Changing Property Managers Requires Specific Steps for HOAs

Inevitably in the life of a condominium or townhouse association, the board of directors will vote to fire the current property management company and hire a new one.

Generally, this event comes about for one of three reasons: the management company did not follow up on projects and was remiss in doing its job, the board was confronted with a problem and blamed the company because it needed a scapegoat or a new board was elected and decided to sweep the slate clean and hire a new team

Regardless of the reasoning, there are certain protocols that must be followed to provide for an effective transition so that the owners do not suffer a deterioration in services for any period of time. (This is assuming that the board has already had an accountability session with the CEO of the property management company and sent notices and had conversations about the lack of service and the apparent failure to cure the defects in performance.) If the proper procedures are followed, the administration and maintenance of the association property should not miss a step.

1. Once the board has made a determination that it wishes to make a change, or at the very least review what alternatives are available, a management search committee should be established, to solicit proposals and meet with prospective applicants. This committee should consist of at least one director, ideally a past officer and maybe a non-director. Committee members should talk to friends and colleagues, other professionals the association uses and review what is available through professional association organizations
2. The committee should prepare specifications for the job, so interested bidders are bidding apples to apples. Not all associations need the full range of services offered, and fees should be based upon only what is needed. (Financial only, no meetings, full-service, etc.)
3. A decision needs to be made early on whether the association would be best served with a management company that is the same size, larger or small than the current company.
4. Fourth, legal counsel should review the existing contract to determine the appropriate method of termination, the requisite time-frames, notice, penalties, holdback requirements etc. Some contracts have early termination penalty provisions, automatic rollovers, or cause only termination and the board needs to be clear on any risks they are accepting by firing their manager. If the association is managed by an employee, proper procedures must be adhered to for firing an employee.
5. Once the specifications have been bid and the committee has reviewed the credentials and references of their possible replacement candidate, they should make a recommendation to the board of directors. The board may either rely upon the recommendations of their committee or may choose to interview the finalists before making a final decision. Interviewing management candidates is an exception to the open meetings requirements of Association law since no voting will take place.

Next, once the finalist is decided upon, at an open meeting of the Board, the board can vote to send notice of termination to the current manager and to hire the new company subject to signing a contract to be reviewed by legal counsel. The manager should not be shocked by this decision because if they have been given adequate notice to cure defects in performance and it is communicated that efforts at remediation have been unsatisfactory, they should be prepared for the inevitable.

Proper notice should then be sent, including proper method of service, in a professional and polite letter from the board, requesting and amicable transition. Careful attention must be paid to dates in order to avoid having to pay an additional months fees because of poor timing of the notice. (If management fees are due and payable on the first of the month, don't send a 60-day notice on the second or you will pay 90 days worth of fees unless the fee can be prorated by contractual terms.)

The current property manager should then work with the new company to effectuate a smooth transition by preparing the files and records for pickup or delivery and the transference of all funds.

Unfortunately, not all management companies behave in a professional fashion when notified of termination. The board must then remind them that the records belong to the Association, not the manager, and to retain them for any reason is wrongful. Bank accounts should have been set up in the Association's name so all it requires is new signature cards and a corporate resolution to transition control. In this day and age, most companies have their records stored electronically so they can be easily transferred. Since the odds are that the management companies will have to exchange records again in the future for another property, it makes no sense for there not to be a professional transition.

Sometimes the board feels it should not have to pay any more fees. That is why the board presumably is firing the manager because it is unhappy with the level of service, so they should adhere to the contract and not look to create unnecessary controversy, since it accomplishes nothing but delay and bad feeling all around. Since it is logical to anticipate that service levels will drop once a manager receives a cancellation notice, it might be better to just negotiate a buyout and let the new company take over as soon as possible. A manager would be very unwise to delay or purposely sabotage a professional transition because it is a very small industry and many times a manager is terminated for the wrong reasons and I have seen properties hire their old property manager back within a year or two. However, that is only going to happen when the manager leaves gracefully.

Both boards of directors and property managers turn an event as simple as a transition of records into an emotional catastrophe equivalent to a divorce. It clearly should not be that way, and there is legal recourse when either the board or the manager do not cooperate or interfere with the new relationship. If everyone involved behaves in a businesslike fashion and like mature adults, the association will get on with the business at hand and the manager will now be able to direct its time and energy in a positive direction and secure new business.

By Jordan Shifrin 

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