Faced with a less-than-satisfactory management situation, a condominium or cooperative board may decide not to adapt, but to replace their property manager, or even switch firms completely. According to experts, this practice happens more often than one might suspect. Whether such change is for the better often depends on who you talk to, and even a mostly positive move can produce a certain level of stress and adjustment.
A board's decision to change property managers or firms will hit home—literally. If a board has done adequate research before switching management companies, the impact of the change should be positive, even if some adjustments are still required. On the other hand, if a board has done less than satisfactory due diligence, there will almost certainly be unnecessary (and unwelcome) upheaval, as well as possible financial ramifications.
Breaking Up is Hard to Do
Experts agree that changes in property management is a common occurrence for boards. “Boards seem to switch management companies almost like changing their underwear,” Jim Stoller, the president for The Building Group, Inc., a management firm in Chicago, says. “A new board comes in and they may not like the prior board and they want to change all of the consultants. Or someone gets elected to the board and they might have had a prior manager because they enforced association rules and they blame the management company. Residential management is different from other types of management—this is people’s homes. People are far more emotional about their managers and management companies,” he says.
Unfortunately, they don’t look at this as a clear business—they look at it as an emotional decision and sometimes that takes on a different level of scrutiny.”
According to Richard Holtzman, the president of Prairie Shores Property Management, LLC in Chicago, “Property managers have a shelf life of less than two years, so, there is frequent turnover.”
“Moreover,” he continues, “there is a lot of bad management in the marketplace. The CAI (Community Associations Institute) coursework graduates learn a great deal about the Illinois Condominium Property Act but frequently have little knowledge regarding the building’s mechanicals,” he adds.
So what are the most common transgressions that lead to board-management separation?
“The big items are lack of service, funds missing and not getting financial statements on a timely basis—that’s the big red flag that something isn’t going right with your management company,” Stoller says. “Unfortunately, every now and then you hear of a management company or the manager has misappropriated funds or something does not feel right. If a board is not getting monthly financial statements with a copy of all of their bank statements, they should immediately contact their attorney and find out what the issues are.”
Joanne P. Elliott, an attorney and a partner with the law firm of Elliott & Associates in Des Plaines, adds poor advice and communication, lack of leadership and organization and high costs due to hidden fees to the list of most common complaints from clients.
Replacing a Manager
Replacing an individual property manager can usually be accomplished without legal implications. Sometimes a newly-elected board may not fit well with their association's current manager, or the person may retire.
Personalities and communication styles will always come into play when a decision to replace a manager or a firm is on the table, says Asa Sherwood, the president of FirstService Residential's Illinois market.
“Property management is such a personality and relationship-driven business. It is not uncommon for a manager to work well with one board of directors, and bump heads with the next,” Sherwood says.
“If there’s an issue with the property manager, we typically have a good relationship with the board, so if there is an issue we want to address it very quickly. We reach out to them and say, ‘Let us know if there are any issues.’ We either address them with the current staff, the current property manager, or if we feel it’s not working—it could be a personality issue, it could be a variety of reasons—we will then present alternative candidates for the board to interview and make the final decision on who they would like to work with.”
Stoller takes his clients through a similar process. “It depends on the situation. We step in—that’s really what senior management does—and work with the board to figure out what the issues are,” he says. “If it’s a minor issue that is something that just needs to be refined or addressed, it can be done with the current staff, who can try to do that first. If it’s gotten to the point where this current staff cannot adequately meet the expectations of the board, then we will step in and make a change,” Stoller says.
Switching Management Firms
Finding a suitable replacement within the same management company should be a routine matter. However, when a board has made the decision to replace a management firm entirely, the process is somewhat more complicated.
Once the decision has been reached to change managers or firms, a board's first step should be a consultation with the building or HOA's legal counsel.
“The first thing I would recommend is for the board to talk to their attorney,” Stoller says. “Most of the attorneys that specialize in condominiums and co-ops are very familiar with management companies and they could give them names of reputable firms that can appropriately address the size and complexity of their association.”
When a board decides to move on, it's time to give notice. “There are contractual obligations as it relates to the notice requirements, from either side,” Kara Cermak, the president of Rowell Incorporated, AAMC, a management company in Elgin, says. “If there is a question as to those obligations, the board should most definitely consult the association’s attorney, but complying with those contractual obligations is generally accepted as proper notice.”
“As an aside, however,” she continues, “if there has been a long-standing relationship between the community and the management firm, providing additional notice is always appropriate.”
There typically is a management contract, Sherwood explains, and in that case, “there will be an obligation to give proper notice prior to the end or renewal of the contract. Some contracts have 30 day notice, some 60, and some even longer. The research piece of a management search should be conducted well in advance of the contract notice period so that a decision can be comfortably made, and notice sent to the existing management firm.”
