Tag Archives: management company

Florida Statute 718.111(12): Unit Owner Access to Florida Condominium Association Official Records

Posted on March 8, 2014 | 57 Comments

A reader recently asked how frequently a unit owner has a right to view the official records. In this person’s case there was a unit owner requesting official record documents on a weekly basis. This question prompted the following post on unit owner official records access.

Every Florida condominium association is required by law to maintain official records. An overview of what constitutes official records is provided here with a more detailed overview of financial records here. Florida Statutes 718.111(12)(b) and 718.111(12)(c) provide unit owners the right to view and make copies of official records; however, aside from very basic guidelines, the association remains responsible for creating reasonable rules surrounding the frequency, time, location, notice and manner of unit owner record inspections. Because associations are left to construct official record inspection rules, I recommend (as I always do) that the board create and distribute a policy around official records access. In general, it is my opinion that the more official records transparency the better; is a great way to earn unit owner trust.

This post will review the access provisions laid out in the Florida Statutes and provide general guidelines on constructing a reasonable official records access policy.

Florida Statute Guidelines

  • Official records must be maintained within the state for 7 years
  • Official records must be made available within 5 days of a unit owner’s written request
  • Official records must be available to unit owners within the condo’s county (or within 45 miles if the county boarder is more than 45 miles from the condominium)
  • Official records must be open to inspection at reasonable times
  • Associations may charge a reasonable expense for copies of official records
  • Associations may approve reasonable rules surrounding frequency, time, location, notice & manner of inspections
  • Unit owners who are denied access to the official records 10+ days after a written request are eligible for damages no lesser than $50 per day and reimbursement of any attorney’s fees.
  • Unit owners may take photos of official records with a camera, phone or other electronic device.
  • The association must maintain copies of the declaration, articles of incorporation, bylaws, rules & regulations, frequently asked question & answer sheet and most recent year-end financial report on the condominium property for unit owners and prospective purchasers. The association may charge its actual costs of preparing these documents.
  • The following documents are protected and NOT available to unit owners: (1) documents protected by lawyer-client privilege; (2) information associated with the sale of a unit; (3) homeowner medical records and other confidential information such as Social Security Numbers; (4) association security information (e.g., passwords); and (5) personnel records (if the association has employees).

NOTE: Personnel records include items such as the health records, W-4s and performance reviews. This records exemption does not include salary details of the employee as this information should be readily available in the association’s budget.

 

Official Records Storage

Before an association can establish reasonable rules around unit owner access to official records, the board must have a good handle on how/ where official records are stored. Associations that are self-managed or in-house managed have much more control over the storage of their official records than do professionally managed associations. As I discussed in length in my post on management transitions, I strongly recommend that boards of professionally managed associations complete official records “audits” from time to time to ensure proper records maintenance. I also recommend that boards provide guidelines to their management companies on how they would like their records organized and stored. Here are a few recommendations:

  1. If the association has an on-site office or lobby, consider keeping a computer with all official records on it for unit owners to review at any time.
  2. If the association has a website, keep the association’s key records (e.g., financial statements, meeting minutes, agendas, budgets, reserve studies, insurance information) on the website for unit owners to access at their convenience. This also provides a web-based backup of the official records so there is no concern about them being destroyed due to theft or natural disaster.
  3. Keep binders with hard copies of all frequently requested records on property or at the manager’s office. A simple way to do this is to have a binder for each key item.
  4. Store any hard copy records that will be accessed infrequently (e.g., copies of checks, invoices from prior years) in a professional storage facility designed to withstand hurricane force winds.

 

Official Records Access Policy

Given that the Florida Statutes provide associations with the flexibility to create reasonable rules surrounding official records access, I believe establishing a policy is prudent in that it specifically informs management how to proceed and ensures consistent unit owner treatment. Of course, if your association has its official records readily available on property or electronically for unit owner viewing at their convenience, the majority of this policy becomes irrelevant. If unit owners in your community are frequently asking for official records documents and your records are primarily in hard copy, it may be worth contracting to have all of your records scanned and made available via the web. From personal experience, the time saved by directing every official records request to one website is well worth the upfront cost.

