Q&A

A board needs time, smarts and a strategy to wisely choose a new management company

QUESTION: Our association has hired and fired so many management companies that we’ve lost count and, as a board director, I am exasperated with the situation.

Most companies made it very difficult to reach them by phone and it was worse actually trying to talk to a live person. The company owners would never talk to homeowners and rarely spoke with directors. Once they were hired, managers immediately changed our banks and accounts, brought in their own vendors, and forced their attorneys on us even though we already had representation! Soon, managers were trying to run our board meetings and give us legal advice.

Without fail, after we hired the companies for a set fee, we realized we were getting billed a lot more than what we agreed to. The entire board is exhausted, why can’t we find an honest management company that just does what we want them to?

ANSWER: Like anything, hiring a management company requires due diligence and persistence on behalf of the board. Part of that includes investigating these companies more thoroughly, asking for references and demanding clarity and transparency in written agreements.

Ben Bar, owner of Allstate HOA Management in Los Angeles, has been servicing Southern California associations for over 16 years. He explains that it should not be difficult for boards or owners to contact a live person at the management company and also receive a call back. “Non-responsiveness is the primary reason associations replace managers and management firms,” he said.

Customer service is the backbone of any management company’s business. Managers need those skills to be able to provide professional and knowledgeable assistance to the board and homeowners. If a manager is disrespectful, the communication between directors, owners and management is compromised. A manager that is difficult to deal with may discourage owners from relaying potential problems early on.

Bar said that the management should defer to the board regarding banks and other third-party services, especially when the HOA has a good working relationship with existing vendors who know a complex. “Managers should not change the association’s vendors without a written request from the board nor should they be permitted to force attorneys on them as they are vendors too,” he said.

When your board reviews a prospective management company’s service agreement it should be on the lookout for any use of mandatory vendors, obligations of the association and a company’s disclosure of its ownership interest in vendor companies it owns. Remember, your association is the client and should be dictating the terms of your contract — there are plenty of management companies to choose from.

In regard to board meetings, managers should not run them, plain and simple. While they can provide assistance when requested to do so, it is the president of the board that conducts these meetings. And unless the manager is a licensed attorney representing your board, no legal advice should be imparted. Board directors that act on so-called “legal advice” from unlicensed managers are breaching their duty of care to the owners by subjecting the association to liability.

Management companies should not increase their fee schedule right after getting hired, but boards share responsibility in this arena as well. “Because boards have a duty to read the management contract very carefully before signing, they should discuss fees and potential problems before committing to any company's services,” Bar said.

In the search for new management, he recommends going well beyond online reviews since they are typically not verifiable. “Look for referrals from other association boards, professionals and even homeowners that experienced success with their management,” he said.

Some additional pointers he provides on the search process:

> Boards should review a management company’s internal systems and procedures and look for examples of how it has dealt with problems that typically arise in running a homeowner association. The management company should be well-organized and welcome a visit from board directors at any time to discuss these matters.

> Interview a minimum of three companies. Boards should allow sufficient time for interviews, at least 30 to 60 minutes. Have a well thought-out list of questions ready beforehand. Ask to meet the firm's owner for the interview along with a manager, and be wary of any resistance to that request.

> Choose a management firm that shows an understanding of the complexities of interpersonal relationships and has a working understanding of governing documents and applicable statutes.

> Look for someone who listens, understands and emanates strength and maturity. And be leery of companies impatient to get on with it and “close the deal.”

You know what your association needs and what works best for your board. The right management company is likely the one that is most willing to tailor its services to your needs.

“This is not a one-size-fits-all business. Take your time and choose wisely,” Bar said.

Zachary Levine, a partner at Wolk & Levine, a business and intellectual property law firm, co-wrote this column. Vanitzian is an arbitrator and mediator. Send questions to Donie Vanitzian, JD, P.O. Box 10490, Marina del Rey, CA 90295 or noexit@mindspring.com

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