The Board of Directors is used to dealing with homeowner association contracts for any type of goods or services needed by the association. Contracts are a standard practice so that both parties understand their specific roles and duties. That’s why a legitimate contract between you and your HOA management company is important too. From daily duties to payment terms, you want everything in your HOA management contract to be clear and fair.
Why Do You Need an HOA Management Contract?
As an HOA board member, you might come across some management companies that offer “no contract services” but involve a signed agreement. These types of agreements most likely do not provide important terms, which can really hurt your community in the long run.
An HOA management contract is very important. It’s a legal document that states your expectations. The contract should have a clear outline of the services that you expect from the HOA management company.
HOA agreements also contain other important details such as the terms of service. It will specify the beginning and end of the contract, as well as provisions for continuing, exiting, or terminating the partnership between the association and management company.
A good HOA management agreement will also detail the number of visits, inspections, and meetings from the manager, as well as fees for additional services.
Should the HOA management company fail to deliver, the management contract will provide the association with protection. That’s why it’s important not only to have a well-written contract but for the HOA board to also carefully look over all the details before signing the contract.
HOA Management Contract: What Should Be Included?
Now that you know the importance of an HOA agreement or a property management contract, it’s time to delve into the specific sections.
Keep in mind that contracts will vary substantially, but these are some key points to look out for:
Terms of Service
The HOA management contract should outline the terms of service. When does the contract take into effect and until when? This section should also include a termination policy applicable to both parties.
One party may choose to terminate services if there is a valid reason. The specific reasons should be detailed in the contract but may include negligence and failure to deliver services. There will be some restrictions, too, such as a termination fee and/or a 30-day written notice.
Services, Duties, and Fees
Any basic HOA management contract will have a section outlining the services and duties to be performed by an HOA manager and how much the association has to pay the management company annually and/or monthly.
HOA agreements will have a base management fee that corresponds to a list of services. Make sure to ask how much the management company will be charging for additional services.
Some companies will have a higher management fee but will provide more comprehensive services. Be wary of companies that offer lower fees but have hidden charges. These may end up costing you more in the long run. As such, make sure to cover all bases when it comes to services and fees before signing the contract.
Responsibilities of the Association
An HOA management company will not do everything for your association. In most cases, the HOA board will still retain some responsibilities.
Clearly outline the board’s responsibilities in the HOA management contract. This will prevent any misunderstandings or confusion as to who really is in charge of a specific task.
Liability is also a basic part of the HOA management contract. This section can also be called the Hold Harmless Clause. This protects the management company against liability, as long as they acted in the best interests of the association.
For example, they will not be held liable if the contractor they hire causes damage to association property. However, this clause will not protect HOA management in cases where they were negligent or fraudulent.
The HOA board should also make sure there is a Reasonable Care Clause. This means HOA management should still perform due diligence when carrying out their responsibilities like when hiring a third-party.
The HOA management contract may also have a provision for litigation expenses. It states that the association will be responsible for legal expenses should HOA management become involved in a lawsuit. This assures HOA managers that they can do their duties without fear of getting sued.
Services Included in the HOA Management Contract
Management services will depend on the needs of your community as well as its resources. Nevertheless, here are some services that you can expect an HOA management company to perform:
1. Maintenance of Common Areas
HOA managers will regularly visit common areas, contract with vendors for maintenance and repairs of common areas, purchase parts/equipment needed for common areas, evaluable long-term maintenance needs, and recruit personnel.
2. Accounting and Financial Management
An HOA manager’s responsibilities may include assisting the board with the annual budget, obtaining a reserve study, collecting HOA dues and assessments, monitoring the association’s bank accounts and balances, sending HOA invoices and delinquency notices, preparing financial documents and vendor payments, and so on.
The board can delegate insurance tasks to their HOA manager including recommending insurance companies, preparing insurance bid proposals, placing appropriate insurance coverages, and processing insurance claims.
4. Administrative Services
HOA managers also handle day-to-day administrative tasks such as answering phone calls and emails, following up on homeowner complaints and requests, enforcing HOA rules, scheduling HOA board meetings, and so on.
5. Conflict Resolution
An HOA manager is also helpful when it comes to resolving conflicts, especially if it’s between board members, or between a board member and homeowner. Having expertise such as conflict resolution skills means they will able to deescalate conflicts and preventing lawsuits.
Frequently Asked Questions About HOA Management Contracts
Some associations only realize the importance of an HOA management contract after they’re stuck with a bad one.
Here are answers to questions that can help you avoid the pitfalls of a bad management contract:
How Much Should an HOA Pay a Management Company?
Though there is no standard fee for an HOA management contract, it’s good for board members to have a general idea of how much to pay an HOA management company. This is so that you don’t end up paying too much for very little service.
HOA management fees depend on several factors such as the size of your community, the type of HOA management, and the scope of services provided by the HOA manager. However, a general estimate would be $10 to $20 per unit, each month.
How to Get Out of an HOA Contract?
If you have unwittingly entered into a bad contract with an HOA management company, it’s understandable that you would want to get out of it. However, since an HOA management contract is a binding document, there may be legal consequences for breaking the agreement. Make sure to consult an HOA attorney; they will analyze your contract to see if there are ways to terminate the contract.
Meanwhile, if the HOA management company has breached the terms of the contract, the HOA attorney can help you get out of the agreement as per the termination policy.
Can HOA Sue Management Company?
HOAs can sue a management company if they have a valid reason for doing so. Again, this is why it’s important to have an HOA management contract. The document outlines the conditions where an HOA might be able to sue the management company.
Valid reasons include negligence, abuse of power, harassment or discrimination, embezzlement, or misappropriation of funds. Board members should also consult their HOA attorney on how to handle this case properly and legally.
Why Should an HOA Hire a Property Management Company?
Not all associations need an HOA management company. However, if the HOA has rental properties, they might consider hiring a property management company.
A property manager performs similar — and sometimes overlapping duties — with an HOA manager such as maintenance and collections, but they are still different professions. Your property manager will handle rental properties and tenants, but an HOA manager handles the overall community. If you decide to hire a property manager, remember that having a homeowners association property management contract is just as important.
Having an HOA Management Contract Is Just Good Business
They say that running a homeowners association is just like running a business. And so, if you want your HOA to be successful, you have to have good business practices such as having an HOA management contract.
An HOA management company is supposed to make the board’s lives much easier. But if you don’t have a contract or one that is unclear and fair, it will only lead to more problems for the association. Having a management contract means you’ll be able to cover all bases as well as protect the members of your community from costly mistakes and disappointments.