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When Boards and Managers Divorce

Marianne Schaefer in Bricks & Bucks on June 15, 2016

New York City

Divorcing a Board
June 15, 2016

The relationship between a co-op or condo board and its management company has been likened, not unfairly, to a marriage. And like so many married couples these days, boards and managers can wind up on the rocks. The source of the break-up can be finances, clashing personalities, unrealistic expectations, illegal activity – or a combination of the above. Sometimes, the only way out is a divorce.

“It’s very rare.” says Mark Levine, a principal of Excel Bradshaw Management Group (EBMG). “We do have thick skin and a mixture of personalities who should get along with just about anybody. But sometimes there comes a point when a situation becomes debilitating. Then we have to sever the relationship. Walking away from a contract is not something we take lightly, especially considering how much effort goes into landing a new relationship.”

The most common reason for the resignation of a management company, managers agree, is unrealistic expectations from a board as to what a property manager can and should do – and how much time they’re supposed to invest. A typical workload for a manager would be six or seven small buildings. “In a 10-unit building,” says Levine, “the agreement will most likely be that we invest about six hours a week, even though the board might expect something like six hours a day. They might, for instance, expect us to attend all their meetings, which means we would have to invest much more time than what we had agreed upon.” And time, as we all know, is money.

John Wolf, president of the management firm Alexander Wolf & Co., also cites unreasonable demands from boards as the most common reason for severing a contract. “It happens when boards demand more services without the willingness to pay any additional fees,” he says. “Sometimes a building has a special project, like new boilers. And then they expect us to invest significantly more time without the willingness to pay any additional compensation.”

But time and money are not the only reasons for a split. EBMG was hired by a board that, according to Levine, acted in a discriminatory fashion with their sales and subleasing. “There was a clear discrimination towards the people that were approved or not approved, and the board was unwilling to correct their actions after we brought it to their attention,” he says. “In such a case we cannot stand by as a company and permit that to happen. Their inaction was cause for dismissal.”

Certainly illegal activity would cause a management company to resign from the contract, but there are also gray areas. When the building refuses to act on its best interests and causes a legal liability, Levine says, managers have to evaluate their options. He recalls such a case: “A few years ago, we went to the board of a building which had a clear issue with the parapet wall. It was unsafe and a danger to the public. In addition, the roof was leaking and the top floor residents were being rained on inside their units, something we considered a health hazard. We advised the board to immediately correct these unsafe conditions. When no one on the board wanted to move forward, we had to walk away from the account effective immediately. We had to limit our liability and ensure that we weren’t attached to the lack of the repair.”

According to Levine, it’s the worst thing that can happen to a management company – a board that endangers the health or safety of the general public or that of the building’s residents. It’s also, not surprisingly, a leading cause for boards and their managers to divorce.

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