By Ryan D. Poliakoff / Published May 2021
Our condominium has always been self-managed. Recently our property manager left without warning, and it really put a strain on our board, especially the president, who essentially has been managing the property on her own. She is pushing for us to hire a management company, but we are concerned about the price—it’s going to increase our budget substantially, and owners don’t understand why we would spend the money. Some of our board members are skeptical as well. Can you help us with the pros and cons?
The debate you are having at your condominium is extremely common, and it’s something that comes up frequently with our clients. There is no question that it is usually somewhat cheaper to hire an independent manager (either as an employee or an independent contractor) to manage your property. But, you also need to figure in auxiliary costs—you will probably need to hire a bookkeeper or accountant to handle your finances, for example, where most management companies will perform that function for you as part of their management fee. Even with that, however, you will probably be paying something extra for the privilege of having a management company rather than an independent manager.
So, what is that privilege? What do you get with a management company that you don’t get with an independent CAM? One of the benefits of a management company is continuity. As you found in your own situation, when you rely on a single person to manage your community (particularly for many years, as is often the case), when that manager leaves suddenly, it makes for an extremely difficult transition. Small things, like passwords to computers or where certain files are stored, become big issues. While you are deciding how to move forward, the business of the association still needs to go on and bills need to be paid, and so one or more board members are going to have to take over while you search for a replacement candidate—and that can be close to a full-time job. You may end up compromising by hiring a less-than-perfect manager simply because of the pressure put on the board members to operate the association. Board members are elected volunteers—they are not intended to do all of the work that goes into operating a large community. That’s what paid professionals are for in the first place—and why the state has strict licensing requirements for community association managers.
If you had a management company as backup for your manager in the event the manager left, the management company would be responsible for finding someone to take over the property, even if only on a temporary basis, while you search for the perfect replacement. The management company will typically have access to all of the computers and files, and they can likely step in and take over with a minimum amount of input from the board. That is a big benefit, and it is certainly worth some amount of money when doing a cost-benefit analysis between hiring an independent CAM versus a management company that provides you with their own CAM employee. And mind you, this is not only a benefit if your manager leaves unexpectedly—the management company would also be responsible if the board needed to fire the manager, either due to poor performance or just a conflict of personalities. Basically, you are paying for responsibility and oversight.
There are other benefits as well. For example, many management companies provide training for their employees and make sure that managers keep up with their continuing education and licensure. Management companies also work with a broad range of vendors, and they tend to know which vendors perform well and which ones do not, so they can help you find quality contractors for association projects. Some management companies are full-service shops that can provide not only accounting services but also maintenance and repair services and even landscaping. While some communities don’t want to put all their eggs into one basket, others like the cost savings and efficiency of dealing with a one-stop shop. These are all part of the considerations that go into hiring the perfect management company for your community.
With those benefits come real costs. Hiring a management company is usually more expensive than hiring independent employees, and sometimes a lot more expensive. You are paying for all of that continuity, responsibility, and oversight, and ultimately, it’s up to the board to decide what’s best for business. You also will likely be obligated to indemnify and defend the management company against lawsuits brought against it related to the performance of its duties—that’s an additional cost that the association must consider.
Management contracts offer different types of compensation arrangements. Some will charge a flat fee for all services, and others charge a burden rate (a percentage of the total pay of the employees assigned to the property), which burden includes payroll costs, workers’ compensation, insurance, and typically some amount of profit. Other companies offer a hybrid approach with a smaller management fee and a burden that is mostly pass-through costs, with only a small profit element. You need to shop around and pick a company based on a combination of factors to find the perfect fit for your association.
Having served on a board for many years (and also working in the management industry), I think that management companies can offer some real benefits to associations, but they’re not right for every property; and ultimately, the decision to hire a management company simply requires weighing the benefits against the additional costs.
Ryan D. Poliakoff
Partner, Backer Aboud Poliakoff & Foelster
Ryan D. Poliakoff is a partner of Backer Aboud Poliakoff & Foelster and serves as general counsel to condominiums, homeowners associations, and country clubs throughout South Florida. He is a board certified specialist in Condominium and Planned Development Law and the co-author of New Neighborhoods—The Consumer’s Guide to Condominium, Co-Op, and HOA Living. He is also a frequent contributor at seminars and workshops for attorneys and board members, and he has written hundreds of articles for magazines and newspapers throughout the United States. He can be reached at email@example.com. For more information about his firm, visit www.bapflaw.com.