Terminated Property Manager Won't Transfer Records Until the HOA Pay Up
I recently heard about one HOA that was changing its management company. In the last week of the contract, the new management company sent emails to the board asking for help in obtaining the most recent financials and banking information from the outgoing management company, which was being unresponsive. Without the final financial data, the new management company would be unable to reconcile its banking information and verification that all Association money had been transitioned. Two days before the end of the old management contract, the outgoing management company sent the board a letter stating that it would hand over the remaining data only after it was paid what was due. For background purposes, the management contract stated that,
“Agent shall turn over all association records in the possession of Agent pertaining to the operation of the association to the board on the last day of the contract. All compensation earned by Agent shall be paid after the transfer of records is complete and shall not exceed 30 days thereafter.”
The Board sent the old management company a letter saying that: “The data you’re withholding is keeping us from reconciling our financials, and that is keeping us from being able to make payments, including yours. Please release the data to the new management company, and your invoices will be paid.”
The old management company responded that the Association was incorrect, and the required data will only be provided after the old management company verifies that payments have been received.
This happens a lot. This type of action sounds like the definition of extortion, doesn’t it? I would like anyone here who has been in this position (and I bet they have been) to tell their stories. I’d prefer it if you don’t identify the management company. I know that we have some members that are management companies and I would like their response too.
Anyhow, back to the case. What do these clauses usually say? Well, they’re rarely written this well, from the Association’s standpoint. Most management contracts don’t get any sort of legal review on behalf of the Association. That’s a big mistake. Associations rarely ask a lawyer to review the management contract. Then the Association is stuck with a bad management contract. But this one obviously did get that review. It’s a pretty good clause.
But the management company won’t perform this clause. What to do? The first step is to try to resolve it amicably. If you can’t, the next step should be to have the Board President talk to the new management company about this dispute. You figure most management companies know each other, even though they’re competitors. A possible solution is to pay those fees to the new management company to hold in escrow, and then the old management company turns over the records to the new management company. At that point, payment of existing fees can be made to the old management company.
If that doesn’t work, you’re going to have to get your lawyer involved. The old management company may have some legal and regulatory obligations to “disgorge” those Association records. If that semi-threat doesn’t work, your lawyer is going to have to get more aggressive and bring a lawsuit to force the old management company to turn over those records.
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