I would recommend that every official records access policy include the following:

Governing Documents, FAQ Sheet & Year-end Financial Report: While the Florida Statutes specifically say “copies” of these documents must be available on property, the association should focus instead on compliance with the spirit of the law. If the association would like to keep paper copies of these documents on property, that’s great. If that doesn’t make sense for your association, I believe the following options also comply with the law: (1) making the documents available on a website, (2) making them available on a CD/ thumb drive, (3) emailing them to the requestor.

 The policy should specify how these documents will be provided to unit owners/ potential buyers and any costs associated with these documents. The law specifically states the association may charge actual costs of these documents. If they are available via website or email, there should be no charge. If available via hard copy, CD, or thumb drive, the association should charge whatever amount the manager or document preparation services (e.g., Kinkos) charges the association. For self-managed associations completing printing work in-house, a cost of $.10 – $.15 per page for black and white or $.50 for color is reasonable. This range should cover your paper, ink and printer wear and tear. If creating CDs or thumb drives in-house, the cost should reflect the actual cost of the CD or thumb drive.

 Copying Fees: For official records excluded from #1, the association may charge a reasonable fee for copies, CDs or thumb drives of these records. I don’t see this as much different than actual cost given that it seems unreasonable for the association to make a profit (even if a small one) on official record distribution. As mentioned above, unit owners should charge the exact cost charged to them by the manager or other professional preparing the records. For self-managed associations, the cost guidelines mentioned in #1 remain reasonable though the association may charge an additional amount for time spent making copies so long as the amount is defendable.

 Viewing Location:  The policy should specify where unit owners may view the records. There may be multiple locations. For example, meeting minutes, budgets and monthly financials may be available on the association’s website while copies of contracts and invoices are available at the management company’s office.

 Frequency of Requests:  The policy should specify how frequently a unit owner may request records and clarify that any requests in excess of the frequency limitations will not be accepted. There is no right choice: daily may be too burdensome on the association but quarterly may be too limiting for the unit owner. It may be worthwhile here to distinguish between how frequently a unit owner may request electronic records (i.e., those that can be easily emailed) and how frequently they may request viewing of hard copy records.  These specifics will entirely depend on how your property is managed and how records are stored.

Viewing Times: The policy should specify when documents are available for review. For those available on the web, there is no limitation on viewing time. For all other documents, viewing times may be by appointment during the management company’s business hours.

Making a Request: This section should indicate how the unit owner makes a request. It should specify who the unit owner contacts and what information to provide. I would recommend associations require unit owners to select specific records or groups of records (e.g., 2009-2011 budgets, March 13, 2013 invoice from Joe Plumber). This avoids the “I’d like to see all your records” requests which are nearly impossible to accommodate. Generally these requests arise if a unit owner feels the association is hiding something. All requests should be in writing (mail or email). The policy may also require the unit owner to provide his/ her availability over coming days (if applicable).

Request Response: This section should indicate how and when the association will respond. The law states that documents must be made available within 5 days of a written request. Do not read this to mean that in all circumstances the documents must be in the hands of the requestor within 5 days. If the association has the requested documents available electronically, they should certainly be emailed within 5 days. However, for hard copy documents, the association should respond as promptly as possible (I’d recommend within 1 business day) and offer reasonable viewing time(s) that fall within the 5 days window.

 

As I recommend with all policies, the association’s attorney should review the policy before it is finalized. Further, the board should re-review and re-approve the policy annually to ensure continued compliance with applicable law.

Feel free to reach out with any questions.

Emily

Emily Shaw is a condominium homeowner in Tampa, Florida and a Director of VERA Property Management, a firm providing full-service community association management in the Tampa Bay Area as well as consulting, financial and legal services to all Florida community associations. 

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Hiring a New Management Company: The Florida Condominium Association Manager Transition Process

Posted on February 18, 2014 | 11 Comments

Do you feel like there are better property managers out there? Have your Board members been hesitant about considering new management because they are concerned the transition process is going to be difficult?

If you relate to the above questions then you are not alone. One reason why ineffective mangers remain in business is that Board members are generally weary of the time, effort and instability they perceive as part of the manager transition process. While management transitions can be stressful and, if handled incorrectly, frustrating for all the community’s residents, a proactive Board of Directors can help to create a seamless transition.

This post will provide general guidance on navigating the management transition process. We will also provide an overview of the key aspects of the transition plan you should see from a new management company.

