Under New Management When You Have to Switch

Under New Management

 For the most part, human nature is fearful of change; people are more likely to  stick with what they have and what they know, rather than explore new  possibilities and take on unknown risks. That’s certainly the case with condo and co-ops in regards to their management  companies. Most of the time, a building will enjoy a long partnership with  their company and individual managing agent, never even thinking about making a  move.  

 “Most boards will stick with an agent for as long as possible,” says Hillary Becker, president of Becker Real Estate Services Inc. in Lynbrook.  “However, a management company is only as good as the person assigned to that  property. If the person is good [but] leaves and goes to a different management  company, the current company needs to replace that agent with someone the same  or better—otherwise, the board might have to move with the departing agent.”  

 Familiarity and habit can also take a backseat if problem after problem arises  and the building is no longer running smoothly. Then it might be time to  consider making a change.  

 “A change could occur because of anything from a change in the expectations of a  board or a change in board members,” says attorney David Byrne, a partner with the Community Associations Practice  Group at the law firm of Herrick Feinstein LLC, which has offices in New York  City and New Jersey. “Otherwise, a building may consider a change of agent and/or company because of  owner complaints, lack of diligence, delayed or questionable accounting records  or the expertise of the agent/company does not connect well with the issues  faced by the building at that time.”  

 A building may request a change of the manager as a first step before changing  firms. There are many potential reasons which could range from something as  simple as a particular personality that doesn’t mesh well with the board, to slow response time on issues, or even a lack of  knowledge.  

 “When a board makes a change from one management company to the next it is  usually because they have already tried changing agents and it didn’t work, or that their current management company has a lot of turnover in agents  and therefore the board has to bring the new agents up to speed every few  months,” says Adam Berenson, vice president of Manhattan-based Dermer Management. “Essentially, for whatever reason, the management is not performing up to  expectations on that particular building and they want a change.”  

 Switching Managing Agents

 When an agent switch is made, any good agent should be able to get up to speed  quickly and without a board’s help. Putting basic info down on paper, and performing a walkthrough of the  property should be enough to get started.  

 “In today’s technology-driven society, email addresses, websites, and cell numbers are  critical information that the new manager should have from day one,” Becker says. “The financial information should also be organized in such a fashion that the  new agent can quickly and easily pay bills, check balances, and have all the  contact information for the different financial institutions.”  

 A managing agent may be upset with the change, but as long as the business is  kept at the firm, he or she should transfer every building record to the new  managing agent in a fast and smooth manner, regardless of content.  

 Switching Firms

 According to management experts, a board should look at three options prior to a  vote on which firm to choose. They need to keep in mind why they are making the  change in the first place in very specific terms and look to ensure those  things are addressed upfront with the new potential firm.  

 A board should also ask for a list of buildings a potential management company  has lost in the last 12 months and the reasons why, even perhaps trying to  speak to buildings that have recently left that firm.  

 Typically the board will do their research and select their new management firm  prior to providing notice to the original firm. Before making any change, they  must review their existing contract.  

 “Most say they can get out for cause at any time or with a 30- or 60-day notice,” Berenson says. “There may be a penalty in some cases to get out of the contract without cause.  Nearly every contract gets renewed annually and the building can get out of the  contract at that time in almost any case.”  

 When making a change in firms, there is normally a transition period that starts  30-45 days before the new company actually takes over an account with the  transition probably lasting another 60 days into the official start of the  relationship.  

 “We ask the boards to sit back and let us do the work. During this time, we are  reviewing every aspect of their building…a list of about 200 items, doing our best to understand historical and current  issues, reducing costs in every area,” says Dan Dermer, Dermer Management’s president. “Typically, we have been able to save our buildings more than what we charge them  to manage on an annualized basis. We need information from the board when  requested, but most management firms work well with one another on these  transitions.”  

 From One to Another

 Most management companies have specific people that handle all transitions from  one firm to the next and it is usually a pretty smooth process.  

 “All records and contracts must be transferred,” Byrne says. “Typically, new management provides the notice. If there is a big or sensitive  ongoing issue or problem, the board or a current professional can handle all  notices.”  

 Records and contracts need to be turned over, vendors and suppliers need to be  notified and the residents in the building must be informed.  

 “The process starts 45 days out from when you might officially take over as  managing agent,” Berenson says. “Information starts to flow to the new firm beginning with rent rolls, employee  information/salaries, etc. We notify vendors and government agencies via  letters and in some cases online, about 30 days out from our start date. But it  usually takes a couple months to get everyone on board.”  

 When the new firm takes over, it is likely a change in bank accounts will occur,  as well as changing the locks.  

 “It is usually agreed that everything must be at the new firm by the first  official start day. We have found nearly every firm out there to be very  helpful in making a clean transition,” Berenson says. “You never want to burn bridges, your references, old and new, make or break you  in this business, and I believe most firms in our industry understand that  concept. Besides this is New York City, so why would you want to store items  you aren’t being paid to keep any longer than you have to.”  

 The Right Reasons

 As the saying goes, “If it ain’t broke, don’t fix it,” and that might apply to the situation as well. Sure, you want the best deal and  best service possible for your building, but if you are already happy with what  you have and are just making a move because of promises another company made,  you could find out that they are not everything you thought.  

 “For those that think the grass is always greener on the other side, they’d better do all their homework before making the switch,” Becker says. “Talk is cheap, and the only way to really know if someone is going to live up to  their promises is by giving them a chance. Unfortunately, many boards have  found that a company’s sales pitch is just that, and when the real work begins, the sales pitch goes  out the window.”  

 Shareholders don’t normally make the decision to change but if a majority of residents feel a  change is necessary and have good reason for the request, the board should  listen and either work to correct the situation or vote to make a change.  

 No one likes change. And sometimes the shareholders and the unit owners don’t have the whole story or the history behind the relationship.  

 “However, there are times when shareholders don’t have the complete story of why things are the way they are, so it is up to the  managing agent and board to proactively address the shareholder concerns so it  doesn’t get to that point,” Dermer says. “Once you have gotten to a point where a petition has been signed, you have  probably already lost the account.”  

 Co-op and condo buildings don’t run themselves. They need a capable board/management team to make the  important day-to-day decisions about the buildings they live in. And if that  management relationship for some reason goes awry, it is up to the board to  make a smooth transition to a new manager or new management company.   

 Keith Loria is a freelance writer and a frequent contributor to The Cooperator.

 

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