Reprinted from LA Times 8/28/2016
Q&A: What can we do about incompetent management companies that waste money?
By Donie Vanitzian
Aug. 28, 2016 3 AM PT
A good first step toward improving your association’s experience would be explaining to prospective management companies how your board expects its business to be conducted. Discuss guidelines, specific instructions and codes of conduct the association wants to be followed — before the company is even hired. Then include those terms into the management agreement so that they can legally be enforced. If a management company is not willing to accept your conditions, then it is not the right vendor for your association.
Once a management vendor is chosen, make clear that there is a distinct line between employer and employee. Because board members and management staff often work closely, management — even directors — may forget that this is a business relationship in a business setting. The management company and its employees should be cordial but are not your friends; they are hired to perform services they get paid for. When that line is blurred by either side, it can become uncomfortable to enforce contractual obligations.
And since it’s not uncommon for a single lenient board director to unravel it all by failing to follow contract terms, stress that no single board director has authority to act on his or her own. Set rules on how management receives its instructions and corresponding deadlines from the board to complete assigned tasks. The board also should vote on procedures that spell out how much independent authority management has to hire and manage outside vendors.
Based on your association’s track record, it should consider a month-to-month contract. If management companies are reluctant to enter into such an arrangement, insist on a probationary period during which the management company or manager can be easily terminated. If your association agrees to a lengthier contract, make sure it receives a discounted rate in return, something associations often fail to demand.
To avoid paying to the end of a management company’s contract, negotiate for more favorable contract-termination terms. There is no reason why there should be a penalty for canceling a management company’s services; your association should only pay for the services it actually uses. A 30- or 60-day termination notice may be appropriate.
In particular, stay away from management contracts that have automatic-renewal clauses, which restart the contract upon its expiration without board action. Such provisions don’t encourage outstanding performance and might bind the association to increased management fees without a board vote. Boards are well advised to read and weigh each word carefully, and if still in doubt, have an attorney look it over.
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 [email protected]