Many of us are so busy in performing the work that we are hired to do that we often neglect the housekeeping we should do for our businesses. Management agreements with community associations may fall into this category. As with many agreements in which sections are revised but the whole contract is not reviewed, management agreements can take on a life of their own as they are tweaked here and there. In this blog, we discuss the need to take time to have your forms and contracts reviewed to ensure that your management company is protected by the agreement, that it reflects current law, and that it comports to any required regulations.
In Virginia, “The Common Interest Community Board regulates common interest community managers, as well as certain employees of licensed management firms.” The Virginia regulations require management agreements to be legible and written. The manager license number is required to be in the agreement. There are also certain topics that must be addressed including:
· The beginning and ending dates of the agreement.
· The cancellation rights of the parties.
· The record retention and distribution policy of the management company.
· A general description of the records to be kept by management.
· A general description of the bookkeeping system to be used by management.
Other provisions should be included in the management agreement to create the right expectations for the parties, and to provide adequate protections to the parties to fulfill and enforce the terms of the management agreement. Here are just a few of those types of provisions:
· Scope of work – The duties that are being assigned to the manager should be set forth with specificity. It is important to include any standards or requirements that are required by the governing documents or policies adopted by the Board. Management should make sure that it is provided with current copies of all documents.
· Cost of services – The cost of services should be clear. Certain services will likely be covered by a fixed cost; therefore it is important to set forth the specific services that are covered by the fixed costs. Additional services that are offered by the management company should include a listing of the additional costs for each additional service.
· Termination process – The specific circumstances that will permit a party to terminate the agreement should be included in the agreement. The termination section should also address the required notice, whether there is a cure period for non-performance or default, and the process to be followed if the management agreement is terminated.
· Indemnification – Management agreements are typically agency agreements. Managers are appointed as agents for the Association and act as independent contractors. Managers should be indemnified for the acts they undertake on behalf of the Association unless the Manager is acting outside the scope of the authority given to it in the agreement, or if management acts with gross negligence or negligence or commits willful misconduct. The association will want a reciprocal indemnification paragraph to provide the association with indemnification when management creates a liability for the association caused by management’s negligence, gross negligence or willful misconduct.
· Insurance – Requirements for insurance coverage should be addressed in the agreement, including, fidelity bond coverage, casualty coverage, and comprehensive liability coverage.
· Employees – The agreement should clearly state whether the relationship between management and the association is one of agency with management being an independent contractor. If employees of the manager will be performing tasks for the association, it is important to clarify management’s responsibilities for its employees.
· Limitations – There may be limitations placed on the authority of management to bind the association on expenses exceeding a certain amount, if so, such limitations should be distinctly set out in the agreement. If management is required to solicit multiple bids for service contracts, the specific requirements should be included in the agreement.
We have touched on some of the major components of a management agreement, but there are many additional components and many details that should be discussed and memorialized when drafting a management agreement. We suggest that you contact an attorney well-versed in business law and homeowners association so that your management company has properly documented its contractual relationships.
Tarley Robinson, PLC, Attorneys and Counsellors at Law
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