Don’t rush the management decision-making process. Be sure to start interviewing new management companies at least 60 days before you need to give notice to your current management company. Be sure to review your current management contract to know exactly how and when notice of cancelation or non-renewal must be given. Some management agreements may require notice as much as 90 days in advance.

Negotiate your new management contract. There is always risk associated with hiring a new management company. The manager could fail to live up to the Board’s expectations. Because of this, the Board should ensure that they have negotiated a contract with favorable terms. See our post on contract negotiation here for more details.

Give the new company ample time for transition. Make sure that new management contract is signed at least 60 days before the start date. 60 days is a reasonable amount of time for the new management company to properly transition the administrative aspects of the association (e.g., inform residents, open new bank accounts, transfer financial data), be brought up to speed on outstanding association projects, and generally be ready to go when management officially begins.

Audit your association’s official records. Once the Board has decided to make a management change, one of the first things they should consider doing is auditing the association’s official records.

NOTE: Board members often think of official records maintenance as being the manager’s responsibility and, therefore, don’t spend too much time thinking about it. While it is true that maintaining records is part of the standard management contract, it is ultimately the Board’s responsibility to make sure that records are properly kept in accordance with Florida Statutes (read more about official records requirements here). Remember, when a Board hires a management company, responsibility for compliance with Florida Statutes & association governing documents does NOT shift to the management company. Ultimate responsibility remains with the Board. As we discussed in our post on the Florida Administrative Code, relying on a management company is not an acceptable defense for failing to comply with Florida law.

Transitioning the association’s records is one of the most important aspects of the management transition. Not only is it a requirement of the Florida Statutes that certain records be kept, it is also crucial for the smooth operations of the association (particularly when new management is involved). An advanced audit of the official records may bring to light unexpected issues.

If your management company keeps all your records off property, a Board member(s) should request a meeting with the current manager to review all of the records. Bring our blog post on official records with you as a cheat sheet for everything that should be included. If records are missing, make a list of those records and request that the current management company locate them. Determine which records are kept in hard copy and which in soft. Ask the manager how email communications relating to association business are stored and how you would access them. If the manager tells you emails are not part of the official records, push back. Emails are a very important part of the association’s records. A tremendous amount of detail surrounding historical association events is lost every time an association switches management companies without retaining email records. In my opinion, this point is so important that it may be worth consulting the association’s attorney if the management company refuses to provide them.

If all the records are accounted for but they aren’t organized, don’t sweat it. At this point, you just need to make sure the records are available. Once your association has hired a new management company, organizing the official records can be something you require.

Review the association’s polices. The period prior to a management transition is a great time for the association to review its operational policies and procedures (e.g., collections, sales/ lease, parking, property access, amenities use). If the association has been relying on certain internal policies and forms of their current management company (most frequently for maintenance fee collections and violation identification/ fining), it is worthwhile to request copies of these policies. All policies should be provided to the new manager for his/ her review to ensure policies are applied consistently from one management company to the next. Consistent application helps to create a smooth transition and limits resident complaints. Any policy changes the new manager recommends should be reviewed and approved by the Board.

Establish a transition plan. Be sure to establish a detailed transition plan with the new management company and follow up on the status of the transition weekly. The following outlines the essential aspects of a transition plan. Prior to hiring a new management company, the Board should understand exactly how the new manager plans to handle the transition.

 

Manager Transition Plan Key Components

Board Meetings/ Transition Updates: The new manager should meet with the Board of Directors shortly after contract signing to discuss the specifics of the transition plan. The manager should also agree to provide routine updates (perhaps weekly) on the status of the transition. If possible, the new manager should attend any regular Board meetings that occur in advance of the start of the contract.

Obtain/ Organize Official Records: Management’s first big hurdle is going to be obtaining all of the association’s records from the departing management company. The manager should request the records at the beginning of the transition period, review the records, and provide the Board with a list of missing records (if any). If the new manager is having difficulty obtaining specific records from the departing manager, the Board may need to step in and request those records.

