Changing Managers or Firms? Don’t Overlook the Details!

Changing Managers or Firms?

Faced with a less-than-satisfactory management situation, a condominium or cooperative board may decide not to adapt, but to replace their property manager, or even switch firms completely. According to experts, this practice happens more often than one might suspect. Whether such change is for the better often depends on who you talk to, and even a mostly positive move can produce a certain level of stress and adjustment.

For condo and co-op residents, a board's decision to change property managers or firms will quite literally hit home. If a board has done adequate research before switching management companies, the impact of the change should be positive, even if some adjustments are still required. On the other hand, if a board has done less than satisfactory due diligence, there will almost certainly be unnecessary (and unwelcome) upheaval, as well as possible financial ramifications.

Fundamental Factors

Replacing an individual manager can usually be accomplished without legal implications. Sometimes a newly-elected board may not fit well with their association's current manager, or a manager may retire. Finding a suitable replacement within the same management company should be a routine matter. However, when a board has made the decision to replace a management firm entirely, the process is somewhat more complicated.

Personalities and communication styles will always come into play when a decision to replace a manager or a firm is on the table, and once the decision has been reached to change community association managers or firms, there are several specific steps required for a smooth transition, says Helio De La Torre, a shareholder attorney who practices community association law and construction litigation with the law firm of Siegfried, Rivera, Hyman, Lerner, De La Torre, Mars & Sobel. P.A. in Coral Gables, which provides services for Dade, Broward and Palm Beach counties. De La Torre is a past president of the CAI Community Associations Institute (CAI)'s Greater Miami Chapter and has been active as chairman of the chapter’s Florida Legislative Action Committee, and says that a board's first step should be a consultation with the building or HOA's legal counsel.

“Consulting your attorney before making management changes is always money well spent,” he says. A board must fully understand what is and is not allowed under their present management contract, and a new contract will have to be reviewed when a replacement management company is selected. De La Torre explains that management contract disputes are a common reason why a board might look to make a change. “Always pay for a review before termination,” he advises. In the past, a “termination without cause” clause was a common item in management contracts, but now many contracts auto-renew annually, and termination is required in writing, and within a specific time frame. “Wrongful termination can result in a lawsuit for all fees and attorney’s fees,” says De La Torre.

Everyone Has Their Reasons...

Mitch Drimmer, vice president of sales and the business development director for SNAP Collections/Association Financial Services in Miami agrees with De La Torre on fully inspecting the written contract with the current management firm before seeking any changes. “If the management company has a tight agreement, this process can get expensive,” he warns. “The first course of action is to review the existing contract to see how to terminate without penalty.” In Drimmer’s experience, switching management companies is often an intricate process, and new boards are often unaware of the complications involved.

Drimmer says that he has seen management changes made for all kinds of reasons—some entirely justified, and some less so. “I would guess the average life span for a management contract in Florida is three years,” he says. “Sometimes it is a simple matter of a new board of directors looking to economize, or a case of an error or an unpopular decision not being forgotten or forgiven.” He has seen cases where a new board is so displeased with the previous board, everyone is dismissed—the management company, the attorney, the CPA—even the landscaper and the maintenance crew. “It is not prudent, but it is a fact of life in the management business.”

Drimmer notes that a management company may advise a group of board members or directors that they cannot take some action, and be promptly shown the door as a result. “Then there is always some guy on the board who has a brother-in-law, who owns a management company, and that could mean the end of a perfectly good relationship,” he says. “The fact of the matter is that changing out a management company is fraught with difficulties and can undermine a community association—breaking up is hard to do!”

Florida law requires records to be kept on file a full seven years for condominiums and five years for HOAs. “In the transition [from one management firm to another], it is critical that a board of directors recover all documentation required,” says Drimmer, who cites an instance when records can make or break an insurance claim. “For example, if a storm tears off a roof, and a claim is filed, an insurance company will request all maintenance records for the previous five years—and without those records, the claim may be denied. The next step is the attorney, and that gets expensive.”

De La Torre agrees, adding that it takes experience to know what is required in bringing a new management company up to speed. All parties need to work as a team; the insurance company, the accountant, the attorney and the board. “The decision to change firms is always a board decision,” he says. Changes will be made at an open meeting, with everyone in attendance given a chance to speak, but the final decision rests with the board.” De La Torre again emphasizes having legal counsel involved throughout the process as a kind of procedural insurance to prevent costly future expenses.

Finding a Match

Along with getting solid legal advice, the pros agree that taking the time to set goals and articulate objectives will help outline the focus of the search for new management and highlight the changes the board hopes to accomplish with a new team. By listing the things that are right with current management team as well as the items where there is dissatisfaction, a board can not only make sure that candidate firms know exactly where they're coming from, but can work to methodically bring those goals and changes to fruition once the new firm is in place.

That being said, “Interviewing a new management company in the first place is a sensitive issue,” says Drimmer. According to De La Torre, prospective replacement firms can be identified by checking references, speaking with other communities, and shopping trade shows like The South Florida Cooperator'sCondo, HOA, and Co-op Expo, where you can meet several prospects efficiently. He suggests that a separate committee be established to accept proposals and narrow the field to between three and five prospective firms. When those companies are invited to a properly-noticed meeting, Drimmer suggests that for the sake of propriety, the current manager not attend.

Fred Krauer is president of Tanglewylde Village, an HOA in Pasco County near Tampa Bay. The small gated village of 146 units is part of a larger community of several gated villages with a total of nearly 1,200 homes. Krauer retired from the New York City Department of Sanitation (DSNY) and moved to Tanglewylde in 2004. He accepted the position of HOA president at the first election, and still remains in that office. “An HOA is a business,” he says. “Our job is to fund the reserves in order to maintain the quality of life within the community.”

Krauer believes in the continuity of management, and has kept the same property management firm handling the property since his tenure began. Individual property managers have changed over the years due to changes and promotions within the company, but Krauer says those transitions have not been especially difficult. “When my current agent stepped in, I sat her down and told her what I expected,” he states. “I am also a member of the Pasco Alliance of Community Associations (PACA). If I had not received someone as good as the previous agent, I would have asked for references from the membership. The president of the management company attends our PACA meetings, and keeps communications open. His management firm has 'fired' communities for not following the law and setting themselves up for failure.”

Change purely for the sake of change is seldom a good idea, but change itself is inevitable. When faced with changing your current property manager or firm, a board should pay close attention to details, consult with the community's legal and accounting professionals, check prospective managers' and management firms' references, and be prepared to work through the process fully and thoroughly.

Anne Childers is a freelance writer and a frequent contributor to The South Florida Cooperator.

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