You interviewed a slate of candidates to manage your community association and selected the one you want to hire. You’re ready to sign a contract. Before you do, consider the advice of industry pros.
The first rule is that your contract must be written, said association attorney Patrick Costello of Keay & Costello in Wheaton.
“It seems obvious, but you’d be surprised how often associations have oral contracts,” he said.
But don’t just sign the first contract you’re given. Read it carefully to make sure you understand the terms. Figure out the changes and additions you want. Then initiate a discussion with the management company and ask for revisions.
“That’s called negotiation,” said Michael Baum, president of Baum Property Services in Aurora. “Both parties give and take until they come up with something that is mutually acceptable.”
Here are key provisions to watch for:
— Who does what? Your contract should list the responsibilities of the manager as well as the responsibilities of the association. Don’t assume.
“Management takes on as many or as few tasks as they are given by the board to undertake,” said William DeMille, president of Chicagoland Management & Realty in Chicago. “If there’s something you don’t want the management company to do, take it out. If there’s something you want the manager to do, write it in.”
Be wary of a contract that simply says “full-service” without further definition, said Costello.
“Full-service means different things to two different people,” he said. “If something is not delineated in the management contract, the association could have a difficult time insisting the manager perform those responsibilities.”
— How much does it cost? The monthly fee is only the start. Typical add-ons include postage and mailing, photocopies, document storage, newsletter production, insurance claims, court appearances. The base fee might include one three-hour meeting per month, and you pay more if they drag on.
“Even with full service, some things are going to be extra,” said Baum. “Make sure they are in the contract so you know what you’ll be paying for.”
You also want to know what service fees are billed back to the owners, said Costello.
“Management companies have a right to their fees, but do you really want your owners to be charged $500 for a paid-up assessment letter when they sell their units?” he said. “Fees have to be reasonable.”
— How long does the contract last? A contract should have a start date and an end date. Multi-year contracts are OK as long as you know exactly how much the fee will be each year.
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“I’ve seen a two-year contract where the fee for the first year is this much and the fee for the second year will be disclosed 60 days before the start of the second year,” said Costello. “You sign a two-year contract and you don’t even know what the fees will be for Year Two? It happens.”
Renewals are another consideration, he said.
“Is it automatic?” he said. “Is it at the end of the year we’ll renegotiate? Or do we automatically go into Year Two unless we terminate? Or do we automatically go into Year Two unless you provide notice to the management company 60 days prior to cancellation?”
— How do you get out of the contract? Usually, you can’t. Not without a big fight or a hefty cancellation fee. Costello adds a provision that says either party can break the contract for any reason after giving notice, usually 60 or 90 days. He admits the provision isn’t popular with management companies, but it simplifies partings.
The attorney also adds a termination clause for cause, which is when someone commits a serious wrong such as embezzling funds or damaging property.
“There may be a time when you need to get out of the contract immediately,” he said.
Most relationships between associations and their managers don’t get that far. Baum recommends holding a check-up meeting two or three months into a contract.
“The point is to work out any issues or questions before they have a chance to turn into big problems,” he said. “Sometimes the management company is fine, but the property manager is not a good fit.”