If your HOA board has decided to hire a management company to help with the day-to-day running of the homeowners association, it’s important to review the contract and pay close attention to what the management company is actually contracting to do.
Just like any other business agreement, the Association will be entering into a contract agreement with the management company and there are some important questions the Board should ask before signing on the dotted line.
Does the contract cover what the HOA board wants the management company to do?
- Duties, fees and expectations of both parties should be clearly stated.
Does the contract contain things the Association doesn’t need the company to do?
- For example, the contractor says the manager will take care of all mailings, but the secretary of the Board is more than happy to continue that task.
Are there any additional fees to discuss?
- For example, postage, copies, or additional manager time such as clerical time that may be charged by the hour when a large mailing needs to be done or the budget needs to be put together.
What is the cancellation policy in the event that the homeowners association wants to cancel the contract?
- It’s important to understand how much notice would need to be given and if there are fees charged if the contract is cancelled early.
Will the contract automatically renew?
- By law homeowners associations can only sign one-year contracts. If it automatically renews, HOA board members should remember to schedule a time to meet with the management company prior to the renewal to give both parties the opportunity to discuss if everything is working well or not. This is the time to renegotiate things like fees, management duties, etc.
Will the Association’s insurance cover the defense of the manager in the event of a lawsuit?
- If the HOA and manager are sued, the manager’s contract often requires the HOA insurance to cover their defense (unless the action is the result of manager negligence). The Board should check with its insurance agent to see if the coverage is available and what the additional costs might be.
It’s the homeowners association's responsibility to know what is being signed to ensure board members are fulfilling their duty to protect, maintain and enhance the Association. Board members may even want to consider having a third party, like a law firm, review the contract.
A good management company should see that as a great opportunity to be open and build good rapport with the HOA board. By allowing the Board to make sure it’s comfortable with the documents, it also sets the tone for the future of the relationship by building confidence and trust.