If your community is like most others, you will at some point be faced with the tough decision of changing management companies. A majority of our business comes from dissatisfied Board of Directors who are looking to take their communities management in a new direction. When that time comes, it is helpful to the community and the outgoing and incoming managers if the Association has taken the necessary steps to insure a smooth transition. We have substantive experience in handling these transitions and in this article we have detailed some necessary steps that all Boards should be sure to take when changing management companies.
Pursuant to the Florida Administrative Code, a Community Association Manager or management company is required to provide all original books, records, accounts, funds and all other property of the Association within 20 business days of such request or termination. This time frame gives the existing management company sufficient time to compile all of the records which it must provide to the Association.
Financial Records:
Perhaps of most importance during the transition process is the smooth turnover of the Association’s finances and official records. This is particularly true when talking about Associations where the management company accepts direct payment of assessments from the owners and where the management company performs the day to day banking and accounting for the Association.
Although it may be overwhelming, there are steps the Association can take to minimize the risk of an assessment check going missing, or a vendor not being paid in a timely manner. These types of situations are common when changing managers and can be avoided with some careful planning by the Board. Your incoming manager should be able to assist in providing assistance.
The Association should first arrange a specific and mutually agreed upon date for the turn over of financial records. The Association should avoid having two management companies maintaining two separate financial books and records. This should be separate and apart from the reconciliation of the final month’s accounting by the existing management company which should be provided to the Association on the date determined in the existing management contract, or a date agreed upon by the parties. The new management company will need the current year’s finances as early as possible to have their accounting system up and running by the date of the transfer of services.
A list of all Association vendors should also be made available to the new management company as soon as possible. This will insure that vendors are properly informed by the new management company of the change and helps avoid having any lost or misplaced invoices or bills during turn over. This process is important because if not handled correctly the Association could be subject to unnecessary late fees and charges from its vendors.
A list and current status of all collections files should be prepared prior to the transfer. The report should detail whether an account has been forwarded to counsel for collections or foreclosure efforts. Considering the financial state of many communities, particularly those looking for new management, it is imperative that any possible delay in the processing of delinquent accounts or collections matters be prevented.
Collection of Maintenance/Assessments:
Although, this may seem obvious, you’d be surprised how often it is overlooked. The first step the new management company should take is to send an introductory letter to all the members of the Association advising them of the change of management. This step should take place well before the start of new management. Association members must be advised where their current assessment payments should be sent and new coupon booklets, if any, should be distributed. This is critical or your community will not receive very many monthly assessment payments on the first month of management change. This can greatly affect your communities’ financial position and also risk the credibility of the Board among Association members, not to mention the credibility of the new management company.
Correspondence and Service of Process:
Arrangements must be made with the existing (prior) management company to make sure that they forward any correspondence they may receive for the Association to the new management company in a timely manner. Correspondence received by them should be forwarded to the Association, or picked up at their management office at least once a week during the first month after transfer. This will make sure that all correspondence is received, that bills do not go unpaid, and that the payments of any unit owners still sending their payment to the prior management company get processed.
The new management company should also update the Associations corporate record with the Department of Corporations and the Division of Condominiums to be certain that the existing (prior) management company is not listed as the Associations registered agent. If so, the new management company should submit a change of corporate record as soon as possible to be certain that the Association is made aware of any and all legal matters.
Other Official Records:
The transfer of the official records of the Association may also be a troublesome process when changing management. This is particularly so when an Association has had its existing (prior) manager for many years prior to the transfer. In those circumstances, the composition of the board of directors may have changed a number of times between the time in which the existing (prior) manager first began servicing the community and the time of the transfer to the new management company. In these instances it become difficult for the board of directors to determine what records were initially given to the manager to maintain, and what records the manager has been maintaining since he began servicing the community. It is also important to note that management companies usually do not always keep records in a uniform way, only making it more difficult to really know what they have and what they are expected to turn over.
The Florida Statutes, Chapters 718.111 and 720.303, attempt to facilitate the turn over of Association records by providing an official list of all of the records of the Association which must be maintained and/or kept for at least a period of seven (7) years. Even if your Association is not considering a change in management in the near future, it should always maintain a list based on the official records listed in Chapters 718.111 and 720.303, identifying where those records are kept, and to whom they have been entrusted, even if they have all been entrusted to the management company. The most difficult time for the Association to try to make this determination is during a transfer of control between management companies. This will lead to confusion, and possibly lost or missing records.
With an updated list of the Associations official records, the Association (or the new management company) should inventory the records provided by the existing (prior) management company at the end of their services. This inventory should be kept as part of the official records of the Association. Thereafter, should the Association wish to again change its management, an inventory will exist of all the records the manager received. The official records inventory list benefits both the Association and the management company by providing peace of mind for all.
Conclusion:
Ultimately, should problems arise in the transfer of management services the Association should always consult its legal counsel for advice. However, a professional management company with experience, specialization, and a proven system for the transfer and turn over of management companies should be able to provide invaluable input and assurance during this important time for the Association and the Board.
Should your Association be considering (or is in the middle of) a transfer of management companies, please do not hesitate to contact us so that we can assist you by answering any questions or concerns you may have.
