Hiring or replacing a managing agent or management company for your co-op or condo can have a very significant impact on a building’s operations. Choosing the right management company can be a challenging job. Making the right choice can be time consuming and confusing. The relationship between a co-op or condominium and the management company is probably the most important relationship a board maintains.
The most common complaints registered by boards against their managing agent include failing to provide detailed financial statements, failing to reduce the items that need to be accomplished in the building (also known as “action lists”), unauthorized expenditures, failing to return telephone calls, loss of interest by the building manager and, of course, incompatible personalities.
When the decision has been made to change management companies, one of the most difficult parts is to ensure a smooth transition from the old to the new managing agent. Cooperation between the two companies is crucial. Thousands of documents and records relating to the operation of the building, its staff, residence files, and financial aspects all require detailed attention and transition. This article will examuine the steps to hire a new management company.
STEP 1 – How To Find A Managing Agent
The board should compile a list of prospective new companies. Try to obtain recommendations from other building board members, talk to the building attorney and accountant, read industry and trade publications (Habitat Magazine or the Cooperator). In addition, the Council of New York Cooperatives and Condominiums can be a terrific resource for referrals. There is no shortage of management companies in the five boroughs. Larger co-ops or condos can appoint a committee to search for a management company and report back to the board.
STEP 2 – Due Diligence
Prior to interviewing managing agents, a board should know its financial limitations for management services. A smaller building may limit the services of the management company which may result in a lower annual fee. Some cost-conscious co-ops and condos take on a portion of the management as a way to save money (ex. Some managing agents supervise the weekly installation of flowers in the lobby). Remember the old adage that you get what you pay for. Basic services for a medium size building can range from $50,000 and climb in excess of $100,000 per annum. Every building has different economic priorities. You may be able to structure a lower annual fee if charges can be made up in other places. For example, the managing agent can charge the co-op or condo a separate fee apart from the annual fee to coordinate a large project when one is necessary, or charge a higher fee to coordinate a closing or apartment alteration or renovation.
Look at the managing agent’s reputation, years in the business, number of buildings a property manager is responsible for, as well as the property manager’s experience, rapport and interaction with the board. Ask how many new buildings have been retained in the last few years and how many buildings have been lost. Solicit bids, recommendations, meetings, review management agreements and set up final interviews with the board. The board members should visit a building managed by the company and specifically determine who the individual account executive will be on the building.
The key to selecting a managing agent for the building is to do your homework first. The following is a list of the items to be considered and asked when selecting a new agent:
- Size – Larger management firms have more resources and contacts but can be impersonal. Smaller firms promise personalized services at lower rates. A large company may be able to offer savings on insurance and capital projects. A board should ask what current buildings are managed by the company. Compare those buildings to yours and ask how long the company has been managing these buildings (ex. Does the company represent Park Avenue, white glove, restrictive buildings or modest, progressive buildings)? How long has the company been managing these buildings?
- Services – Determine specifically what services are performed or excluded by the managing agent.
- Principals – Determine who the owners or principals are of the managing agent and how involved they are in the day to day running of the building and communication with the clients.
- History – Determine how long the company has been in business.
- Account Manager – Determine who will be the actual account executive for the building. The board should meet that executive before agreeing to move. Find out how many buildings the account executive handles (the more buildings handled by an account executive, the less attention to your building).
- Monthly Common Charges or Maintenance Payments – Determine if the managing agent offers options on how maintenance and common charges can be paid. Ask if auto debit, lock box and pay on line options are offered and if there a cost.
- Monthly Meetings and Reports – Determine how often will the managing agent attend meetings with the board. Will the managing agent prepare an agenda and supplementary information for the building? The board should review a sample copy of the managing agents monthly report. The report should be easy to read, include every bill paid, a monthly checking account reconciliation, a copy of all bank statements in the control of the managing agent, a collection report for maintenance or common charges, a list of shareholders or unit owners in arrears and a disbursement report. Reports should be delivered in advance or board meetings so there can be time for an explanation for any inquiries by the board.
- File Storage – Determine how files will be stored and if the files are readily accessible (ask if documents are scanned). Ask if there is a central location where documents can be viewed (ex. Dropbox, Google Drive or Building Link).
- Inspections and Site Visits – Determine how often the managing agent will visit and inspect the building. Ask if a report is prepared for the physical plant of the building so that long and short-term goals are addressed. With aging buildings, inspections and reparations are multiplying rapidly along with appropriate and required paperwork.
