It’s a truism that nothing lasts forever—and that includes management contracts. Shared interest communities change management companies all the time, and for a variety of reasons. Those reasons can range from cost to effectiveness and everything in between, including clashes of personality. When changing management companies, there are a few things to keep in mind to improve your next experience and to avoid previous problems and disappointments. The key is doing your due diligence when choosing your next management partner and making sure your contract reflects the needs and expectations of your community.

Why Make a Change?

Among the most common reasons condos, co-ops, and HOAs switch managers or management companies is that they feel underappreciated or underserved. Grumbling typically starts among the residents. Common areas aren’t kept clean enough; management is unresponsive or unreachable; a repair wasn’t done properly. Eventually, the grumbling works its way up to the board. When the board approaches management about the problem, promises of improved performance may be made, but the situation doesn’t improve, or improves only temporarily before sliding back to an unacceptable place. Before long, both the board’s and the residents’ patience is exhausted, and the search is on for a new manager.

“It most often comes down to expectations and communication,” says Bruno Bartoli, senior director of management services for Evergreen Management Group, located in Bedford, New Hampshire. “Boards want a management partner who is responsive, transparent, and aligned with the goals of the community. If those expectations aren’t consistently met, whether it’s slow communication, lack of follow-through, financial reporting issues, or overall service quality, boards may look for another firm when their contract expires.”

Harold Berlowe, director of sales and a project manager for Denali Management in New York City, concurs. “Oftentimes,” he says, “the impetus for change is usually lack of attention, communication, and responsiveness [from the management].  Management companies are the frontline for most communities, handling everything from the daily property issues, such as leaking roofs, broken sidewalks, fallen trees, etc., to residents’ complaints and more complicated issues like budgeting, overseeing major projects, insurance claims, delinquent owners, etc.  Therefore, most communities are reluctant to make a change until the consequences from the lack of attention and responsiveness become too great.”

“Change in management may be driven by money and personality,” says David Goldoff, president of Camelot Realty Group, a company based in New York City that manages properties in New Jersey as well. “As the owner of a management company, you must place the right manager with the right community. There has to be the right personality connection between the manager and the board. If communication is bad, it may result in a change. I always tell board members if there’s a problem, just call me; I do a lot of reaching out. Everything is also driven by economics. If a board changes managers, often it’s for someone less expensive.”

Breaking Bad… or Good

Shifting an entire building or association’s administrative life from one handler to another is complicated. There are a lot of moving parts to keep track of, and depending on how it’s done, it can go well… or not so well. To reduce the chances of the latter being the case, a change should be well thought out and planned.  Rash decisions can only lead to more problems, so execution is everything here.

“You should make sure you have a new company in place before you fire the old one,” says Scott Piekarsky, a partner with Offit Kurman, a law firm based in Hackensack, New Jersey.  “Generally, you must give [your existing management] proper written notice as per your contract. Your [current] company may push back on a breaking of a contract—though if it’s simply the end of the contract, they can’t do that. Some contracts will even require notice if you don’t intend to renew at the end. There may be financial consequences for breaking the contract, but regardless, the existing management company must be cooperative with the new company. As the client, you must be prepared for the handover. There are records, bank accounts, etc., and it will take time to make the transition. The board should be prepared to oversee the process, and it can’t be done overnight.”

Drilling down further, Berlowe observes that “most contracts require the aggrieved party to put in writing what they believe to be a breach or breaches of the contract terms, then allowing the alleged breaching party a reasonable amount of time to cure that breach. If the breach isn’t cured in that time frame, the next step is sending written notice of such, terminating the contract on a date certain, and demanding that all data, documents, monies, etc., be turned over in a timely manner. Oftentimes, if the parties cannot agree on whether a breach has been cured, or is even curable, they negotiate a sum of money to end the contract—in effect, a termination fee—which is usually the simplest, easiest way to resolve the situation rather than going to court, paying attorneys, etc.”

The Transition

Once the cat is out of the bag, so to say, and current management has been notified that the existing contract will be broken or will not be extended, the real fun begins. Switching management companies involves a detailed, organized handoff. 

“For an association to continue functioning properly, every piece of information must be accounted for,” says Bartoli. “The process includes an extensive transfer of documents. These documents include but are not limited to governing documents such as bylaws, declarations and rules, financial records including bank statements, ledgers, and budgets, and other documents, such as vendor contracts, insurance policies, maintenance records, owner rosters, past meeting minutes, ongoing project files, and compliance and violation histories.”

Goldoff recommends engaging a transfer agent to help navigate the process—a neutral third party who handles the documents and keeps track of all the loose ends. “We have a transfer agent for deliverables and receivables, and a transition document that outlines what we need. We also hand off on signatures and time stamps, and we give this transition document to the client. It’s all done by email, and sent to both companies. We introduce ourselves to the other company, regardless of whether we are the new or old manager, in the process. Today, everything is done in the cloud. We set that up for the outgoing company to dump information in specific folders in the cloud. There are also physical files to be picked up by messenger. You don’t need to transfer years and years of files anymore. For most items, we ask for permission to scan them and it all gets transferred electronically. We need two to three years’ worth.”

Protecting Data

In today’s world, data theft is a fact of life. We hear about data breaches at major institutions on an almost daily basis. Given this unpleasant reality, it’s crucial for shared interest communities to protect the vital personal information of their members as well as the information of the association or corporation itself.

“Taking extreme care when handling passwords, banking information and other important sensitive material is critical today,” says Piekarsky. “The transfer of this information must be done properly and carefully.  Most companies are adept at doing this. They have trained personnel assigned to it, and have passwords for everything. As a matter of course, it’s a good idea to change all your passwords when shifting over to new managers.”

Berlowe explains that in his experience, “This information is protected and securely stored in our system immediately.  User names and passwords for various accounts are obtained, then changed as soon as possible. As new bank accounts are set up for each new client, we do not need and do not request any current bank account access. The same goes for owners’ accounts and information. We set up new owners’ accounts and request they complete a new census form—either written or online—with their information, then request they set up their new account with us via our resident web portal. This information is encrypted, backed up securely, and kept confidential.”

Cybersecurity has become one of the most important parts of transitioning a community safely. According to Bartoli, “We treat data security as a top priority, because associations handle sensitive information every day, including bank accounts, owner data, vendor credentials, and internal system passwords. During a management transition, several steps are critical. They include password protection, banking security, and data transfer. All system access controlled by the prior management company should be disabled immediately. Boards should never reuse old passwords. New accounts and credentials must be generated for banking platforms, software portals, and vendor systems. Signature authority must be updated on every account. No outgoing manager should retain access to any financial platform once the transition is complete. Documents must be exchanged through secure, encrypted platforms—not email attachments. We use controlled internal systems to ensure that the data we receive or transfer is protected. Lastly, there’s the issue of internal responsibility. It’s the management company’s responsibility to safeguard the community’s data. Boards expect us to take the lead, set the standard, and follow cybersecurity best practices at every step of a transition.”

Making a management change is a difficult, stressful decision, and is often thought of as the ‘devil you know vs. the devil you don’t’ situation. However, when the time comes that it’s clear your current relationship is no longer tenable, check with your association’s attorney, do a close read of your current contract, and cross your T’s and dot your I’s. Put everything in writing, and maybe most importantly, leave plenty of time to handle the termination of the current contract and the vetting, interviewing, and decision-making process to engage a new—and hopefully better—management company. 

A.J. Sidransky is a staff writer/reporter for New England Condominium, and a published novelist. He may be reached at alan@yrinc.com.