We have all bore witness to the breakdown of the professional relationship between an association and its management agent. Once the management agreement is terminated and a new management agent is selected, the next step for the association is to begin the transition process from the prior management agent to the newly selected management agent. It is expected that the transition process be seamless and professional, and many times the association’s board of directors leaves the professional transition to its hired professionals. While many times transitions go smoothly, what happens when it doesn’t?
Management agreements typically contain notice requirements when terminating the contract. Generally, the notice requirement for delivering a termination notice can typically range from thirty (30) to ninety (90) days prior to the date of termination. This timeframe not only allows for the association and current management agent to be placed on notice of the termination, but also allows for the parties to begin the transition process. Since the transition of management companies takes time, a longer notice period may help institute a smooth and transition.
Transitions in management agents also arise in situations where the management agent is either fired or resigns, and the termination of the management agreement becomes effective immediately. In these scenarios, the transition process is expedited and the seriousness of the return and/or delivery of the association’s books and records is heightened. Regardless of whether the termination is mutually acceptable or heightened due to unfortunate events, it is vital to involve the association’s legal counsel and attorney to assist the Board of Directors in this process and be present and prepared if things go wrong.
Delivery of association property:
The transition process includes the delivery of all association property from the prior management agent to the new management agent. It is expected that the prior management agent work with the association and the new management agent for the delivery of all of the association’s property. Within the termination notice, the association should include specific instructions for to the return of the association’s property. The off-site management agent will likely have most all of the association’s property at the prior management agent’s office. Association property includes, but may not necessarily be limited to, the following:
All association property must be returned to the association or delivered to the new management agent. It is vital that the delivery of the association’s books and records is not delayed as the association must still be able to conduct business irrespective of the change in management and during the transition period. The delivery of the association property, including the above-described documents and records, is vital for the new management agent to begin management of the association on the commencement date of the management agreement, and to hit the ground running.
The unfortunate scenario: the withholding of association property:
In a perfect world, an association board would experience a seamless transition process and return of association documents. Unfortunately, there are times when transitions become flawed and delayed, commonly caused by the prior management agent’s refusal and/or delay in returning association property. Sometimes, the cure for such non-compliant behavior and action by a former management agent’s refusal or delay to return association property is to obtain a court order for specific performance, compelling the prior management agent to turn over all association property. Again, it is vital that an association board seek the assistance of its association attorney to advise and assist the board through the termination and transition process. Thus, if court intervention is required, the association’s attorneys can intervene with haste.
When the management agreement has been terminated, the prior management agent no longer has the right to retain the association’s records. In fact, it is illegal for an individual, or entity, to retain any property that it doesn’t have the authority to retain. Whether it is out of spite or lack of attention, it is unacceptable for a management agent to withhold association documents as the association still needs to function and conduct business. An association’s attorney should work tirelessly to ensure that all association property is returned in instances of refusal, delay or carelessness in transition periods.
How can the association protect itself?As noted above, it is important that the association attorney is involved not only in the drafting and negotiation of the management agreement, but also during the termination and transition periods. Protections can also be put into place on the front-end. For example, the association can negotiate for certain contractual provisions that protect itself from the refusal of the management agent to return association property when the association is in initial contracting periods with new management agents. A management agreement ought to contain a provision that addresses specifics requirements for the return of association property upon the termination of the management agreement. Such provision can provide for the timeframe to return association property to either the association or the new management agent. The parties could also agree upon a liquidated damages provision in the event that the management agent fails deliver the association property within the stated time frame. Such provision provides for safeguards for the association in the event that the prior management agent fails to return the association’s property to either the association or to the association’s newly selected management agent.
The takeaway:
It is expected that the prior management agent work with the association and the new management agent during the transition period so that the association can continue to conduct its daily business notwithstanding the change in management. This includes the delivery of the association’s property to either the association or to the new management agent. Although it may seem uncommon that a management agent would refuse or withhold the return of association property, it has and does happen. For this reason, it is vital to get your association attorney involved in the transition process to ensure a smooth and professional transition for the association.
Written by Alyssa Gunsorek, Esq.
Attorney at the Law Offices of Pentiuk, Couvreur & Kobiljak, P.C.