Preparing for possible contract termination by management company

Started by HalH • 4 replies • 1474 views

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HalH (Texas)
Posts: 2

Posted:

OK, this is going to sound like an odd question, but does anyone have any guidance or a written plan for your HOA in the event that your current management company unexpectedly terminates your contract?

Let me give a little background. We are a small (~300 unit) HOA with a large Board from which we have probably four real worker bees. Tensions with our current management company have been growing over the last year or so, partially because of unprofessionalism/incompetence by the management company and partially because we have certain board members that are adamant about replacing the management company. Communications between the management company and the board always seem to end in all kinds of drama. We are finding turnaround time on our requests is suffering dramatically, probably because the management company doesn't want to deal with us. To make the situation even more difficult, we recently reviewed the management company's invoices and found over $2k in charges that are either questionable or not allowed under our contract (whether dishonesty or incompetence we have no way of knowing).

We're presently searching for a new management company, but it is a slow process because our current provider is very low cost and we are having trouble finding more in the budget for the quotes we are receiving from competitors. Our fear is that when we bring up the invoice discrepancies they will choose to give 30 day notice of termination of our contract and we will need to either find a new management company ASAP or go into a bare-bones self-management mode until we can find a suitable (and affordable) management company.

At this point my brainstorming list for the contingency plan includes obtaining association records, detailed status of current A/R accounts and CC&R violations, resident/owner rosters, etc. Also included in my plan thus far is removing the manageemnt company reps from the bank signature cards, written communication to the residents on the change and new contact, newsletter article of the same, and notice and change of address to vendors and financial providers. As for services provided I'm looking at mostly essentials only like paying vendors, depositing receipts (which will unfortunately likely include annual assessments), maintaining basic financial records, and managing ACC requests and obvious CC&R violations. At this point my plan is a bullet point list on a single sheet of a legal pad, so any additional insight or advice would be greatly appreciated in filling in the blanks.

RogerB (Colorado)
Posts: 5,067

Posted:

Hal, Enclosed is a brief check list which may be of help.

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RobertR1 (South Carolina)
Posts: 5,164

Posted:

HalH,
From your info I am guessing you have something like a nine member board and four members do all the work. If this is close anything you decide about preparing to change M/C would need at least a majority vote. Now if you are saying you do have the vote to replace your present M/C then you better get ALL the Board members in the game one way or the other. If you and 3 others go out front you may find during the course of termination you won't have any support. So you need some commitment in writing I suspect, from the rest of the Board and that would include any action that you feel could cause the M/C to pull up stakes.

Best case would be to have your support lined up, a new company selected and terminate the contract yourselves and I suggest you work to this end and not worry so much about the problems with the present company. They have been around for a while it seems and if you are close to being accurate you are talking 2K questionable. That could certainly hold off until you get a stronger position.

Rogers list is something to work to wards and from the sound of it your bullet sheet should incorporate well with his list.

In short............get a stronger position before making waves and when you do get ready terminate the contract from your end.

GlenL (Ohio)
Posts: 5,491

Posted:

Hal check the contract, at the minimum they should be required to give you 30 days notice before terminating a contract which should be time enough to hire a new MC.
(The following is another checklist from a previous post)

Make sure any contract spells out exactly what the Management Companies duties and responsibilities are; if it's not in writing it doesn't exist. After you notify your current Management Company of the Association's intent to terminate or not renew their contract within the notification period set in the current contract, you need to sign the contract with new Management Company specifying the date they are to assume control of the Association.

While any management company you change to should have a transition checklist to make the changeover easy; here are just a few things to keep in mind. The new Management Company should handle all of this but it is the BOD's duty to make sure that it's done.

Notify all owners of change in Management Company and the date the change is effective and any change in where they mail their assessments to and whether they will need to file a new ACH (auto debit) Authorization Form if they use that option.

Notify Secretary of State of change of Management Company and new address and any change of Registered Agent.

File Form 8822 - Change of Address with the Internal Revenue Service and notify your local County Tax Office.

Notify all vendors including Utility Companies of change of Management Company and new billing address.

Notify the Associations attorney.

Review all homeowner's in the collection process (Past due, lien, foreclosure) to make sure none fall through the cracks.

Setup new banking accounts and transfer funds if necessary; order checks and deposit slip's. Or
remove former Management Company's employees from the bank signature cards and make sure you have the original ACH (auto debit) Authorization Form for homeowners that utilize that service.

Arrange to transfer all files from the former MC to the new one including but not limited to:
Association Documents including but not limited to:
1. Articles of Incorporation, CC&R's, By-laws and any Rules, Regulations, Resolutions.
2. Any Board Policies and Procedures.
3. Site plans and maps.
4. Architectural Control Rules (ARC), guidelines - if separate from CC&R's.
5. Originals of all warranties, permits or other documents received from the developer.
6. Reserve study (if done).
7. Association Federal Tax ID.
8. Copies of all minutes and meeting files
9. All association correspondence and replies, including e-mail.
10. All current contracts.
11. All legal files and correspondence.
12. All management reports.
13. A current list of vendors and maintenance contractors, including contact names, addresses & phone numbers including a listing of all utility companies and account numbers, meter numbers.

Accounting/Bookkeeping including but not limited to:
1. Current budget.
2. Current financial statement.
3. Delinquency list and status
4. A/P history for current year (needed for 1099's)
5. Check registers/stubs/cancelled checks
6. Paid invoices
7. Open invoices
8. Bank statements - operating and reserve
9. Bank reconciliations - operating and reserve
10. Investments, CD's, passbooks , Money Market Accounts
11. Any payroll reports
12. General Ledger with journal entries
13. Tax files/coupon book
14. All audits and tax returns.

Homeowner files including but not limited to:
1. Current property owner and resident list.
2. Property files.
3. Copies of all work orders completed and in process.
4. All past and pending ARC submissions.
5. All past and pending violation letters.
6. Pending and completed work orders

Studies show that 5 out of 4 people have problems with fractions

HalH (Texas)
Posts: 2

Posted:

Thanks for all the replies. All are very helpful.

Robert - to address some of your points, yes it is a 9 member board. The interesting thing is that all of us recognize a need for a change. We all hate the current management company and if we find a viable alternative to our current management company I have no doubt we would have the majority vote to authorize a change. It is just a matter of us finding a suitable management company that will work for what we can afford, which thus far has proven to be difficult. The way our by-laws are written we don't have the ability to raise assessments (even small periodic adjustments) without a majority vote of our residents, so there isn't the flexibility to vote as a board on a small increase to cover any extra expense, making this even more difficult.

GlenL - you are correct that we do have a 30 day notice requirement for termination of our contract, and we are working feverishly to find another MC. Indeed, we are in a lot better position if we are the ones terminating the contract and not the other way around. Seeing as we have not found a lot of promising alternatives thus far, we just wanted to make sure we had a Plan B if we couldn't line up a new MC in time. The checklist you provided is very helpful to make sure nothing falls through the cracks, and hopefully by doing a little more searching here I can find posts with pointers for actually executing some of the daily activities that would be required in the interim period between MCs.

Thanks!

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