- Cutting Costs – Determine what steps the managing agent will take to cut costs and ways to save the client money.
- Construction Supervisions and Selection – Determine if the management company will bid out contracts and supervise work. Determine how the managing agent will interact with building engineers, architects and contractors.
- Managing Agent Fees and Budget Constraints – Determine what the annual fee for the managing agent will be. Determine when payments are due and how fees are increased.
- Emergencies – Understand who to contact when there is an emergency.
- Local Law Requirements – Confirm that the managing agent is up to date with local laws and permits and will notify the board of the new and amended laws (ex. boiler, elevator, exterior inspections, etc.)
- Supervision – Determine if the manager will be able to supervise the superintendent efficiently and staff properly.
- Repairs – Determine if the managing agent will conduct a monthly building walk through (inspect the staff and make maintenance suggestions). The sooner a manager can warn a board of maintenance issues, the easier it will be when the time comes to solve the problem. A good managing agent will plan ahead for repairs.
- Visit the Managing Agent Office – Visit the managing agent’s facility (what is the back office staff like?). Determine if it is organized or chaotic – this may be indicative of how they are going to handle the building.
- Insurance Coverage – Review the managing agent’s errors and omission insurance and bond coverage (a bond protects against theft and other intentional acts while errors and omissions covers and protects a co-op for damages caused by the negligence of the managing agent).
- Code of Ethics – The managing agent should have a written code of ethics, a policy for dealing with vendors and accepting bids and written disclosure of potential conflicts of interest among the management company employees, board members and vendors.
- Bank Accounts – The company must maintain separate accounts for every co-op and condo they are representing. The board must have access to their accounts at all times. Typically, two signatories are required on all payments over a certain amount.
- Fees – Determine who handles the closings (the managing agent or outside counsel). The managing agent may charge additional fees for the following services:
– Closing or rental fees from the seller and purchaser
– Application fees and financing Fees
– Credit report fees
– Questionnaire completion fees
– Fees for coordinating a large project (ex. A major capital improvements or underlying mortgage refinances).
– Travel, meal and photocopy fees
STEP 3 – Disclose Known Building Problems
A co-op or condo should not hide known problems in a building when hiring a managing agent. There can be many issues that a managing agent can inherit, and it is important that these matters are disclosed upon hiring, if known. (Ex. A super who intends to resign, interior and exterior water infiltration, problematic tenants, problems with operating or mechanical systems, rodents and bedbug infestation).
STEP 4 – The Management Agreement
A management agreement may be tailored to accurately reflect the services for each building. For example, a building may require attendance at more than one board meeting a month, appealing a tax increase, assisting in amending the building’s organizational documents, supervising major capital improvement projects or assisting building refinances. These and other items may be billed at an hourly rate by the managing agent.
The co-op or condo should request a specific representation that none of the principals or agents of the managing agent have been subject to indictment or investigation for fraud.
The agreement should contain a provision that the managing agent will cooperate and act in good faith to transfer all files and information to a new managing agent if the relationship is terminated.
Upon signing the management agreement, assemble and deliver the co-op or condominium organizational documents needed by the managing agent including the offering plan, lease, by-laws, condominium declaration, house rules, applications, etc.
Managing agent duties have expanded greatly over the years. Owners now look at their apartments as not only their home but as an investment – they express worries about the care and reputation of their investment. Some of the new concerns facing managing agents include:
- An owner who cannot pay his maintenance or common charges.
- The developer who files for bankruptcy.
- Inherent construction defects,
- Attendance at board meetings more than one time a month.
- Coordination of interior renovations (painters, contractors, plasterers, plumbers, electricians and carpenters) – the management company must choreograph these workers so as to not have an adverse impact on the other owners in the building.
- On line tools are now readily used and are available to owners (ex. Paying maintenance on line, access to building documents, contact the managing agent and board members, circulating notices). The managing agent should be knowledgeable how to use these tools.
- If a sponsor continues to retain management rights of a building, a board should be cognizant of possible conflicts of interest.
The duties and obligations of a building managing agent have increased dramatically over the last 10 years because of new technology and new or amended municipal laws. Be selective and be patient – a cautious and well documented review of the qualifications of the managing agent will pay for itself when the time comes to hire.
*DISCLAIMER. Nothing herein is offered as legal advice. All information in this article is for informational purposes only. Please consult with an attorney before taking any legal actions.