management company are invited—you wouldn’t want to wait until the annual meeting.

If you’re changing managers within the same company, says Radcliffe, it’s an “ideal situation” because the previous manager can work with the new one, and the two can train together for as many weeks as necessary. Also, she says, the supervisor remains the same, and that supervisor is familiar with the place. “It’s a very easy process,” she says.

But when her company takes over a new account from a previous manager, she says, “We try to meet with the board several times to get a good, solid list of the issues, depending on the management company we’re taking over from. The prior company will typically put together a folder of open issues, things to do right away.” Even so, she says, it’s still a “learning curve” that can take as much as six months.

A Voice for Unit Owners?

Do the unit owners have any say or vote in who their manager is, or will be? No, professionals agree—that job belongs to the board.

Still, unit owners can petition the board if they’re dissatisfied with their manager. And, says Leodori, although such a petition may not be legally binding on the board, it may be “politically astute” for the board to look into a petition and be able to address the owners’ concerns. And, as in every aspect of condo and co-op life, if residents want to be heard, the best thing for them to do is—to come to meetings!

Just a final reminder—all the documents, records and so forth are really the property of the building, development or association—even if they’re in the possession of the management company. Also, much of this information has already been made public, such as the building’s financial statements and the minutes of board members. Breaking up is hard to do, but in most cases, by following some prudent guidelines, the transition should be smooth and beneficial to your association and unit owners.

Raanan Geberer is a freelance writer and editor living in New York City.

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