Management Company Contract Changes/Termination Possible?

Welcome, David and congrats for becoming owner controlled.

Offhand, I'd say you need legal advice. If your HOA attorney also was hired by the developer, I'd seek a different HOA attorney.

Luckily there are at least two TX property managers who contribute to this site a lot and should be able to tell you what's typical in Texas.

(Hey, whatever happened to Ben?)

When everything is all said and done, YOU the board members are left holding the bag, all management does is make recommendations.

Who signed the contract? Was it the Developer or the HOA? If it is the HOA, was it signed when the OWNERS took over? The reason I ask is maybe you all do NOT have a contract with them. The HOA was turned over to the owners and the developer doesn't own the HOA. The HOA may be able to get out of it due to change of ownership.

I would take this time to start shopping for a new MC. Start getting some bids. Plus know what you want in the contract. Keep in mind you don't have to have a MC. You can self manage if you want. A MC is a hired contractor hired to assist in the operations of the HOA.

The HOA's insurance should NOT extend to the MC. They are NOT HOA members. They should have their own insurance for their own company. That relationship between HOA and MC is of contractor. The HOA would be covered under the insurance if a lawsuit would be filed.

Take this to a lawyer familiar with contractual law. (Not a Real Estate lawyer). They may be able to guide you on how to get out of this contract. Plus never sign a multi-year contract. We only do 1 year only. Doesn't mean we can't renew to the same company. It just allows us to get out of a bad situation quicker.

The NUMBER ONE concern:

Make certain that WHATEVER company you have does NOT, repeat NOT, have signatory power on your bank accounts.

The 'hired help' PREPARES the checks - the HOA's treasurer signs them, preferably with a second director's 'confirming' signature as an 'internal control'.

Any 'fidelity bonding' would be for anyone having 'signatory power' on your bank accounts.

It amazes me how blatant this contract gives all the power to the MC, with no apparent input from the HOA. We have yet to find an expense over $2,000.00, the limit put forth in the contract above which requires approval from the board.

Thank you for your input.

David, welcome.

The others have provided sound advice, not all of it may be applicable to your situation or the way in which your Board chooses to conduct business.

Based on your description of your location and the size of the association, I'm fairly confident you are in the DFW Metroplex. If so, my advice is to contact an attorney who specializes in HOA matters and ask your questions of him or her. The local chapter of CAI can provide you a list of names, just Google DFW-CAI, their contact information will come right up. Based on our experience with attorneys for our HOA and condo clients in Dallas and Collin counties, the rate per hour seems to be in the $300-$400 range. He or she will wish to review all of your documents before meeting with you, I would plan on at least two-three billable hours for the document review and preparation of responses to your questions.

If you wish to restrict MC access to your bank accounts as has been suggested, keep in mind granting the MC read only and download access greatly facilitates preparation of your financial reports and account reconciliations. If you do grant the MC access to check writing, I recommend they not be granted the ability to transfer funds from the reserve accounts. Transfers to the reserve account is OK. If the bank is not local, your banking may be through a HOA/Condo specialty branch of a major nationwide bank. If so, an account manager may be assigned to your account. See if you can find out who that person is. If your bank is local, the branch manager may be able to assist you but may also need a fair amount of (time consuming) help from his/her internal support organization as HOA/Condo banking is not familiar to most branch bank personnel.

Most Texas association documents I have seen do stipulate any person or entity having access to association funds is to be covered under the association fidelity insurance policy or bond. That is not to say the MC should not have its own fidelity insurance, they should.

It is not uncommon to grant the MC authority to make commitments on behalf of the Association up to a certain dollar amount, we ask our clients to grant us authority to spend up to $500 as irrigation system repairs can easily cost $300. You do need to protect the interests of the Association but you do not wish to make managing your Association a burden by requiring approval for repairing the sprinklers or removing a downed tree limb.

Good luck--

Hello David, I am a property manager in North Texas. First, you should know that you hold a lot of power here. Management companies know that newly installed homeowner boards tend to fire the management company as their first act, so they are probably going to bend over backward to keep you.

Management companies also understand that new homeowner boards aren't comfortable being held to the terms of an agreement they had no part in negotiating, at least good ones do. My suggestion would be not to start out adversarial and trying to break the contract, but to call up your manager and in a friendly way, ask to have a meeting so the new board can discuss the contract terms and expectations. Your MC should actually be pushing for this meeting themselves. Bear in mind your actual manager is almost certainly not the person in the company who has the power to change contracts, so make sure you request that whoever does have that authority also attend.

The contract terms you describe are not unusual. I'm pretty sure they are all going to have an indemnification clause, but other areas can be negotiable.

Spending up to $2,000 without Board approval: developer boards are notoriously hard to reach. They don't want to hold meetings, they don't want to be bothered with day to day maintenance. Giving the management company some freedom to make maintenance decisions is necessary, or frankly - nothing would get done. You can always lower that number. $1,000 is what I see most often, but some boards want $500 or even lower. Just bear in mind - if you don't allow your manager to handle any level of maintenance without your approval, your board needs to be easily reachable and willing to respond quickly. I had a board that didn't want me to spend more than $250 without their approval, no matter what the scenario. A common area tree fell into the middle of the road, the cost to remove was $341. That tree sat there obstructing traffic for almost four days while I chased down enough board members to approve the estimate. (and guess who the homeowners screamed at for those four days?)

