Tailoring Your Management Contract

When hiring a new management company, there’s a typical process that most boards follow. They research, they invite companies for interviews, they check references, and then they make their final choice. Now comes, arguably, the most important part of the process: tailoring the management contract to meet a board’s specific needs. 

There are similarities among contracts but also a number of differences, and the true test is in the details. “A lot of times, [contracts are] not really discussed in great detail when you go on an interview or in a proposal,” says Steven W. Birbach, president and CEO of Vanderbilt Property Management. 

Those details – such as when the manager will be at the building, or how much the property pays for specific tasks above and beyond the management fee – must be hammered out by the board attorney and the management attorney before the contract is signed. “Your managing agent is going to be doing many, many things for the board, and you want to make sure the relationship is clearly defined,” says attorney Deborah B. Koplovitz, a shareholder at Anderson Kill. 

The initial contract usually originates with the management company. “It’s very rare that a board asks us to create one,” says Koplovitz, citing the high cost of having the board’s lawyer write a contract from scratch. Contract review generally takes one to two weeks, possibly three weeks if extended negotiations are required. Depending on the contract’s complexity, legal fees for the review can differ tremendously, attorneys say. But generally, expect the cost to be no more than about five to ten billable hours. 

During negotiations, the co-op’s or condo’s attorney will consult with the board. But if the board is contemplating a capital improvement project or is involved in renovation or restoration, the board should check with an architect or engineer about the best way to handle project management. The board should speak with its insurance professionals if it has any complicated insurance issues on its agenda. Any relevant information should be passed on to the negotiating attorney.

Which parts of the contract deserve special attention? According to many management executives and attorneys, the five prime areas are: 

• The ancillary fee schedule

• Insurance and indemnification issues

• Terminating the contract, and any automatic-renewal language

• The limit on non-recurring expenses

• Attendance at the building and related duty issues 

Do it once, and do it right. “Once the contract is done,” says Koplovitz, “you don’t usually go back and ask for amendments. You could, but it’s not usually done.”