Reduction in Monthly Management Charge

Started by BillH10 • 15 replies • 609 views

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BillH10 (Texas)
Posts: 1,217

Posted:

We own a small management company in the Dallas area, we specialize in managing small condominium associations.

A provision in each contract with our clients is we will review each property twice each month, and meet with contractors/vendors as needed. To manage expenses, and make the best use of time, we attempt to schedule reviews and meetings on the same day(s).

We concluded close to three weeks ago we would suspend non-essential operations, meaning we would suspend the reviews and limit meetings with contractors/vendors to a minimum. We so informed our clients, who were receptive. In person contractor/vendor meetings have now been eliminated, especially if entry into the home is required.

As a result, we are discussing reducing our monthly rate by some percentage 'for the duration' as we are unable to execute the terms and conditions of our contracts. Our business vehicle expenses are somewhat decreased as are the hours we spend on business matters.

I know we can reduce our monthly charges unilaterally, can you think of good reasons why we should not do so before someone asks?

PaulJ6
Posts: 990

Posted:

As part of reducing monthly charges, I would get the counterparty to agree in writing that (1) the reduced scope of services and (2) the reduced fees are acceptable during the pandemic, as you determine. Otherwise the counterparty could try to claim that you have breached the contract by not performing or that a "force majeure" clause in the contract (if there is one) allows the counterparty to pay less than you are offering.

So I would be proactive about this, and require written confirmation of (1) and (2) prior to doing the fee reduction (e.g., "Sign here and your fees will be reduced during the pandemic").

BillH10 (Texas)
Posts: 1,217

Posted:

Thanks Paul

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Bill

Generous of you but I would only consider doing so on a case by case if they requested such. I would not do an across the board cut.

MarkM19 (Texas)
Posts: 1,459

Posted:

Bill,
I think this could be a very slippery slope.

1) Yes you are doing less in the next month our so. This would make for logical reduction.
2) When this is over you will be doing more to recover. You will need to do more to recover and get things on track.
3) I always worry when this type of thing gets brought because you make people think of their own cases.
a) Why do I pay for the Pool when I do not use it?
b) I never need any assistance so why am I paying for Management services?
4) All of the HOs that have direct deposit would have to make the manual adjustments to their account during this process and then again when it is over. This is never smooth and also make your PM job harder.

My feelings are you have a Contract in place and you should do all you can legally do to honor your Contract. The HOA also has a Contract and they should do all they need to do to honor its part. Every Community has high times and low times. It is part of the way the world works.

I am not on Managements team as I have always been a Board member. I do always try and be fair to both sides and in this case I would advise to let it ride.

SheliaH (Indiana)
Posts: 6,964

Posted:

I agree with Mark and John. This may an issue you'll have to revisit down the road as HOAs note the number of people who are having financial problems that affect their ability to pay assessments. That could happen because the homeowner was laid off and/or faces huge medical bills because a family member contracted COVID-19.

Reduction in collecting assessments affects HOA income and boards may have to make tough decisions on pursuing delinquencies and cutting costs. In that case, it would be helpful to have a discussion about reducing services and getting agreements in writing (but you already knew that).

On a related note, I received a newsletter from my state representative today that noted that evictions and foreclosures can't be initiated during a public health emergency. I imagine this is the same nationwide, but you may want to check with your local authorities to be certain. This would be a good time to remind homeowners they should contact the board or property manager immediately if they are or will soon have difficulty paying assessments.

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

PaulJ6
Posts: 990

Posted:

BillH10, I'll be in lawyer mode here.

If your contract says that you have to perform duties X, Y and Z for $X for month, then you're legally obligated to do so unless (1) your contract has a "force majeure" clause that clearly covers the current situation (note: a generic "force majeure" clause may not suffice) or (2) other laws in your state allow you to get out of performance.

You can wait for someone to request a fee reduction, but the person may have grounds to request more than you'd otherwise want to offer.

Generosity as you propose is remembered, even in business. If I didn't receive services that I paid for, I'd perhaps be a bit irked that I had to ask for a discount.

MarkW18
Posts: 1,290

Posted:

I can't speak for Texas, as they haven't done what other states have done, but in California and in New York, meeting with a vendor that shouldn't be doing anything unless it was deemed essentially, goes against what the two governors have ordered in regards to stay in place. I am going out on a limb, but if an association took a management company to court because they followed higher orders, I don't think a judge would look too kindly on the motives of said Board.