Opening Bank Accounts/ Signers: Management companies typically serve as custodians of their associations’ bank accounts. For simplicity, they will usually only work with one bank. As such, a change in management company often means changing the bank where the association holds its operating (and possibly reserve) funds. As part of the transition, the new manager will need to assist the Board in establishing new bank accounts for the association. This should definitely be done in advance of the contract start date (ideally 30 days before) to ensure there is a location for maintenance fees to be deposited. As part of this process, the Board will need to specify which Board members will be allowed to sign the association’s checks (generally the President and Treasurer). At this point, the Board should request that online access be established so that the manager, Treasurer or other Board members can check the status of the association’s accounts at any time.

Purchasing Coupon Books: With new bank accounts come new coupon books. The manager will need to order these coupon books and have them delivered to residents in advance of day one of the contract to ensure unit owners can pay their maintenance fees on time. Generally, these coupon books are accompanied by an introduction letter from the new management firm.

Resident Communication: Communicating with residents is a crucial aspect of the transition. All management companies send an introduction letter to all unit owners that generally includes a brief paragraph about the company and the manager’s contact information. In my opinion, this letter alone is insufficient. I strongly recommend that the President of the Board personally communicate with all residents explaining reasons for the management change and asking residents for their patience during the transition. Knowing that the Board made a thoughtful and well-informed decision will help to limit resident complaints. I also think the Board should confirm that the manager will not only contact the community’s unit owners but other residents as well (e.g., tenants) to the extent possible. These other residents are often left in the dark by property managers, causing them to complain to their landlords (i.e., unit owners).

Confirm Resident/ Homeowner Contact Info: The new management company should obtain unit owner and resident contact information (e.g., addresses, phone numbers, emails) from the departing management company and should work to confirm this information with each resident. The Board should communicate to the new management company any additional information they would like the management company to maintain for each resident (e.g., parking spot number, number of pets, license plate number, emergency contact).

Meeting with Vendors: The new manager should meet with all of the association’s key vendors to introduce him/herself and get brought up to speed on current projects. The manager should ensure that the association has a W-9 form and current certificate of insurance for each vendor.

Financial Updates: During the month prior to the contract start date, the new manager should obtain financial records through the previous month’s end from the departing management company. If the two management companies have compatible accounting systems, the transfer should be straightforward, with the new management company simply importing all historical data into their system. If there is system incompatibility, the new manager will simply begin maintaining accounting records on day one of the contract. In this case, I recommend making sure the association have the following reports for all prior months: (1) Balance Sheet, (2) Income Statement, (3) Budget-to-Actual, (4) Check Registers, (5) General Ledger & (6) Full Historical Ledgers for each unit owner. Read more about financial records here.

Policies & Procedures: During the month prior to the contract start date, the new manger should obtain all of the association’s current policies and procedures. The manager should review them and provide any recommended changes to the Board. To the extent possible, all key policies and procedures should be in place in advance in advance of contract start.

Annual Report/ Registered Agent: Immediately after the start date of the contract, the new manager should amend the addresses listed on the association’s Florida annual report to the manager’s address (unless Board members prefer their personal addresses). The manager should also ensure that either the manager or the association’s attorney is listed as the association’s registered agent.

Website: If the association provides a website for its communities, the website should be fully operational, with all relevant association records uploaded, in advance of the contract start date. Many managers allow for some customization of the association’s website. The Board should discuss this with the manager to ensure they are fully taking advantage of the website’s features. Read more about the benefits of a condominium website here.

This post provided only a brief overview of the transition process. If you would like to discuss the specifics of your community’s management transition, feel free to reach out.

Thanks,

Emily

Emily Shaw is a Florida condo owner and a director of VERA Property Management, a community associaiton management and consulting firm.

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Interviewing a Florida Community Association Management Company: Part 2

Posted on January 28, 2014 | 10 Comments

On January 2, 2014, I posted a discussion of five key questions to ask a potential management company. Click here to review that post. Today, we will look at five additional questions.

1.     Do you have specific vendors that you work with? Do you receive any type of compensation for recommending specific vendors to Boards?

