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For any number of reasons, there can come a time when an association or it's
professional management firm decide to end their relationship. If you are
serving on your association's board of directors, this can be a challenging
time. Things will go better for your association as well as the in-coming
and out-going management firms if everyone respects these six basic principles:
Principle # 1: Try Fixing First
Sometimes an association or management firm will end that relationship
prematurely. As in the case with most marriages, it would be best
to first try to work out the differences. If the Board is troubled
with aspects of the service or staff, give the management firm
ample time to constructively respond. If the management firm is
being asked to provide more services or expend more resources than
anticipated in the original “deal”, the Board should have a chance
to adjust its expectations or cooperatively restructure the arrangement.
By giving the other side time to “improve”, you may retain the
relationship and avoid the difficulties in changing firms or losing
a client association. And, let's be practical. If it turns out
that change is still necessary, the “problem” party should be a
little more cooperative in the transition process as it had the
chance to improve.
Principle # 2: Allow Ample Time
It is as important for your Board to allow sufficient time for
the transition to the new management firm as it is for the Board
to select the new firm. If you want the new company to have the
opportunity to begin service effectively, than allow more than
90 days between the date you execute their new management contract
and their first service day.
Unfortunately, many clients assume that the incoming company has
all the staff it needs to immediately begin service. Often that
will not be the case. If you are looking for improved management
service, you want the in-coming company to have the time to select
the very best staff available and not be forced into compromises.
As you see in these principles, there are areas of preparation
that are much better done well in advance.
Your Board needs some time in this process as well. For example,
both management firms will probably urge the Board to have an audit
of the association financial records through the last date of responsibility
by the departing firm. Sometimes that is a date that is different
than the end of the association's fiscal year – representing an
added cost to the Association. Not only will the Board need to
agree to this added interim audit expense, but also who the auditor
should be.
The Board and new management firm may have many operational and
policy matters to address. Meeting dates, maintenance priorities,
communications with residents, records storage, and a myriad of
other matters often require decisions made better with ample time
during this transition to the new company.
Principle # 3: The Association Owns The Records
It should be a fairly easy principle for all parties to acknowledge
- the association owns the records. Ideally, the departing firm's
management agreement already addresses the roles and responsibilities
for the association and management firm in this regard. This is
particularly relevant with matters like an interim audit and other
work to be performed by the departing firm after its last date
of service.
Paper records, plans, and other materials are more easily transferred.
The Board should be sufficiently involved to make sure that those
items move smoothly to the new company. You may be asked to sign
a receipt acknowledging receipt as part of that process.
Things become more complicated when separating client-related
information from a management company's computer system. The extent
of electronic data exchange between management firms will be determined
by the capabilities and cooperativeness of both firms as well as
current practice in your area – subject, of course, to what your
management contract says. With many different association management
and accounting software systems in use, you may learn that the
amount of relevant data that can be transferred and be useful to
the new company could be limited. That situation should improve
as the major software providers and banks agree on data definition
matters through the XML technology initiative being finalized by
the Community Associations Institute.
At the very least, you should expect that the out-going firm to
provide basic homeowner information for use by the new firm. Other
historical data maintained electronically in the departing company's
system such as work orders, architectural review, or correspondence
might not be as easily transferable due to limitations with one
of the two systems involved. The Board may be able to negotiate
something with the departing firm to produce paper copies of such
information at an added cost.
Principle # 4: Establish and Follow the Schedule
The Board should be certain that a schedule of primary transition
tasks is prepared with realistic target dates and is agreed upon
by both management firms. Either firm may offer to prepare the
initial draft of the schedule but there should be Board involvement
to assure compliance. The Schedule below offers some of the more
key transition activities, measured in the suggested number of
weeks before the new company assumes direct management responsibility.
D = Departing Company B = Board N = New Company
| D |
Homeowner data to new company |
8 weeks – initial list |
| D |
Association check to new company so it can open
new checking account, provide federal employer ID # |
6 weeks |
| D |
Copies of current association contracts to new
company |
6 weeks |
D
N |
Finalize payroll information and arrangements
for any association staff |
4 weeks |
| D |
Transfer of non-operating cash accounts to the
Board or new company, if under control of the departing company |
3 weeks |
| N |
Updated Homeowner data (from the original file)
to the new company |
3 weeks |
| B |
Determines if interim audit will be done and
by whom |
3 weeks |
| D |
All ACH or Direct Debit activity directed by
departing company ends |
Immediately after the last scheduled deduction |
D
N |
Arrange a site visit where the departing manager
can provide significant information about the property for
the in-coming manager. This may be the best time to review
the association's administrative records. |
2 weeks |
B
N |
Announcement information is issued to homeowners. |
2 weeks |
| N |
First billing or payment coupons to homeowners
for payment of association fees. |
2 weeks |
| D |
Provide a listing of active association vendors
to the new company and determine which company will be responsible
for subsequent 1099's. |
2 weeks |
| D |
Prepare the last checks for payment of association
expenses, including a check that moves most of the remaining
operating funds to the new association account. Forward unpaid
association invoices to the new company. |
1 week |
D
B
N |
The association records are prepared and boxed
for pick-up by the Board representative or the new management
company. Either a Board representative and/or the new company
receives those records. Assuming an audit is to be done very
soon, the departing company retains only the financial records
needed to assist in that audit. |
Mutually convenient date near the last date of service for
departing company |
| D |
Accounts receivable balances as of the last date
of service to the new company. |
1 week after |
| D |
Trial balance with supporting details (accounts
payable, prepaid items, accruals) to new company |
3 weeks after |
| D |
Close out the checking account by forwarding
remaining cash to the new company. |
After the last check has cleared |
| D |
Assist the Board-selected auditor in the preparation
of the “closing” audit. |
About six to eight weeks after |
Principle # 5: Follow the Money
Another major concern for your Board involves the association
funds. Once the Board has determined that a change in management
firms is going to take place, it should evaluate where all of its
funds are invested and who has control over those funds. As suggested
in the chart above, it is reasonable for the Board to assume control
over its reserve funds and other large amounts of operating capital
during this records transition process. It is also unreasonable
to restrict the departing firm in its routine payment of association
expenses, including payment of management fees and reimbursements
to itself – subject to the provisions in the management contract.
If the Board has some concern about the payment to a specific vendor,
work out that concern with the out-going management company.
Principle # 6: Communicate
As with any significant situation involving your association,
it is essential for the both management firms and the Board to
be certain all parties are in frequent communication. The Board
of that fact should assure association-employed staff that will
remain after the change in management firms. The same applies to
those contractors and vendors who have been providing quality service
for the association. The Board needs to continue to work with the
management staff of the out-going company during this transition
process. (Please understand that as much as the Board might see
this as a business decision, the people affected the most will
most likely it as “personal”.) As suggested previously, your Board
will need to monitor the progress of the turnover schedule and
follow-up accordingly. It is also very important to keep homeowners
appraised on the changes that are coming and what they can expect.
While every community and situation are unique, following those
six principles will go a long way in assuring a more efficient
and effective transfer of management responsibility and records
from one management company to another.
W.
Stephen Castle, AMS, PCAM
President & CEO
Mid-Atlantic Management Corporation
Plymouth Meeting, PA
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