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Considerations in Choosing a Property Manager: the Management Contract

by | Jan 26, 2022 | Firm News |

A healthy working relationship between a residential association and its professional manager goes a long way toward making a successful residential community. Property managers typically have years and years of experience in community management and are able to provide advice and guidance on all sorts of matters that affect a community. Managers also significantly lighten the workload of board members. There are all kinds of managers and, while many can be impressive in interview, the rubber will meet the road in the management contract and the contract itself can say a lot about the personality and working style of a particular manager. Thinking about the management contract can give the association’s board of directors a framework with which to consider the various duties that a manager may or may not assume on behalf of the association. The contract is also launching off point for a discussion with a potential manager as to how the association expects the affairs of the community to be handled.

There are certain areas that an association’s board should make sure are covered in the management contract, or, if they are not covered, be aware they are not covered. Important areas for the board’s consideration are as follows:

Parties and Contacts
The board should decide and control for who will sign the contract on behalf of the Association and when. Board members will want to meet their specific assigned manager and discuss who at the management company will be assigned to perform various functions. The board may also wish to designate specific directors to be contacts for the manager on specific issues. There should be review and discussion regarding whether any disclosures need to be made with respect to relationships between prospective manager and developers or vendors.

How Long Will the Management Relationship Last?
If we are dealing with a new relationship, a trial period is appropriate and the contract should be terminable at will, on notice, at least during that trial period. Start and end dates under the contract should be clear. If this a condominium community that is turning over from the developer, the Association should be aware of the requirements of MCL 559.155, which provides the association with management contract protections around the time of the transition in control from developer to community. The association should understand contract termination procedures and whether the contract provides for automatic renewal. Good management speaks for itself, and lengthy for-cause termination provisions are usually not in an association’s best interest.

All Matters Financial
Assistance with accounting and financial matters is one of the major areas where a manager can lighten the workload of the board. A manager should typically be collecting assessments from co-owners and maintaining separate accounts for co-owners. Managers should have a duty to pay contractors/vendors promptly within any spending limits. Managers should have experience in preparing budgets, have a duty to reasonably stay within budget and warn if the annual budget will be exceeded. Financial records should be kept per generally accepted accounting principles so that they are easily reviewable by all and to promote transparency and understanding in financial reports that the manager should be regularly distributing to board members. Managers should assist with audits, tax preparation and reserves. The association should verify that there is fidelity insurance in place to protect association funds.

Manager Compensation
The Association should expect that what the manager will charge for its services will be clear. Any additional services that cost extra above the basic rate should be specifically stated. Costs and extras should be specifically line-itemed in a schedule attached to the contract.

Insurance and Liability Issues
A manager should have a duty to assist with obtaining, verifying, and maintaining insurance coverage as required by the association’s governing documents. Additionally the contract should contain provisions related to risk management and potential litigation between the manager and the association.

Duties to Attend and Assist with Meetings
As a matter of standard service, a manager should have experience conducting meetings and a duty to assist with and attend meetings of the association membership and meetings of the board of directors.

Other Important Duties
Among the other important duties of a property manager are duties to assist with and track maintenance and repairs in the community and report regarding those matters (especially in a community where the Association has substantial maintenance duties), assistance with ensuring community compliance with governing documents, and to securely maintain association records, including individual unit files. Property managers should generally have a duty to become quite familiar with the communities that they manage.

The above points are hardly exhaustive and certain areas will merit special attention and discussion, depending the unique characteristics of the specific community. Given the significant role a property manager often plays in a residential community, the board should carefully review any proposed management agreement with experienced association counsel in advance of engaging a new manager or renewing an existing one.

We at Tilchin & Hall, P.C. have many years of practice in assisting residential associations in these matters and we are available to assist your association in these matters. Please reach out to us at (248) 349-6203 or email us using the form below.

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