As one of your property manager’s key responsibilities will be selecting vendors to provide work proposals to the Board, it is important to understand how specific vendors are chosen. Often management companies have lists of preferred vendors that they use regularly. There is nothing inherently wrong with this. In fact, having a manager with experience and strong connections to local vendors is an asset. That being said, the Board should do their best upfront to ensure there are no potentially unethical reasons why a manager may recommend a specific vendor. Conflicts of interest may exist if a manager receives any type of compensation (e.g., cash, professional recommendations, networking opportunities) in exchange for using a specific vendor. A common example of a conflict of interest is key players of a management company having ownership interest in plumbing, maintenance, landscaping or other businesses that an association may hire. A more blatant example would be a management company receiving financial kickbacks from a vendor if a Board hires the vendor. Quite a bit of light has been shed on these conflicts in recent years and management companies have been cleaning up their acts. Still, it is worthwhile to ask the question and judge the manager’s response.

 2.     Do you have a set minimum threshold for competitive bidding? Are you comfortable with the Board setting a lower threshold than is required by Florida Statutes?

Florida Statute Chapter 718.3026 requires that any project costing more than 5% of the annual budget be competitively bid. Given this, most management companies do not promise competitive bidding below 5% of the association’s annual budget. For a condominium with an annual budget of $100,000, only projects of $5,000 or more would be competitively bid. For a large condominium with a budget of $500,000, only projects of $25,000 or more are required to be competitively bid. In my opinion, 5% is way too high of a figure. I strongly recommend that Boards vote on a lower threshold project size above which competitive bidding is required ($1,000 may be a good starting point). Further, I recommend that Boards confirm with potential management companies that they will honor the lower threshold. More competitive bidding means more work for the manager so the manager may want to adjust their management fee slightly to reflect this lower threshold.

NOTE: It is also worthwhile for the Board to establish a maximum expense amount that the manager may approve without Board consent. Ask the manager what they typically recommend. It often makes sense for the competitive bidding threshold and the manager approval threshold to be the same.

 3.     Will you be on property to oversee large projects (e.g., painting, paving)? Is there a fee associated with this oversight?

Unless your association has an on-site manager, most management company contracts only guarantee that the property manager will be on-site once per week for 1-2 hours to complete a property inspection. During big projects like painting and repaving, the limited on-site presence of the property manager can leave the Board struggling to meet vendors, review progress, manage parking and traffic patterns, and much more. Many management contracts include a project administration fee (typically 2-5% of project cost) that includes more comprehensive oversight of large projects. This fee is often automatically charged for any projects above a certain dollar amount. Be sure to confirm whether or not there are any additional fees associated with the administration of large projects and clarify what that fee includes. Regardless of whether or not the manager charges a project administration fee, be sure to ask the manager to explain how he/ she will handle a large project that the association expects to take in the near future. This discussion can provide vital insight into the manager’s project management style.

4.     Are you comfortable following Board-approved policies?

As is likely clear to those that have read my other posts, I am a strong believer in Board-directed property management. In practice, this translates into Boards drafting and approving policies and procedures for everything from violation identification and fining, to delinquent maintenance fee collections, to rental or sales applications, to the types of door hardware unit owners may choose for their front doors. These polices create a road map for managers to follow and provide obvious metrics against which the Board can review a manager’s performance. These policies also ensure that the manager is acting within the guidelines of the association’s governing documents and that all residents receive consistent treatment.

Most management companies have their own internal policies, particularly relating to maintenance fee collections and violation identification/ fining. They tend to use these same policies and same form letters for every community. For example, the manager’s internal policies may dictate that if a unit owner is more than 90 days past due in paying maintenance fees they are automatically sent to the association’s attorney to have a lien placed on their unit. This may be what the Board prefers. On the other hand, the Board may prefer a different approach (e.g., attempting to work out a payment plan or attempting to garnish rent from a tenant before placing a lien). Because their processes are streamlined and generally applicable to all properties they manage, certain management companies may be reluctant to change their policies for your community. If you are the type of community that wants control over how the day-to-day operations of the association are handled, be sure that the manager is willing to follow all of the Board’s policies and procedures. If you are unsure of how important this is to your Board, consider asking the manager for a copy of their internal policies and reviewing them to determine if they are in sync with the Board’s perspective.

5.     How big is your accounting team? What are their qualifications?

As all management companies offer a standard accounting package, many Boards tend not to focus on this aspect of a potential management company. Given the importance of quality bookkeeping, I strongly recommend that the Board take the time to learn as much as possible about the manager’s accounting team. Ask specifically about the size and qualifications (any CPAs on staff?) of the accounting team. Further, request draft financial statements and confirm that the manager is willing to provide customized accounting reports at the request of the Board. Lastly, confirm that the Treasurer of the Board will be able to deal directly with the accountant(s) assigned to your association.

