Homeowners association (HOA) board members take on a wide range of responsibilities that are necessary for the well-being of the community and its residents. It’s not an easy job at all, and this is where an HOA management company can step in and relieve some of the burdens on your behalf. While there are a lot of aspects to consider when choosing a management company, the board should pay special attention to the HOA contract.
Why You Need an HOA Contract
It’s important for the HOA board and manager to be on the same page when it comes to community matters. A fair and clear HOA management agreement ensures that there will be no surprises for both the association and management company down the line. Services, basic fees, extra charges, contract terms, and liabilities should be ironed out before the board signs an HOA management contract.
7 Things to Look For in Homeowners Association Contracts
Here are things to look out for in an HOA contract:
1. HOA Management Company Fees and Services
How much money will the management company charge your association each month? And for this price, what services can you expect from your HOA manager?
Proper homeowners’ association contracts should state the basic monthly management fee as well as an outline of services included in the basic contract. A breakdown of management fees and services will allow the board to see how the association’s funds will be used.
2. Scope of Work Outline
Aside from the general breakdown of services, your HOA contract should also include specifics on the scope of work to be done by your HOA manager. Here are some of the services that should be included:
- Basic services performed by the HOA manager
- Services that the HOA board will continue to do themselves
- Screening and approval of new residents
- Assessment and/or rent collection
- Maintenance monitoring and approval
- Funding or maintenance and repairs
These details will help the board make sense of management costs. A broader scope of work means that management will be higher and vice versa. The HOA agreement also needs to be clear on the services or tasks that the management company will not do under any circumstances.
3. Extra Services and Charges
Sometimes, associations have specific needs that are not covered by basic management fees and services. Your HOA management agreement should also include a list of additional services they management is able to provide, and how much these services would cost.
When it comes to management fees, lower isn’t necessarily better. An association may be able to save money in the beginning, but end up spending more because most of the services they need charge extra. It’s important to have an HOA management agreement that is clear on which services are included in the base fee and which ones will require extra charges. This way, there will be no surprises for both parties.
4. Type and Quality of Management Service Provided
Associations should also consider the type and quality of service provided by their management company. Is your HOA manager handling multiple communities at the same time? If so, will he/she be able to provide the level of service that you expect? The board should also determine whether they need an office-based manager that mostly deals with administrative tasks or if they need someone to handle day-to-day operations on the ground.
A higher management fee may be justified if you are getting a qualified HOA manager with considerable expertise in management, finance, laws, and other community matters. The HOA manager will be very helpful if the community is suddenly faced with issues that are not covered in the standard management contract.
5. Contract Duration and Auto-Renewal
The HOA management agreement should include exact dates on when the contract starts and ends. Boards should avoid signing multi-year contracts, especially if they have yet to see the actual capabilities of their chosen HOA management company. However, most companies will require a minimum contract duration of 12 months.
You’ll also want to see if there is an automatic renewal clause in the contract. This is so the board has enough time to schedule a meeting with the management company before the contract automatically renews. Use this opportunity to renegotiate fees and services, if needed.
6. Termination Policy
A termination policy should be included in the HOA management agreement. Include details on when the HOA has a right to terminate services and vice versa. For example, the board may decide to cancel the contract if the management company is unable to meet their needs. One party may impose a termination fee if the other is canceling without a valid reason.
The board and management company should also agree on how much notice should be given if one side decides to cancel the contract early. Usually, this would be about 30 to 90 days.
7. Liability and Insurance Coverage
Liability is another thing to look out for in your HOA management agreement. Companies may include the hold harmless clause to protect the HOA manager from liability. For example, they will not be financially responsible for any damage caused by a third-party vendor that they hired. The board should review this section and ensure that the management company will be responsible for legal matters that arise due to manager negligence.
Associations should also check with their insurance provider if they already have coverage for HOA management. If not, the board may need to update their insurance plan. This will be very helpful if the HOA or HOA manager is sued.
Before You Sign an HOA Contract, Remember…
Don’t feel pressured to sign your HOA management agreement right away. You can take as much as 1 to 3 weeks to review the contract. Make sure that the management agreement meets your expectations and covers all your community needs. Check the contract for unfavorable clauses, such as the evergreen clause or right of first refusal clause that could put your association in a tight spot in the future.
If you need to negotiate, this will also be the best time to do so. It will also help to have your HOA attorney look over the contract to see if everything is amenable from a legal standpoint.
Once the HOA management agreement is signed, it will be difficult to make changes. Your management company may allow amendments if the reasoning is genuine. However, it’s still better to iron out everything before the contract is signed by both parties.
An HOA Contract Can Guarantee Your Community’s Success
A good working relationship between the board and management company can help your community flourish. One way to guarantee this is to have a clear and well-defined HOA management agreement. All association matters should be spelled out so that both parties know what is expected of them. A proper understanding of the HOA contract ensures that the board and management fulfill their responsibilities — and do them well.
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