When the board members of the 120-unit co-op on East 74th Street decided to take the plunge and follow their managing agent when she switched companies last year, it was hardly a spur of the moment decision. In fact, it took almost a year. For while the board was fond of the departing manager, it had been with the same company for some time, so it made sense to see who the replacement was.
But from the beginning, the signs were clear that the board's needs were not on the management company's radar. "They provided us with one person who lasted two months. Then we didn't have anyone for about four months after that. It was becoming frustrating," recalls the board president, who requested anonymity. The building had had a fairly stable relationship with the management company, but as the months went by, that relationship was starting to fray.
Growing frustrated, the board members decided to interview their departing agent's new company, along with several other firms as a basis for comparison. Finally, in April 2004, they made the switch, dropping their old firm and joining the one that their departing agent now worked for.
But the tale doesn't end there.
In a twist, the East 74th Street co-op is not being managed by its former account executive. She was given a number of new buildings when she moved, and the board members of 74th Street were offered a different agent who would be better able to see to the day-to-day needs of their building. That kind of personal attention to what the co-op needed after what felt like long neglect impressed the board president. Rather than working with their former agent, who was busy with many properties, "we would rather have someone who was 100 percent dedicated," observes the president.
And herein lies the secret for boards considering following their agent out the door: when it comes to deciding whether to stay with the old management company or go with the departing agent, the litmus test is whether the new company is right for you, too.
"They have got to decide what they are hiring," explains Theresa Racht, a partner with Rosenberg & Estis, who has counseled boards on the pros and cons of leaving their management company with a departing agent. Even though the board may be fond of its agent, the account executive isn't the only factor involved in supplying services. "It's the back office, it's the record-keeping, it's the file-keeping. They are hiring a company, not just an individual," Racht says.
While most boards will soldier on through a transition to avoid any larger disruption, many are now following the agent through several company transitions. Company executives who ignore the importance of the personal touch do so at their own peril.
"Any management agency can pay bills and send out bills. The pivotal person in the relationship is the agent assigned to the building," notes Steve Nardoni, president of Nardoni Realty, who struck out on his own in 1995 after being an account executive since 1987. Robert Freedman, president of Maxwell-Kates, agrees. "If it is a building that is proactively managed, more often than not the building will choose to go along" with the agent. "It really very much depends on the reason the managing agent is switching to another firm.
"Nobody likes to lose a building, but most firms deal with it in a professional manner," adds Freedman. "The [industry] attitude is: 'We'll lose a building, you'll lose a building.'" For boards it's a more difficult choice, he notes. Will the new company have the same support system in place that the old company did? And even if the managing agent is leaving on very good terms from the previous company, most boards don't want to be put in the position of choosing whether to stay or go with the old agent. They want a smooth transition, says Freedman, without a lot of drama.
So what's a board supposed to do when it finds out its agent is leaving? Co-op attorneys recommend that boards break down their decision-making into parts. First, how long is the building willing to give the current management company to find a good replacement agent? Next, if the board is set on going with the managing agent, what kind of support systems are in place at the new company that will make the transition smooth? Then, will the building still be part of the agent's portfolio. Finally, and perhaps most importantly, what kind of upheaval will the building experience in the transition? Will it be worth it?
To protect themselves, board members should first ask whether the agent has signed a "non-solicitation" agreement, which stipulates that the agent will not solicit buildings in the company's portfolio for up to one year after departure. While boards are not party to the agreement, and, according to some attorneys, cannot legally be held bound by it, some management companies have named boards in lawsuits against agents who have allegedly violated the terms of the non-solicitation as an intimidation tactic, say management company professionals.
While most co-op attorneys say they have not heard of any co-op being sued for following an agent who has signed a non-solicitation agreement, Marc Luxemburg, president of the Council of New York Cooperatives & Condominiums and a partner at Snow Becker & Krauss, says boards would be wise to insist on reading the terms of any such agreement. He hadn't heard of any lawsuits against boards, "but I suppose it's theoretically possible. If the company is going to sue to stop the agent from representing the board, it will probably want to sue the board too."
After checking on whether the agent signed a non-solicitation agreement, the board needs to get a copy of the management agreement in order to know for what new services the building will be charged. Then, too, the board needs to make sure that all of its books and records get moved over to the new management company. That is critical, stresses Luxemburg. "The biggest problem in changing management companies is that 20 percent of your documents disappear and you never see them again."
So given all the potential headaches that are involved in following an agent to a new firm, the question for boards is, what is the long-term gain? Is it worth it to throw the building into potential upheaval in order to follow a beloved managing agent out the door? The answer depends on whether the board is committed to investigating all its options and is willing to do the hard work of organizing the building's files and billing and bank accounts to make the transition as smooth as possible. There are a lot of details.
"You need to pay attention to your bank accounts. Where are they? What are the numbers? Who has the signatories?" says the 74th Street co-op president. "You need to be aware of what's in there. You need to direct the old [company] that you are leaving and to advise you if there are any bills you have cut checks for that you haven't seen."
Remember, warns the president, the old accounts and accounting system are not coming with you. There will be new ones. "You have to stop paying all your bills, except for payroll, mortgage and taxes, and then you need to talk about billing [and] invoices. You need to identify all the files that they have to deliver to the new management company." Finally, "you need to make sure that someone from your board is copied on all correspondence and e-mails between the old and the new companies so that you understand what's going on.
"You may have an agent you love who has done a great job for you. But if they are leaving, you shouldn't follow blindly," concludes the 74th Street president. "It presents an opportunity for you to reevaluate what the company is doing for you. You owe it to the [co-op] corporation to do the due diligence."