I am guessing that inspecting someone's home to see if they put their garbage cans out of sight wouldn't be considered essential at this time.

BarbaraT1 (Texas)
Posts: 821

Posted:

Nobody's contracts provide for a pandemic that leads to extended shelter in place orders.

You can still inspect the property from your car. You can still communicate with vendors, if you need to, by phone or email. You can still fulfill your responsibilities.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By BarbaraT1 on 03/31/2020 1:31 PM
Nobody's contracts provide for a pandemic that leads to extended shelter in place orders.

You can still inspect the property from your car. You can still communicate with vendors, if you need to, by phone or email. You can still fulfill your responsibilities.

Well said.

PaulJ6
Posts: 990

Posted:

In some states, businesses are closed, except for "essential businesses". Building management is an "essential business" in the states that I'm aware of (which isn't many, and which doesn't include Texas).

So check Texas requirements. My concern is just to provide protection against a breach of contract situation. If a HOA is looking for ways to get rid of the management firm, decreased services could be grounds for the HOA to get out of the contract.

And as much I LOVE HOAs, I want to help protect against risk.

BillH10 (Texas)
Posts: 1,217

Posted:

Thank you all for your responses, they are most thoughtful and helpful. We have not reached a decision as yet, we must review the latest order issued by Dallas County last evening or this morning before doing so as the majority of our clients are located in Dallas County. Further, the city in which we reside (not in Dallas County) has imposed very strict guidelines regarding leaving home.

BarbaraT1 (Texas)
Posts: 821

Posted:

Quote:

Posted By BillH10 on 03/31/2020 2:07 PM
Thank you all for your responses, they are most thoughtful and helpful. We have not reached a decision as yet, we must review the latest order issued by Dallas County last evening or this morning before doing so as the majority of our clients are located in Dallas County. Further, the city in which we reside (not in Dallas County) has imposed very strict guidelines regarding leaving home.

Bill, I'm also in Dallas County. Our company consulted with our attorney, who agreed that we are an essential business under the critical infrastructure exception. That said, our offices are closed. All our managers are working from home, but visit our properties to inspect the common areas. We take photos to send to vendors if maintenance is needed. Sometimes I have to enter my onsite office to print or fax something - but I'm literally the only person who uses that office or even has a key to it.

I know there have been rumors that Dallas PD is stopping people to ask where they are going - but PD has confirmed that isn't true.

BenA2 (Texas)
Posts: 1,273

Posted:

Quote:

Posted By BillH10 on 03/31/2020 9:33 AM
We own a small management company in the Dallas area, we specialize in managing small condominium associations.

A provision in each contract with our clients is we will review each property twice each month, and meet with contractors/vendors as needed. To manage expenses, and make the best use of time, we attempt to schedule reviews and meetings on the same day(s).

We concluded close to three weeks ago we would suspend non-essential operations, meaning we would suspend the reviews and limit meetings with contractors/vendors to a minimum. We so informed our clients, who were receptive. In person contractor/vendor meetings have now been eliminated, especially if entry into the home is required.

As a result, we are discussing reducing our monthly rate by some percentage 'for the duration' as we are unable to execute the terms and conditions of our contracts. Our business vehicle expenses are somewhat decreased as are the hours we spend on business matters.

I know we can reduce our monthly charges unilaterally, can you think of good reasons why we should not do so before someone asks?

I can't think of any good reason not to reduce your fees unless the contract specifically addresses the issue and says otherwise. You are not performing the duties of the contract (even though its beyond your control) so it would not be ethical to continue to charge the same.

MarshallT (New York)
Posts: 414

Posted:

Hi Bill,

I'm glad to hear that you've already spoken to your clients. If they have been receptive, I don't think you need to reduce monthly charges unless someone asks for a reduction. You are still working for them, and right now there are certain things that you cannot do. I think your clients appreciate the difficult situation we're all in.

Perhaps there is a creative way to show them gratitude after this is all over?

SueW6 (Michigan)
Posts: 814

Posted:

I would expect you to carry out all duties as outlined in your contract. Meet online, text vendors, walk around complexes by lone person, do office work at home. No need to reduce your contract.

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