Most of the time, when a problem arises in a multifamily building or community association, the go-to solution is to get management on the phone (or text, or email). The refrain usually goes something like: “Management will take care of it!” “They’ve seen this a million times!” “What can’t they handle?!”
This isn’t a bad thing, of course; the vast majority of association managers are thoroughly-experienced professionals with the know-how to solve just about any problem. But what happens when management is the problem? What happens when the association manager just hasn’t been performing? To whom can a building or association turn when its trusted adviser has lost that trust? Better yet, how can all of this be avoided entirely?
In order to identify and attempt to rectify management problems, it helps if the both the terms of a manager’s role and the board’s expectations are laid out explicitly from the outset. The more the manager’s job is precisely defined, the easier it is to say with certainty that something has gone off track – and the easier it will be to right the ship. And a hands-on board should be able to deftly spot when it is not receiving the service it’s paying for.
“The relationship between a board and its manager is one of the single most important relationships which an association must maintain,” says Michael G. Kreibich, a principal at the law firm of Kovitz Shifrin Nesbit, which has offices in Illinois. “If that relationship breaks down, it can have lasting and widespread ramifications for the community. However, because of the regular turnover of board members, this often gets overlooked. Management is counted on to guide the voluntary board on nearly all aspects of association governance, and the manager is entrusted with a great deal of sensitive association information and matters. Therefore, regular and ongoing stock should be taken about the performance of an association’s manager. Communication about that performance, whether positive or negative, is necessary to manage the expectations of the board. And those expectations should be discussed regularly and shared with management in a constructive way, allowing management to address any issues before they drive a wedge between the association and the management company.”
Of course there are some crystal clear signs that the relationship between association and management has soured, such as if the manager absconds with the association’s reserve funds, or if the manager assaults a resident or board member. But in many cases, the relationship erodes slowly over time, and the board needs to be more attentive to pick up on the signs of trouble.
“It’s hard to identify any one factor when things go bad with management,” notes Stewart Wurtzel, a partner with the New York-based law firm Tane Waterman & Wurtzel, P.C. “It can sometimes start as a slower response to issues, or monthly reports come later and later or not at all, or the board increasingly receives complaints from unit-owners and vendors that management is not responsive. Perhaps you see late fees on invoices from vendors that you were not anticipating.
“The most important thing to do when questioning the quality of your management services,” he continues, “is to have a heart-to-heart with your agent and, if need be, a discussion with upper management or the owners. Boards should regularly review management performance; there is no minimum period that a board should have to suffer with subpar performance. If the board finds itself doing things that it pays management to do, that is certainly an indication that the agent may be underperforming.
“If things don’t start to correct after a few conversations or meetings with upper management, it’s time to start documenting problems and issues via written communications. When something is not done right, don’t just call to complain; send an email or a letter documenting the problem. When you start to write, always include the agent’s boss and head of the agency on the copy.”
Embrace the Review
A board should neither shy away from conducting a thorough, honest and open performance review of its management agent – nor should it be afraid to up the frequency of reviews should management underwhelm. Confrontation is never easy, but the association is a client of the managing agent, and as such can set the terms.
“Regardless as to the nature of the vendor, associations should review a vendor’s performance on at least an annual basis,” says Martin C. Cabalar, an attorney with Becker & Poliakoff in Morristown, New Jersey. “The determination to make a change should not be based on price alone – meaning that you don’t necessarily have to go with the low bidder if you are satisfied with the capabilities of your management company and, more importantly, the services which you are being provided.
“The association-management relationship is very unique,” he continues. “There are many qualified and well-respected management companies out there, and oftentimes, the decision to make a change has everything to do with the manager – not the specific management company. And the main signifiers that management may be underperforming will usually be pretty obvious. For example, perhaps the manager was very responsive to the owners and the board during the first year or two of their contract, but as some level of comfort sets in, so does some apathy. Maybe you recognize that the manager is routinely showing up late, or leaving the office early.”
A carefully-considered contract is essential in establishing the relationship between management and association. It can outline the terms of the manager’s performance, establish a board’s expectations, and give both parties an out should the fit prove to be poor.
“Generally, whether an association has the right to terminate a contract without penalty depends upon the language of the contract itself, and/or perhaps the terms of the declaration,” says Dawn Moody, Principal at law firm Keough & Moody, which has offices in Chicago and Naperville, Illinois. “I believe that a management contract is one of the most important contracts entered into by an association. Because of this, that contract should be reviewed by the association’s legal counsel to ensure that its rights are protected and that it does not enter into a contract which exceeds its authority. By way of example, if the association’s declaration limits the length of a management contract, the board does not have the legal authority to enter into a contract for a longer period of time.”
Almost any management contract will allow for the managing agent’s services to be terminated for cause, notes Wurtzel. “The better documented the problems are, the easier it is to prove cause,” he says. “Being able to show that numerous letters addressing a particular issue were ignored by management helps as well. Of course, the scope of the agent’s services are limited by the terms of the contract. If the contract does not require the manager to solicit bids, you cannot terminate them, or be unhappy with them because they failed to do so.
“And, when signing the contract,” Wurtzel continues, “make sure expectations and obligations are spelled out therein. If the agent tells you in its sales pitch that you will get monthly reports by the 15th of each month, put that in the contract. If it’s important for the agent to visit the property at least once per week, put that in the contract. This way, the failure of them to do so becomes a clear violation allowing for termination if and when it does not occur.”
“The initial review of the contract is vital, as it will allow the parties to fully understand their rights if or when the relationship between the association and management sours and cannot be salvaged,” adds Kreibich. “All too often, the board does not address this issue in advance, because, during the honeymoon stage with a prospective new manager, there are no signs as to what might go wrong. But once the contract is signed, it’s too late. Therefore, a close review of the termination provision is paramount to properly protect the association in case something goes wrong. Through its legal counsel, the board should be sure that any penalty provision be removed and addressed. Ideally, the board should be able to freely terminate an agreement if they are unhappy with the services rendered without penalty. That said, the goal should always be to avoid the need to terminate management by maintaining an ongoing and regular policy of communication.”
Mike Odenthal is a staff writer at The New Jersey Cooperator.