Of the many consequential decisions boards and board members have to make on behalf of their communities, choosing a management company—or a manager within a given firm—is among the biggest. Managers are the point of contact between residents and boards; they collect fees, field questions, address complaints and concerns, solicit bids for projects and maintenance work, handle contracts for goods and services, and even mediate disputes between residents. Getting the right person or people on the job can mean the difference between a community that runs smoothly and one that lurches from one crisis to another.
Sometimes, a building or association may transition to a different manager within their current firm, or even switch to an entirely new property management company. Replacing an individual manager can usually be accomplished without legal implications; 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.
A Big Move
No matter the reason, changing something as integral to a building or association’s day-to-day operation as its manager is not to be taken lightly.
There are contracts involved, of course—as well as a lot of personal information about residents’ households and finances that needs to be handled properly.
“Unless somebody’s doing something crazy, like stealing assessment money, that’s not enough to get out of a contract,” says Rachel DiSalvo, a Broker Associate at Keller Williams Park in Rutherford, New Jersey. “In most cases, the board will say, ‘Your term is up in January, and we’re going to explore some other options.’ Then they’ll look around.”
If a board decides to terminate a property management contract, it’s important to follow what’s written in that contract. “Usually, a contract will specify the duration of the agreement, the services included, and the ramifications of terminating early if the management company isn’t fulfilling their obligations under the contract,” says Laura M. Fisher, Esq., from The Law Office of Laura M. Fisher in Jersey City, New Jersey. “It makes it easier for a board to terminate the contract and switch; otherwise, depending on the consequences outlined in the agreement and how much time is left, it may be best to just wait out the term.”
Whether your board opts to wait, or feels a move needs to be made more immediately depends on the nature and severity of the issue with your current management.
As mentioned previously, the responsibilities of property managers include collecting fees and assessments, handling maintenance requests, bidding out contracts, managing staff, and monitoring the physical condition of the buildings in their portfolio, to name a few. It’s a tall order—but then, we’re talking about the upkeep and stability of more than just a building; it’s the home, and likely the most important asset, of everyone who lives in it. So when the to-do list doesn’t get done, or gets done too slowly, things can deteriorate quickly—and that’s a big problem. A pattern of inattentiveness, unresponsiveness, delayed action, or subpar work in general could mean your current property manager isn’t the right person for the job.
“A manager can get switched if there are long lag times with getting repairs done,” says DiSalvo. “[The managers] aren’t usually the ones doing the repairs, so maybe there are issues, but if they are the ones doing the work and it’s not getting done, it’s a problem.”
While lackluster performance is the more common reason for a board to dismiss a manager, the unfortunate truth is that sometimes, managers or companies are given the boot because of shady or unethical behavior.
For example, “At one property, the owners were freaked out by the fact that the property management company had been collecting assessments,” but none of the needed work was actually carried out, says Rachel DiSalvo, Broker Associate at Keller Williams Park in Rutherford, New Jersey, who works with property management companies and associations. “The repairs were never done, and the money disappeared.”
And there are the more severe cases of illegal activity, such as the manager of an apartment complex in Hamilton Township, New Jersey, who was indicted with embezzlement and money laundering after allegedly stealing more than $1 million from the property’s CO-OP over a four-year period. In 2019, the manager at a different New Jersey apartment complex was accused of stealing more than $120,000 from an elderly tenant’s bank account.
While not common, DiSalvo says that fraud and self-dealing in the context of a residential community is especially devastating, because it involves peoples’ homes. “The owners may be abroad, or live off-site, and they’re depending on their property management company or property managers to keep an eye on things,” she says. “And they’re collecting money, but they’re not doing their job.”
Personality, Geography, & Goals
Another major—though less dramatic—reason for switching managers or management companies is simple incompatibility between manager and board, or the community in general.
