Condo Board A Team of Winners or Losers ?
What is the team of professionals that a condominium board of directors can call upon to assist the board in carrying out their fiduciary responsibilities?
What should the board expect from a team? These are great questions and I had the opportunity to make a presentation on this topic at an ACTHA (Association of Condominium and Townhouse Associations) Conference and Trade Show. The team can include more than a manager, attorney and an accountant and could include other disciplines such as an insurance agent, banker, reserve study specialist, and many times an architect or an engineer. If board members attend almost any local community association trade show they will find more professionals that want to talk to you about your condo than you ever dreamed. As an example our local CAI –Illinois (Community Association Institute) chapter directory contains over:
Management Companies – 70
Law Firms – 25
Banks – 15
When I first began managing condominium associations the board of directors faced many different circumstances than they do today.
My first condominium assignment was 30 years ago. It was 4300 Marine Drive a 90 unit 17 story vintage condo converted from a rental building. The board of directors’ and the unit owners expected me to manage the building just the same way that the building had been managed for 50 years as a rental. I was to make all the decisions about building operations and they paid assessments which they viewed as rent. We learned together what the condominium concept of ownership was all about and expectations evolved.
There was no support team available, no such thing as reserve studies, the only insurance was insurance designed a rental building and crudely modified as best as possible to reflect the condo concept and auditors often began audits looking for leases and rent rolls.
There were very few attorneys with any condo experience and those that had the experience were employed by developers to create the associations but didn’t really think much about how a community association would operate once it came into existence. I worked for the company that converted the John Hancock building residences from a rental to a condominium. One of the finest attorneys in Chicago prepared the condo documents, Frank Reichelderfer of Wilson & McIlvaine. Those documents called for 48 board members, one from each floor. I never asked him why he wrote the documents that way but I suspect he thought that those director positions would be honorary positions and full authority to run the condominium would be turned over to a management firm.
Chicago was at the forefront of developing and refining the condo concept. Service providers and products gradually were made available to associations such as insurance. A talented insurance executive Bob McClallen formed the firm CISA and his team included Cliff Treese and Barbara Wick both regarded as some of the most knowledgeable community association insurance experts in the country for the next 40 years. CISA working with Home Insurance developed the first policies specifically designed for condominium associations.
Today things are different. The challenge for a board isn’t finding professionals to help; the challenge is finding professionals that provide services to meet the board’s expectations.
So what are the expectations of a manger?
Let’s start with the definition. The U.S. Department of Labor , Bureau of Labor Statistics web site defines a managers job.
“Community association managers work on behalf of homeowner or community associations to manage the communal property and services of condominiums, cooperatives, and planned communities. Usually hired by a volunteer board of directors of the association, they manage the daily affairs and supervise the maintenance of property and facilities that the homeowners use jointly through the association. Like property managers, community association managers collect monthly fees, prepare financial statements and budgets, negotiate with contractors, and help to resolve complaints. Community association managers also help the board and owners comply with association rules and regulations.”
We now have a law that defines certain levels of performance the act is called the Community Association Manager Licensing and Disciplinary Act. As an example the act says that community association managers may not engage in activities that require a real estate broker’s license. So the services that can be provided can be limited by this act and other laws.
As an example it was necessary for Real Estate Brokers and attorneys in Illinois to reach an accord in 1966 known as the Illinois Real Estate Broker –Lawyer Accord. This accord was an agreement clearly defining what a real estate broker’s job was in a real estate transaction and what was the lawyers job. After the accord a buyer or seller could set clear expectations for lawyers and brokers.
There are expectations for manager performance set down by professional organizations.
The role of the professional community manager is to:
• Provide information, training and leadership on community association operations to the board, to the board, committees, and the community at large
• Foster a sense of community awareness and spirit within residents
• Develop a body of leadership through the committee structure
• Provide the necessary administrative tools to the board to enable the board to make wise informed decisions on both long- term and short term goals and actions
Typically management is provided based on an agreement. In fulfilling the terms of their management contract or employment agreement, the professional community association manager is charged with assisting the board of directors decision making process by means of providing information – gathering and fact – finding support, implementing decisions of the board; and administering the services, programs, and operations of the community association within the policies and guidelines set by the board.
The laws, professional organization’s standards and the general terms in the typical management agreement do not create clearly defined expectations or performance standards.
There is no standard of services provided to community associations. The type of services provided by management varies on the national level and even on the local level between Chicago and the surrounding communities. Lacking a standard list of services, how do we discuss expectations you all should have?
I managed a master homeowners association in Lisle with a membership of approximately 2,000 units, retail locations, several pools and even a ski slope.We actually made snow for the ski slope. I also managed a very exclusive cooperative in the 1500 block of North State Parkway in Chicago. The cooperative included less than 15 units but there was a full door staff and a live in janitor. Do you think the service and expectations were different?
Discussing expectations of services puts the cart before the horse. Your basis for expectations begins with a contract that clearly defines the services to be provided. The board of directors is responsible for contracting the services they want; no one else knows the board’s desires except the board.
The specific services that can fall under the umbrella of full service are very broad. In fact I attached a document that contains a list of services provided by management companies .The list includes over 250 line items and is entitled EXAM GUIDE (Expectations of Association Managers).
The guide contains a front sample page instructing the use of the guide. How can the guide help you?
•It will assist in creating awareness of services that can be available.
•High light services you don’t even want but are being charged for?
•Drill down to the services you want to purchase so you can negotiate for just those services.
•Your basis for expectations can begin with an agreement that clearly defines the services to be provided and the desired performance standard.
While there are many services that may be provided there are certain performance expectations that should be expected no matter what the service:
• All residents and owners should always be treated with respect.
• Transparency in delivering all services
• The company is hired as an agent of the community association. The board of directors sets policy and the management company delivers services as directed by the board.
• The management company must operate without any conflicts of interest that compromise the company from putting the best interests of their client first.
No matter what services are being provided, communication is an essential part of delivering service. Basic principles:
• Non-emergency telephone calls are responded to within 24 hours (one business day) .
• Emergency calls are responded to within 2 hours 24/7
• Emails are responded to within one business day
• Any communication that cannot be fully responded to in the normal course of business because of the nature of the correspondence should still be acknowledged as received along with a projected response.
Email response has become the preferred means of communication. It is quicker than other written communication and can be documented allowing for less misunderstanding. While this is todays preferred communication vehicle there will be occasions when circumstances dictate necessary adjustments.
Successful associations blend their own abilities with the resources of professionals.
You all as elected board of directors are fiduciaries and have a duty of loyalty and a duty of care. The wellbeing of the community association comes first and professionals should be retained after considering the association’s internal resources as compared to the services brought by professionals analyzing the benefits of performance and risk avoidance compared to the costs of the professionals.
The needs and potential of each association dictate the makeup of the team but as the word implies teamwork benefits the community association. The board of directors manages the team sometimes through a management company. The team concept includes expectations of a proactive approach by team members otherwise the result is a collection of independent order takers.
The team that serves a community association may include several professionals, I represent the management professionals but some associations because of their size, preference or other factors are self-managed. Still these associations are served by other professionals who in most instances should include at a minimum an attorney, auditing firm, reserve study specialist and a banker. Other professional that are frequently involved include architects, engineers, construction managers, designers, and a bookkeeping service.
Watch for future blogs that will help set expectations for other members of the support team like the attorney, accountant and banker.