Q: There is a new day in our community association. We have finally "thrown the rascals out," and there is a new board of directors. We are committed to making our community a great place to live. However, one of our long-standing problems has been our property manager and management company.
All of us newly elected board members want to sweep the association clean, and replace both our manager and our attorney. We want to hire a new management company, and then retain new legal counsel. What criteria should we use to select a management firm? What services should the company perform? Should we have a written contract and, if so, for how long? What is the appropriate interaction between the board and the management company and its employees?
A: Permit me to make a suggestion. If you plan to find another legal counsel for your association, I strongly recommend that this be your first priority. Your new attorney will have to review any management contract presented by the company you select, and it would be better to have the new attorney on board first.
To a large extent, the success of any community association rests with its management. While some condominium associations prefer to be "self-managed," in my opinion this is not the way to go. Even if a self-managed board has a full-time, paid manager, the members of the board of directors still have to get involved in the day-to-day operations--and often these boards do not have the time (or the skills) to handle the task.
Whether your association consists of 20 units or 2,000 units, it is--or should be conducted as--a business. The board of directors has the responsibility to act reasonably and properly. The board has to make good business judgments. And one of these judgments is to avoid getting involved in every single detail of the association. Too often, I have heard property managers complain that the president is trying to micromanage the association.
A well-run association should hire a management company and delegate major responsibilities to it. In many instances, however, the board over-delegates--but under-supervises--and the results turn out to be unsatisfactory for the owners as well as the management company.
How do you select a management company? Contact four to six management companies and ask them to send bid proposals. These proposals should list the names of other community associations they manage so you can check references. You should be able to obtain a list of managers from the Community Associations Institute at 703-750-3644.
The board should appoint a management company selection committee. It is important that the committee contact the president or vice president of those other condominium associations to determine whether they are satisfied with their management company.
Price alone should not be the determining factor in whether to hire a particular management company. If the cost is low but the quality and quantity of services are equally low, you will only get what you pay for.
You should determine whether there will be an on-site manager, and how many hours that manager will devote to your project. Will the on-site manager be responsible for other associations as well as yours?
Obviously, if you are a small association, you will probably have to accept that the manager will be working with other associations at the same time.
Ask whether the management company is a member of the Community Associations Institute, a national organization dedicated to the workings of community associations. Do the managers actively participate in the many educational programs conducted by the institute?
According to one commentator on condominium activities, association management typically involves at least nine areas of responsibility: environmental standards, maintenance of common properties, the provision of common services, internal communications, financial management, general administration, procurement of insurance, the preparation of tax returns and other reports and assistance to the board of directors on policy matters.
Once a management company has been selected, a written contract must be signed between the company and your association. All terms and conditions, including fees and charges, should be incorporated in that written document. Your association attorney should assist with the negotiations and drafting (or reviewing) of the contract.
Once the new management company is on board, the board should assign one or two (but not more than two) members of the board to be the liaison with the management company. The liaison should also be responsible for issuing periodic status reports to the board on the activities of the new management company. This is a form of quality control, which is important in any business operation.
A competent company should furnish biweekly or monthly management reports consisting of a current financial statement (including any outstanding delinquencies), the services performed during the past reporting period, and any problem areas and future planning issues for consideration by the board. This report must be given to each board member for review.
The board should meet periodically with the company to review these reports and program future activities for the association.
I recommend that at least once a year, the board should request the management company to prepare a brief "state of the association" report, which should be made available to all owners in the association.
After the board receives this report, it should be in a position to evaluate the management company based on its past practices.
If you and your board are dissatisfied with your management company, you should first give it an opportunity to explain its actions and make any corrections, if possible.
Perhaps the most significant aspect of the relationship between the management company and the directors is that once you hire a management company, the board should delegate responsibilities to that company and not get involved in the day-to-day activities of the association.
After the management company is in place, ask it for periodic feedback as to whether the board is getting too involved in the daily operations of the association.
Kass is a Washington lawyer. For a free copy of the booklet "A Guide to Settlement on Your New Home," send a self-addressed stamped envelope to Benny L. Kass, Suite 1100, 1050 17th St. NW, Washington, D.C. 20036. Readers may also send questions to him at that address.