Changing Managers or Firms? Don’t Overlook the Details!

Changing Managers or Firms?

Whether change is good or bad often depends on who you talk to; even a welcome change produces a certain level of stress and adjustment. Personal changes are challenging enough, but for community association residents, a board decision to change association managers or firms will quite literally hit home. Even if a board has done adequate research, and the change is for the better, adjustments will still be required. By the same token, if a board has done less than satisfactory due diligence, there will almost certainly be unnecessary and unwanted chaos, as well as possible financial ramifications.

Breaking Up is Hard to Do

Experts agree that changes in association management is a common occurrence for boards. Every board has its reason for deciding to see other people, but there are a few recurring issues the pros list as red flags.

“The biggest three complaints we hear when we are taking over a site are lack of response from the manager, a weak accounting department and back office, and lack of leadership from the manager and supporting upper management,” says Brian Weaver, vice president of Wilkin Management Group, Inc. in Mahwah.

Cutting costs in another leading factor for boards seeking new management, says Elaine Warga-Murray, CEO and the managing partner of Regency Management Group, LLC in Howell, New Jersey. “Unfortunately, in this economy sometimes, building owners or the board will change managers or management firms based on trying to get someone to do the job for less money,” she says. “That reasoning generally backfires, and creates much more upheaval in the community or building than anticipated.”

Despite all the issue boards might face with managers or a management company, surprisingly, it is common for them to not share complaints, Warga-Murray continues. “It has been my experience that often boards are reluctant to communicate to a management firm that they are unhappy with a manager and ask for a change, and simply decide to change firms,” she says.

This hesitance to voice concerns is problematic and quite dangerous, says Anne P. Ward, an attorney with the law firm of Ehrlich, Petriello, Gudin, & Plaza, P.C., with offices in New Jersey and New York. She urges boards to be proactive about finding new management if problems persist. If not, litigation could be in the near future.

“Let’s say you have a problem with an apartment and there’s rain coming through a window and the management isn’t dealing with that issue properly," Ward says. "They’re not investigating, they’re not dealing with the problem immediately and in a constructive fashion, keeping the board in the loop. What happens with problems like that is they blow up. Instead of dealing with an issue right away, it can lead to litigation. I’ve seen so often when you get an unresponsive or incompetent management company, and what happens is owners end up getting frustrated—it ends up in court where it shouldn’t have ended up,” she warns.

Switching Up Representation

Sometimes a newly elected board may not fit well with their association's current manager, or the person may retire. If a board feels that a management firm is handling back office functions such as financial management, collections and bill paying well, it will simply request a new manager, Warga-Murray says. Personalities and communication styles also come into play often when a decision to replace a manager is on the table.

“Changing a manager is usually based on chemistry between the board/owners and the individual manager or management style differences,” she says. “If the problem is due to manager personality or style that is easier to negotiate than changing management firms. If the board or owners are unhappy with manager performance, the management firm can correct performance by providing immediate corporate involvement and assigning a different manager.”

Once the board requests a new manager, it is the firm's duty to expedite the process of finding a suitable replacement.

“If a change in managers is agreed upon, if that replacement manager is on staff already, the change can generally be done within 30 days,” says Bill Cirkus, chief executive officer of Community Management Corp. in Clifton. “In that case, the outgoing manager will generally brief and tour with the new manager, as well as be available for follow up questions for months. If the management company needs to hire that person, it could take up to 90 days,” he adds.

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. “Change is never easy and requires work,” says Weaver. “However, when the effort of the board in managing the manager outweighs the work to transition to a new company, a decision is made to switch.”

Cutting Ties

When a board decides to move on, it's time to give notice. Every contract differs—although Weaver says most contracts require a 60- to 90-day notice—so there is no definitive answer on when proper noticed should be served. Because of this, a board must consult with legal counsel before it declares any intention of dissolving its relationship with the firm to management.

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.

“It should be the new management's responsibility to contact all vendors, suppliers, etc., to advise of the change, once the contract agreement is executed,” Warga-Murray says. “Hopefully, the management agreement always provides that the current manager turn over available records, minutes, financial information and copies of all contracts and administrative records before the actual transition occurs.”

Some banks may even go so far as to require an association to close its accounts. “Generally only the main operating account of the association needs to be changed, since that account is usually tied to the management company’s lockbox for collection of the monthly charges,” Cirkus says. “If, however, the other accounts, such as reserves and working capital are not solely in the name of the association, then those accounts will also need to be closed, and re-opened in the name of the association and the institution of the board’s choosing,” he says.

Establish Expectations

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 involved do you want the manager to be? Should they attend every meeting? 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 owners should also be considered when establishing a list of expectations, the pros say.

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. Weaver has a top-three list of things to look out for when on the hunt for new management that will make the search easier and more efficient.

“A board should focus on how successful the management company is in retaining their clients,” Weaver lists first. “If a management company is losing clients, something is wrong. If they have a strong retention rate of clients, they are generally doing something right. Anyone can make a great first impression, but the real proof is in client retention. The second biggest thing a board should seek is recommendations from recognized industry professionals. In order of importance, I would say that the third most important research tool should be reference checks from other associations that the management company manages,” Weaver 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. Take this time to exchange expectations, discuss goals and feel out each other's personalities.

Weaver even suggests making a secret drop-in to get the most accurate reading of how a company operates. “A client thinking about a switch should make an unannounced visit to the management office to get a real feel for whom they will be partnering with,” he says. “You would be surprised how eye opening this step can be.”

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.

Suffice to say, every firm goes about new placement differently. The process is undoubtedly less complicated when there is just a switch in managers, since the firm already has institutional knowledge of their client's building.

“Provided that the management firm has system continuity, digital backups and a senior member of the firm involved, the learning curve for a new manager can be seamless,” Warga-Murray says. “Typically, it takes about two to three months for the relationship between the new manager and the owners/residents to solidify as long as the new manager is fully informed initially of the board expectations and is up to speed on the building or community issues, protocol and routines.”

A little extra TLC is required from both parties when ushering in a new company.

“As a firm, we make it a practice to have several 'pre-start' meetings with our new boards,” Weaver says. “In these meetings, we make sure we understand all physical, financial, and administrative issues they are facing. We digest it and present our systems and processes to handle their community.”     

“Sometimes,” Weaver continues, “It is different than what they are used to, but if we generally remain within our normal process, the client will benefit in the long run,” he says.

And whatever you do, don't undervalue the importance of a functioning board-manager relationship. It's a two-way street, 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.

“The relationship between an association manager and the board is a critical one. If there is not a level of trust and respect between the parties, the relationship will deteriorate quickly,” Cirkus says.

Change purely for the sake of change is seldom a good idea, but change itself is inevitable. When faced with changing your current association 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 New Jersey Cooperator. Freelance writer Anne Childers contributed to this article.

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