I cannot imagine why any board wouldn't want your manager to be able to respond in the event of an emergency - if you refuse to allow that, the Board needs to be willing to accept the consequences for not promptly addressing a staircase collapsing, a car crashing into a pool, a tree falling on the pool house roof (all things that have happened in my management career).

The bank account signatory is also probably a matter of the developer not being available to sign checks, and the MC needing to get bills paid. I've managed properties under developer control in which I never even met the people who were technically on the board and it took massive effort just to get them to hold (by phone) any meetings required by the property code. And again, if you want board members to be the ones signing checks, they need to be willing to go to the management office every week (or however often is needed to promptly pay bills) and sign checks.

Granted, I'm biased, but what people often assume is the management company trying to take control is sometimes a manager desperately trying to keep the Association functioning because the board (who had to be begged to serve in the first place) doesn't want to actively participate.

If the developer signed the contract in his capacity as a board officer, I don't see how it wouldn't be valid, but you should certainly consult an attorney if you wish to break the contract.

Great advice from those in the know, David!

Richard,
I read your comments often and truly respect your views. I wish we would have had a chance to work together as PM and President. I am sure we have only a few things we have different opinions about. I do think that many of my owners especially the good house flippers that bought and sold many homes back in 2008 to 2010 hated those transfer fees. In our case they were buying homes that needed some work and they were very high end homes which allowed them to take the time and money to do a good job. The fees effected them and actually sent one to Arizona.

David,

I learned a long time ago that you won't get much if you don't ask for it. It is important to know All of the Fees and how they effect your properties. It is also better to learn off all of the board members and PM on this site some of the potential pitfalls without having to fall first.

Good luck we are all pulling for you.

Barbara, thank you for your input.

Being that we board members are new at this, we are in all-out researching mode. Our plan is to inform ourselves as much as possible, likely with the help of legal counsel. We will then schedule a meeting with the MC to discuss what our concerns are, and certainly in a cordial and courteous manner. At this point, with what we have seen, it does not appear the MC will be too responsive and/or willing to concede anything to us (long story), but we will make it clear that we do not intend to have an adverse relationship.

Regarding your comment "you should know that you hold a lot of power...." This is where we are a bit confused. How much power do we REALLY hold, being that this contract was signed and agreed to by the developer? It seems as if all the power we are supposed to have was taken away by the MC contract. Mainly because it appears the developer had no interest in acting like a proper HOA. Whether this was intentional (the MC has a really bad/notorious reputation in this area) or not really doesn't matter at this point.

Again, it appears that we may only hold restricting power at this point, but hopefully I am wrong. Thanks again.

Hi, Richard.

Great suggestions, again, something we had not considered. We definitely want to ask the MC to collect late/lien fees ONLY upon collection, and not use our HOA funds to make these expenses prior to payments. I don't see anything in the current contract/by-laws to suggest we cannot do this.

Perhaps this thread can be used in the future to help others in the same position we are currently in. I can certainly see a lot of knowledgeable people here with valuable input. Thank you.

David, you have the power because the management company works for you. They work at your direction. For example - those foreclosures "they" are so quick to pull the trigger on - the management company does not decide when to foreclose. Only the board. You can direct them - right now - to stop doing that, even if there are accounts currently in process.

Even if you can't break the contract, modifying it in terms of how much they can spend without your approval is something you should certainly be able to do. Maybe you could tell them "The needs of a homeowner board vs. developer board are so different, we should really reexamine these terms."

What does the contract say about meetings? Inspections? Reports?

If you are in DFW, the market here is very competitive and none of the management companies can afford to lose accounts. Unfortunately knowing that they have a bad reputation doesn't narrow it down to just one :/ Have you been working with one manager directly or her higher ups?

I will say - the MC should have been preparing you for transition from day one, with an advisory board, town halls to educate homeowners on what to expect as transition approaches. When you reached 75% homeowner occupancy, you should have had 1/3 of the board comprised of homeowners as well. So the fact that this seems to have not happened isn't a mark in your MC's favor. But you may just have a less-than-great manager, which is also something you can ask to be changed.

Good stuff keeps coming your way, David.

Reserves are important and your own docs, perhaps your bylaws, may require two board signatures to expense funds from reserves.

And even though this MC may want future accounts with your developer, they probably don't want to lose you. So even if you're stuck with them, make sure they fulfill every element of the contract.

Will they spend any time on your premises? In an office? Or is your HOA part of a portfolio where they manage a few other HOAs too. If so, make sure they spend enough time with you.

I know others disagree, But our MC does auto-pay for several of our monthly bills for our high rise. We have many contracts we pay the same fee to every month + gas electricity, water/sewer & trash.

Just as there are developers' management companies, there also are developers' attorneys. We kept ours far too long and almost missed the statutes of limitation deadline as she & the developer rep (required for our board) insisted we had no construction defects.