TX HOA and Mgt Co

Our management company has prepaid themselves until the end of the year. They had our board president sign the checks to ensure they are paid through the end of the year. Are they allowed? Would it be depending upon what is in the contract they signed with our HOA?

Thank you for any insight.

Trista

Trista

Did the management company 'pre-pay' itself in reality?

Please assume the MC has a contract for the next 12 months, to provide base rate services at $NNN per month. If the MC invoices the Association on January 1st, the liability is on the balance sheet for the following 12 months.

Why should the basic invoice for management services not be paid when rendered instead of being paid each month?. Arguably, the MC incurs fixed and common costs in month 1 which are not periodic, such as payroll, FICA, and similar expenses?

I recently paid an insurance invoice for a client for the next 12 months. Doing so avoided monthly finance and collection charges. How is this different?

Why should the MC not be treated similarly?

What I meant to say there are fixed and common costs any business must pay, generally in a lump sum--property taxes are an example. Other costs must be paid as they are incurred, such as payroll or whatever.

While I have never seen a MC 'pay itself' the fixed contract amount for the entire year, there is nothing intrinsically wrong or illegal about it doing so. Of course doing so would likely raise havoc with the cash flow unless the assessments are paid annually in January for the following 12 months.

To me, it's would be usual for the management company to prepay itself for future services as its services are rendered day by day in the operational sense. It reduces your liquidity and slightly handcuffs the HOA board's contract management flexibility.

Trista,
This seems very odd to me. Usually the first check PMCs write at the beginning of the month. I have never seen them try and get paid in advance. This would raise all kind of questions for me.

1) What is the reason for this new practice?
2) How much cash does the HOA have in the Operating account? Most run fairly close to the bottom line and it needs new dues payments to stay solvent.
3) Is your PMC in desperate need for these funds to pay it's bills?
4) I would ask other HOAs that are under the same PMC if they are seeing a similar request.

Law firms require retainers or payment in advance frequently. So it's not like this is unprecedented. How I would vote as a director: I would not support this for a management contract unless I thought highly of the manager and it was a dealbreaker for the manager.

Based on experience, I think it might be the management company in financial trouble. I've never seem a management agreement/contract with an acceleration clause in it.

It's not unheard of nor "illegal" to do so. If you have signed a 1 year contract anyways, you have to honor it. No one says it has to be at the end, beginning or monthly. However, I do have to agree with others that the MC may be having financial troubles. May want to start interviewing other options soon.