Part of the transition process includes transferring accounts, books, records and funds from the old firm to the new one. This should be handled between the two firms, and should be done in a timely manner.
“Typically, we expect a great deal of information such as unit owner ledgers, contracts, paid bills, governing documents and tax returns to be provided before the start date. After the final accounting is provided, everything should be turned over as it is the property of the client and not the management firm,” Holtzman says.
It is usually a seamless process for the old management company to make arrangements with the new management company and to acquire all the necessary records and contracts, says Nancy D'Andrea, a property manager with Premier Community Management LLC in Elgin.
“Ideally, this should happen prior to the contract start date,” D’Andrea says. “However, some management companies may not release the records until after their contract ends, so any information the board can provide to the new management company will enable the new management company to transition the property in a more-timely manner.”
Some banks may even go so far as to require an association to close its accounts. “In addition,” D’Andrea continues, “some management companies may require the association to establish an operating account at a specific bank to allow for ease of payment processing. For example, the new management company may require the association to establish a new operating account at specific bank where their lockbox is established, but the board may leave their reserve accounts (i.e. certificates of deposit) at the existing banks and update the corresponding signature cards, if applicable,” she says.
Along with getting solid legal advice, the pros agree that taking the time to set goals and articulate objectives will help outline the focus of the search for new management and highlight the changes the board hopes to accomplish with a new team.
“How many meetings do you expect them to attend? What type of communication are you looking for from them? The more specific you can be and directing them in terms of what your expectations are the better,” Elliott says.
By listing the things that are right with current management as well as the items where there is dissatisfaction, a board can not only make sure that candidate firms know exactly where they're coming from, but can work to methodically bring those goals and changes to fruition once the new firm is in place.
Factors like the age of the building and the culture of both the board and unit owner should also be considered when establishing a list of expectations, Holtzman says.
The More You Know...
The key to hiring a competent and well-suited management company is research, experts say.
Don't just rely on Yelp ratings for recommendations. A board should use its resources—in this case, attorneys, accountants and other professional advisers—as a source for recommendations.
“A good way to determine which companies should be invited to propose is to obtain referrals from trusted vendors and/or the association’s attorney,” D’Andrea notes. “The board should research each company’s history, their years in service, their management philosophy, their credentials and designations, and their involvement in professional organizations.”
“In addition,” she continues, “they should ensure the company and the managers are licensed by the state of Illinois and check for references. It is very important to be specific regarding the board’s requirements to ensure all companies are submitting comparable bids, including pricing for extra services and reimbursable expenses,” she says.
Settling is never a good option in life—this especially rings true when it comes to finding new management. The key to making sure your association is getting the crème de la crème of managers/management firms is conducting informational interviews with potential candidates. A management firm or manager might seem perfect on paper, but meeting face-to-face is the ultimate test of compatibility, D'Andrea says. Take this time to exchange expectations, discuss goals and feel out each other's personalities. Although this may add time to the decision-making process, it is a critical task to ensure the right fit,” adds D'Andrea.
Welcoming New Management
Once a board has found its match, it's time to help the new manager and/or firm transition smoothly into the position. It takes experience to know what is required in bringing a new management company up to speed. All parties need to work as a team—the insurance company, the accountant, the attorney and the board.
“Most reputable management companies have a turnover procedure,” Stoller says. “We typically provide a great deal of additional time and staff time to really get to know the building. We have internal checklists so that we receive all the information and create data files for everything that’s going on in the building, from scheduling to building equipment and systems. We also do meet-and-greets to get to meet the residents and unit owners. There’s a lot that a new management company can do to set up a good relationship and I think it really just takes time and desire to learn their client’s needs and start off a great relationship with them.”
And whatever you do, don't undervalue the importance of a functioning board-manager relationship. It's a two-way street, Stoller says, and if both parties don't work to maintain a healthy relationship, it can crumble. If and when the partnership becomes dysfunctional, don't be afraid to walk away, he says.
“Really, the bottom line is that it’s not just an agreement—it’s a relationship and a collaboration,” Stoller says. “The board has to really trust their management company, and the management company has to trust the board. They have to work together for the benefit of all parties. When that relationship is damaged, it’s either you try to repair it—or you move on to someone who you feel sees your goals and can help you meet them.”
Change purely for the sake of change is seldom a good idea, but change itself is inevitable. When faced with changing your current property manager or firm, a board should pay close attention to details, consult with the community's legal and accounting professionals, check prospective managers' and management firms' references, and be prepared to work through the process fully and thoroughly.
Enjolie Esteve is an editorial assistant at The Chicagoland Cooperator. Freelance writer Anne Childers contributed to this article.