 

As always, feel free to comment below or shoot me an email.

Emily

Emily Shaw is a condominium homeowner in Tampa, Florida and a Director of VERA Property Management, a firm providing full-service community association management in the Tampa Bay Area as well as consulting, financial and legal services to all Florida community associations. 

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Interviewing a Florida Community Association Management Company: 5 Important but Frequently Overlooked Questions

Posted on January 2, 2014 | 15 Comments

It is very important for Boards of Directors ask the right questions before hiring a management company for their association. All too often important items are overlooked and Boards are left disappointed when they realize that the services they are receiving fail to meet their expectations. This post will examine 5 important and frequently forgotten questions to ask a prospective management company.

1.     What is the maximum number of properties a Licensed Community Association Manager (LCAM) at your firm will be responsible for? In general, property management is a low profit margin industry and management companies have to manage many properties in order to earn a decent profit. Given this, management companies (and in particular the LCAMs that work for them) are often stretched too thin. With one LCAM managing up to 10 properties at a time, it is not surprising that they cannot keep up with their workload. In the end, it’s the associations that pay the price. In the property management business, firms often define an LCAM’s workload as the number of doors or units (versus properties) that the LCAM manages. This takes into account the fact that the size of properties, and therefore the number of hours dedicated to the property, varies. Of course, a small 20-unit property could be riddled with problems that require the LCAM’s time just as a 200-unit property could be smooth sailing. In general, however, I think this is a reasonable way to measure LCAM workload. I recommend no more than 650 doors under management by any full-time LCAM. If a management company does not have a unit limit per LCAM, this is a big red flag.

 2.     Which LCAM specifically will be assigned to our property? Can we meet him/ her?  Property management proposals, particularly from the larger management companies, tend to speak generally about an LCAM being assigned to the property. The person(s) that meet with the Board to discuss the management proposal are often the company’s owners or an employee specifically hired to meet with potential clients. It is exceptionally important that Boards meet and interview the actual LCAM that will be assigned to the property. I also recommend that Boards negotiate a clause into the management contract that should the specific LCAM leave the firm, the Board has the right to terminate the contract. This will be the person the Board works with on a routine basis and if the LCAM is incompetent, unmotivated, overworked or simply does not “mesh” with the personalities of Board members, the management partnership will likely be unsuccessful. Management companies tend to highlight their expansive accounting teams, their fancy websites and their new technologies when presenting to Boards. But in the end, it is the quality of the LCAM assigned that will determine how well your property is managed. Don’t be shy about asking for a resume of the LCAM to determine what experience he/ she has. It is also wise to find out how far he/ she lives from your property as it is very helpful to have an LCAM that is nearby in the event of an emergency on property.

 3.     Where and how are our official records stored? Are email communications maintained? While the specific items considered Official Records are listed in the Florida Statutes (and discussed here for condominium associations), there is no specifically required method of storage. Records may be stored in hard copy at the manager’s office or with a professional document storage firm; they may be stored in electronic format on a computer or an external hard drive; or they may be stored on a web-based application like an association website. The Board will want to make sure that they (and other homeowners) have easy access to the Official Records (accessible within 1 business day) and that the records are stored in such a way that protects them in the event of fire, hurricane, or other casualty. The other item that the Board should inquire about is association emails (i.e., any email sent or received by the property manager regarding the association). These emails do not necessary constitute Official Records but they do provide important information on past events and can be very helpful to new Board members. Some management firms save these emails and some don’t. Make sure that the manager not only saves all association emails but also has a method in place to provide them to the Board upon request.

4.     Do you have 24-hour emergency response? How does it work in practice? When are managers required to come on-site during an emergency? Most, if not all, management companies have 24-hour emergency response built into their management agreements. However, not all after-hours emergency response programs are created equal. Smaller management companies may provide the manager’s direct phone number to all residents and simply field calls as they come in. Larger management companies generally contract with an emergency answering service. In this scenario, after hours phone calls from residents are answered by a call center attendant who determines if the call is an emergency. Call center attendants generally know little to nothing about the property. From there, the call center attendant attempts to contact the property’s LCAM. This process can be effective if a quality call center is used. For management companies that use a service like this, I recommend the Board research the call center and also determine if there is a cost per call to the call center that will be charged to the association.

