So, it’s Time to Change Management Companies. . . (Oregon Law)

March 1, 2007 | By: Gregory B. Coxey

The board of directors is charged with the responsibility of managing the association. This typically includes the hiring and terminating of a management company. A management company can be an invaluable tool in effectively administering the association while allowing the board to concentrate their efforts on other aspects of the condominium or planned community. The board should periodically review the management agreement to ensure that the association is getting what it bargained for. Should a change become necessary, there are a number of things that can be done to make the transition smoother.

First, the board should obtain proposals from other management companies and interview the companies in an effort to determine which management company would be the best fit for the association. It may turn out that the current management company is the best fit, but the level of service may need to be changed or the contract may need to be re-negotiated.

Second, if the board decides to hire a new management company, the board of directors should review the termination clause of the current management contract. Most contracts require that a notice to terminate be in writing. This is important because if the association is terminating before the expiration of the contract, the association may have to wait, thirty, sixty, or even ninety days from the date of the notice until the contract is actually terminated. All of the termination procedures should be strictly followed in the event that some sort of challenge arises down the road.

Third, the board should read the proposed contract in its entirety. The board should become familiar with the organization and structure of the contract. After the initial read-through, the board should carefully review each section of the contract and note any questions that may come to mind. The board should seek advice from legal counsel in reviewing the contract. There are a few provisions which the board should pay particular attention to, namely:

Termination Clause: Be careful about self-renewing or long-term contracts. A contract should have a fixed term or a 90-day (or less) termination clause that allows the association to terminate with or without cause.

Insurance: Be sure the contract spells out what insurance each party will carry. While commercial general liability policies typically name the managing agent, only some directors and officers (D&O) policies do. It’s best to add the manager to your D&O coverage.

Ownership of Books and Records: Be sure the agreement provides that all books and records remain the property of the association and are available to the board at any reasonable time. This should include getting the books and records before termination as well.

Indemnification: Most contracts require that the association indemnify the manager and management company. However, the association should not indemnify a manager or management company for willful, malicious, or gross negligent conduct.

Transition: Be sure the contract includes provisions for an orderly transfer of records if the contract is terminated. While most contracts are entered into with the best of intentions for a long-term relationship, you have to be prepared for what happens if either party ends the relationship.

Finally, the board should maintain constant contact with both the old and the new management company so that the transition will go smoothly. The board can work with the companies to help facilitate the transfer of documents, financials, meeting minutes, and other association records. The board should work hard to make the transition amicable because at some point in the future, the association may want to go back to the prior management company.

Gregory B. Coxey

Attorney at Law

[email protected]