Management Transition
Q. Our association has decided to make a change in management. Can you give us some guidance on what steps to take to make sure it goes as smooth as possible?
A. There can come a time when an association or its professional management firm decides to end their relationship. If you are a member of the association's board of directors, this can be a difficult time. Transitions generally go a lot smoother for all three parties; the Association, the in-coming management firm and the out-going management firm if everyone observes these six basic principles as proposed by W. Stephen Castle, President of a professional association management firm and former President of Community Associations Institute (CAI):
Principle # 1: Try Fixing First
An association or management firm can decide to end their relationship before it should end. Both parties should always try to resolve any the differences before making a decision to terminate the management contract. If the issues are over the service or staff being provided, then the current management firm should be allowed time to respond. If the management company is being asked to provide more services or expend more resources than anticipated in the original contract, then the Board should consider adjusting its expectations or work to restructure the contract terms..
Principle # 2: Allow Ample Time
One of the most important rules is for the Board to allow sufficient time for the transition to the new management firm. You want the new company to have the opportunity to begin service effectively, and this can take more than the usual 90 days between the date you execute their new management contract and their first service day.
Occasionally, the new management company does not have all the staff it needs to immediately begin service. The Board also needs time for this process to work. There are other operational and policy matters that need to be addressed by the Board and the new management firm. Meeting dates, maintenance priorities, communications with residents and records storage are just a few of the other matters that require decisions be made during this transition to the new company.
Principle # 3: The Association Owns The Records
This is a simple but absolute principle that all parties need to acknowledge - the association owns the records. Paper records, plans, and other materials are the easiest to collect and transfer. The Board should be sufficiently involved to make sure that those items move smoothly to the new company. You should ask that a receipt itemizing all of the items being turned over is signed by all parties as part of that process.
Things become more complicated when separating association related information from a management company's computer system. At a minimum, the out-going firm should provide the new manager basic homeowner information for their use 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.
Principle # 4: Establish and Follow the Schedule
The Board should be certain that a schedule of the transition tasks is prepared with realistic target dates and is agreed upon by both management firms. The example below offers some of the more key transition activities.
D = Departing Company; B = Board; N = New Company
D - Homeowner data to new company (8 weeks)
D - Association check to new company for new checking account
(6 weeks)
D - Copies of current association contracts to new company
(6 weeks)
DN - Finalize payroll information (4 weeks)
D - Transfer of non-operating cash accounts to the Board (3 weeks)
N - Updated Homeowner data to the new company (3 weeks)
B - Determine if interim audit will be done and by whom(3 weeks)
D - All ACH or Direct Debit activity directed by departing company
(1 week)
DN - Arrange a site visit with the departing manager (2 weeks)
BN - Announcement information is issued to homeowners (2 weeks)
N - First billing or payment coupons to homeowners for payment
(2 weeks)
D - Provide a listing of active association vendor (2 weeks)
D - Prepare the last checks for payment of association expenses
(1 week)
DBN - The association records are prepared and boxed for pick-up by the Board representative or the new management company.(1 week)
D - Accounts receivable balances as of the last date of service
(1 week)
D - Trial balance with supporting detail (3 weeks)
D - Close out the checking account (1 week)
D - Assist the Board/selected auditor in the preparation of the "closing" audit (6 weeks after closing)
Principle # 5: Follow the Money
The other concern for a 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. It is unreasonable to restrict the departing firm in its routine payment of association expenses. 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 both management firms and the Board to be certain all parties are in frequent communication. The Board should assure association-employed staff that will remain after the change in management firms. Monitor the progress of the turnover schedule and follow-up accordingly. It is also very important to keep homeowners appraised of the changes that are coming and what they can expect.
While every community and situation are unique, following these 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.