Regardless of the type of emergency response program in place, the Board should understand who serves as backup in the event the community’s LCAM is unavailable. How long will residents have to wait for a response from the LCAM until a backup responder is contacted? How does that process work? How many backups are there?

Another issue to consider is whether or not there are any internal policies regarding LCAMs coming to the property during an emergency. One thing that frustrates many Board members is the sense that emergencies are not responded to as effectively as possible. For example, if there is a leak that causes damage to multiple units, would the Board expect the LCAM to come to the property, assist homeowners, meet with restoration vendors and photograph the damage? Or would the Board be content with the LCAM handling the event over the phone? I recommend the Board create several scenarios and ask the management company to walk you through how they would be handled. This will help the Board understand if the manager’s procedures align with their expectations.

5.     Do you offer any non-management services? Certain management companies will offer non-management services (e.g., maintenance, plumbing) at a fixed hourly rate within the management contract. When interviewing a management company that offers bundled services, it is important to find out if it is a requirement that the association use them. The Board should maintain the flexibility to choose their own maintenance man, plumber, etc. It is my belief that bundled services like this are ultimately damaging to associations for the following reasons:

  • Bundled services make terminating a management relationship more difficult as associations would lose key vendors as well.
  • As bundled services are offered at a fixed rate, management companies are incentivized to contract with the least expensive vendor as opposed to the most qualified vendor in an effort to increase their profits.
  • With control of vendor selection shifted from association to manager, competitive bidding is eliminated, leaving associations at risk of paying the management company above market price for these services.
  • As these vendors are representatives of the management company, managers are less likely to be upfront with Boards about issues related to the vendor’s work.

That being said, if the Board is considering using these services, it is important to find out more about the experience of the specific vendors as well as the process the management company uses to find these vendors. Further, it is important that the Board compare the hourly rates provided by the management company with those offered by independent vendors to ensure the Board isn’t paying too much for these services.  Lastly, the Board should consider an agreement with the management company specifying that Board member review and approval of completed work is a prerequisite of payment for these services.

The next blog post will discuss 5 additional questions to ask a potential management company. As always, feel free to reach out with any questions or comments.

Emily

Emily Shaw is a condominium homeowner in Tampa, Florida and a Director of VERA Property Management, a full-service community association management and consulting firm serving the Tampa Bay Area.

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Condominium Association Management Company Contracts: Negotiating the Points that Matter

Posted on June 23, 2013 | 14 Comments

The contract that a condo association Board signs with a professional management company is far and away the most important agreement that the Board must review, negotiate and approve. These contracts typically cover everything from monthly management fees, to financial statement reporting, to after-hours emergency services, to the amount of time the manager will be on property each week, just to name a few. Still, all too often these contracts are only given a cursory review before they are signed and it is only when Board members are dissatisfied with the management company’s performance that they take the time to read the fine print.

It is critical that condominium association Boards review their management contracts in full and negotiate their terms. Many inexperienced Board members may not think they have the leverage to negotiate contract terms but that is assuredly not the case for the following two reasons: (1) most management companies make their money by managing many properties at once, earning only small profits from each, and are therefore always hungry for new business, and (2) most urban areas are saturated with management companies and therefore competition is stiff.

Given the impact the management contract can have on the success of the association, I will provide some insight below into the key aspects of a standard management contract and highlight the details to which the Board should pay the most attention and negotiate if necessary.

Contract Length and Termination Provisions

The management contract will specifically detail how long the contract is in force and what the termination provisions are. While the length of the contract (ex. 1 year, 2 years) may seem like the key factor here, it is actually the termination provisions that need careful evaluation and negotiation to ensure the association’s interests are protected. Termination provisions specify when the association can cancel the contract and how they must provide notice to management of their decision to cancel.

When starting with a new management company, Boards should consider requiring an early termination provision that allows the association to terminate the manager at anytime with 30 – 90 days’ notice. This serves three major purposes. The first is straightforward. If the Board is unhappy with management’s services, they can terminate the agreement and begin looking for new management immediately without having to wait until the contract term is up. Of course, you can always terminate a manager at any time but if you do not follow the termination provisions within the contract, the association may be responsible for paying monthly management fees to the terminated manager until the end of the contract term, essentially double-paying for management services.