“Communities have different personalities,” says Carol Nickerson, community manager with FirstService Residential in New Jersey. “For example, maybe it’s a 55-and-over community and [the board] are extremely hands-on. Or maybe it’s a high-rise building that’s commuter-friendly; the residents basically come and go every day, and all they want is for their needs to be taken care of via email or phone call. They’re not hands-on or face-to-face. The manager has to be the right personality to fit that type of association.”
And sometimes it’s not so much a matter of temperament or management style than it is of simple geography. “We moved a manager to an association that’s 10 minutes down the road from where she lives and it’s much more convenient for her, so it’s a better fit,” says Nickerson.
Sometimes, the reason to replace a manager is as simple as them deciding to change jobs, or having other life circumstances that have pushed them into another direction.
“Maybe the manager worked in a small community for a time, and then realized that she has goals to work in a bigger association, or she wants to manage a different type of property,” says Nickerson. “Or they decided they no longer want to perform this type of work, and they’re going into another industry altogether.”
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 with the law firm of Siegfried, Rivera, Hyman, Lerner, De La Torre, Mars & Sobel PA in Coral Gables, Florida.
According to De La Torre, 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.
When a board hires a property management company, should the job be bid out like any other important service the community needs? Statutes differ somewhat between condominiums and homeowners associations, but in general, says Russell M. Robbins, a partner with the Pompano Beach, Florida-based law firm of Basulto Robbins & Associates, LLP, “While a board is generally obligated to obtain competitive bids for contracts, exceptions exist in both statutes that permit a board to engage a management company (or attorney, accountant, architect, timeshare management firm, engineering, and landscape architect services) without obtaining competitive bids (718.3026(2)(a) and 720.3055(2)(a)(1), Florida Statutes).
And importantly for residents, he continues, “Both statutes permit an owner to make a records inspection request for a copy of this agreement (and a copy of the previous management agreement).” For boards, as always, the best course of action during a management transition is full transparency with residents; failure to give owners access to the contracts and other relevant information about both the former management company and the incoming firm can lead not only to acrimony and the appearance of shadiness, but to judgments and fines. “If the association is a condominium,” says Robbins, “the aggrieved unit owner can file a complaint with the Florida Department of Business & Professional Regulation’s Bureau of Compliance to ensure access to the official records. Owners in either type of community can also demand arbitration over the refusal to grant access, and may recover up to $500 in statutory damages plus their reasonable attorneys fees and costs.”
A Smooth Transition
Once the old management contract is terminated and the new one signed, it’s important for the board to work with the incoming and outgoing managers to make the transition as smooth as possible.
“There should be contingencies in place with company servers that alleviate any problems and make it a pretty fair and easy exchange of power,” said DiSalvo. “I’ve never really seen a situation or circumstance where an outgoing property management company was resistant or combative. In smaller buildings, I’ve seen managers take it way more personally and to be vindictive, they would hold a key or cancel work that was already scheduled. For the most part, most contracts have contingencies to prevent those issues.”
Nickerson explains that, when coming on board to manage a new association, she spends time with the existing manager to find out what the current projects and concerns are. “We then speak with the board and find out what their goals are with the next manager,” she said. “Then we do an intensive interview process to find the proper manager for that association.”
She said it’s all about good communication that starts from the signing of the contract.
If a board is bringing a new management firm on board, DiSalvo suggests that the new firm also take time to get acquainted with the board and find out where the previous company dropped the ball.
Review the Reviews
DiSalvo suggests that if a board is looking for a new property management company, surf the web and read the online reviews. “Obviously, take some with a grain of salt because there are those unhappy folks that just want to complain about everything,” she says. “But if you see a trend of the same type of complaints—‘I’m still sitting here with a broken faucet and they are slow to respond,’ or there are issues on the financial side—that’s something that I would be leery of and explore further. I wouldn’t take it as the be-all-end-all but make your own conclusion.” She adds that “the management company should also have face-to-face meetings and see how everyone can move forward in a harmonious way and exceed expectations.”
Change is inevitable—and sometimes desirable. When faced with changing your current property manager or firm, your 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.
Lisa Iannucci is a freelance writer and contributor to CooperatorNews.