Condo Line

How management companies stack up

My experience and qualifications to serve as a director follows: I am a builder, developer and property manager for approximately 40 years in New York City and Long Island. I have never heard nor come across a situation in which a management company provides services in which the service companies are owned by the same company. Such a situation is a conflict of interest, unethical and a barrier to competition and fair-bidding. After being elected to the board, I discovered that this is the situation with our condominium. It appears that few if any of our members understand this method of operations by our management company. I will try to end this relationship and change the way our bidding process works. Is this type of management a conflict of interest and unethical?

C.M., Hollywood

I call the type of management that you describe as “horizontal.” The other that you are familiar with I call “vertical” management. Horizontal management by definition is directly joined by companies that provide necessary services to the association along with management. Normally these service companies, which are called insularity companies because they only serve clients of the management company, have the same ownership in conjunction with the management company. Such management companies can provide services at a reduced cost, like a loss-leader, because they will make their profit from the services by the insularity companies. It also makes decisions by the board to engage necessary services simpler because management provides such needs from their own companies. When you seek bids for management, you will find that its presentation will emphasize their low cost. Thus, horizontal management will make the workload for the board simpler.

Vertical management will cost more because it offers only one service and that is untainted selection of outside services. It will assist the board in selection of vendors with whom it has no connection. It has experience with outside vendor serves and can recommend to the board those s that have done the best jobs. Both methods of management are legal as long as they are disclosed as to the method of management and that is usually found in contracts and presentations. Personally, I always worked under the vertical method as I felt that the board should make decisions on services that they selected. In the end you will pay about the same, regardless of the method of management. The difference is in the decisions required by the directors.

Q. At the end of 2010 our management was dismissed. That is when our problems started. The board never answered my request to review invoices, estimates and receipts . Last year I made another request at a board meeting and it was said that the records were properly and accurately completed. Words became strong and some directors stood and yelled as I made my request. From some information, the president is receiving cash reimbursements for her out-of-pocket expenses. However, there is no record of what she spent on the purchases. Do we have a right to view the documents, including the invoices and proof of payments?

M.T., Palm Beach

The condominium act (FS 718.111) lists the documents that you can review or obtain copies of. Keep in mind that there is a difference between reviewing the documents and obtaining copies. The board can establish a time and place for you to review the records you request. If you ask for copies, it can charge a per page copy cost.

I do not recommend sending your request by email or a hand-delivered note/letter. I recommend that all correspondence be sent by certified mail. You should be specific as to what you want and the dates for the requested reports. In your letter, refer to FS 718.111 and your rights to inspect the records.

Q. Our POA manager says that after a resident has filed for bankruptcy, we are not allowed to pursue rule violations. We have several residents in bankruptcy who are continuing to violate the rules, but we apparently cannot do anything about it. This is not fair to the rest of the community. Our enforcement consists of (1) friendly letter, (2) suspension of privileges [no access to club house/pool, have to enter the community via the visitor lane], (3) fines. Are our hands tied?

G.R., Lakeland

First you need to understand that a POA, COA and a host of other names are really HOA. The key is that they fall under FS 720. They are all homeowner associations with different names. When an owner files bankruptcy, most collections and legal enforcements must be stopped or delayed by the association. My suggestion is to ask the association attorney what enforcement can be initiated. The attorney can petition the bankruptcy judge to allow rules enforcement or other action. There are different bankruptcies and each requires different solutions. I assume that when the association received notice of the bankruptcy, the matter was turned over to an attorney to answer for the association. Boards should never ignore or attempt to or answer legal notices without legal guidance.

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