The second benefit to a 30-90 day cancelation provision is subtler than the first. Managers are more likely to continue to work hard for the association if they know that their services can be terminated at anytime. Multi-year management contracts with no early termination provision encourage complacency on the part of the manager. If a potential manager refuses to allow an early termination provision, then at the very least the Board will want to negotiate a contract term of at most one year with no auto-renew clause.  If the Board is able to negotiate an early termination provision, it is then wise to obtain a long a contract term to lock in the monthly management fee (i.e. avoid fee inflation).

Monthly Management Fee and Other Expenses

The monthly management costs is typically one of the largest line items in an association’s budget so it is obviously important to consider the cost of a management company with which you are considering contracting. Understanding what the monthly fee includes and what services the management company will charge separately for is more important that the actual dollar amount of the monthly fee. These extra charges can be as much as half of the cost of the monthly management fee so it is very important to read the contract carefully, prepare a list of what the monthly fee does and doesn’t include, and estimate what the association’s additional monthly expense may amount to. If the monthly fee is too high for the association’s budget, the Board may have more luck adding extra services as part of the monthly management fee versus attempting to negotiate a lower monthly management fee. Further, the more that the Board can incorporate into the flat monthly fee, the easier budget preparation will be as there is less guesswork involved. I’ve provided a brief overview below of the main services included in the standard management contract and highlighted certain items that are frequently billed separately from the monthly management fee:

Administrative Costs

This includes items such as copies, envelopes, faxes, stamps and phone calls. Some management companies will absorb the costs associated with the association’s legally required annual mailings (e.g. budget meeting notices) but not the costs associated with Board-directed mailings such as violation letters, newsletters, policy updates, etc. If the manager will be charging for mailings, consider if the management company would be willing to provide residents the option of receiving these mailings by email (when allowed by statute), as this could save the association significant cost.

Financial Services

This includes bookkeeping services, financial statement preparation, paying association invoices, processing monthly maintenance fees from residents, collection efforts, and tax-related items. Management companies typically included the above in their monthly management fee. However, it is important to confirm if there are any additional costs associated with:

  1. Preparing delinquency letters, pre-lien letters and/ or sending financial information to the assocation’s attorney
  2. Completing and mailing out Form 1099s to appropriate vendors
  3. Processing returned check fees
  4. Budget preparation
  5. Issuing coupon books
  6. Preparing estoppel letters
  7. Providing financial statements to the Board above and beyond a balance sheet and P&L (e.g. check register, bank statements, A/R detail etc.)
  8. Reserve analysis
  9. Providing information to the association’s CPA for the purpose of completing tax returns, audited financial statements, etc.

Management Services

This includes attending Board meetings, completing property walks, bidding out maintenance projects, providing a website for your property, meeting with Board members, emergency preparedness, afterhours emergencies, handling resident complaints/ concerns, etc. Usually all of these services are included in the monthly management fee; however, sometimes there are provisions in the contract aimed at keeping total management hours below a certain threshold. Here are two examples:

  1. Manager attendance at one Board meeting a month (within certain hours) is included in the monthly management fee but there will be an hourly rate for any additional or afterhours meetings. If your association Board tends to meet multiple times per month or tends to meet on evenings/ weekends, this could be an additional expense.
  2. Bidding and overseeing all property projects is included in the monthly management fee but there may be a provision that specifies additional charges for projects that will cost above a certain threshold. The idea here is that a $100,000 project (e.g. painting, roofing, paving, etc.) will take much more of the manager’s time than would a small project. If you have large projects coming up, this additional cost would need to be included in the budget.

I encourage all Board members to take the time to read management contracts in detail, and to consider the items outlined above, before moving forward. Management contracts are all drafted differently so when comparing multiple management companies, be sure you are doing an “apples to apples” comparison (including all additional fees) as opposed to just comparing the fixed monthly management fee. Lastly, don’t forget to negotiate! The Board has more leverage than members typically realize.

I hope you have found this discussion of management contracts helpful. If you need any assistance in reviewing a management contract, feel free to email me and I would be happy to take a look.

Emily

emily@flcondoassociationadvisor.com

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