HOA Management Fees: Beware These Questionable Fees; How Your Association Can Address Them
Board members are telling HOAleader.com that they're noticing new and unusual fees in their management company's bills.
They're not imagining things. "What I'm seeing are a lot of attempts by management companies to sneak in some add-on fees," says Elizabeth White, a shareholder and head of the community associations practice at the law firm of LeClairRyan in Williamsburg, Va. "Because of the economy, there may be a temptation for management companies to come in at a lower monthly rate and recoup some of what they're giving up with add-on fees. They look good when they're submitting a proposal—they're really competitive or lower than other companies—but when you start calculating what they're going to charge, it's not as good as it looks."
The bad news for boards, however, is that some management companies use that technique because it often works. "A lot of times management companies are successful because boards may not read the contract carefully enough," says White. "Boards may be focusing on the regular rate, whether it's a monthly fee or a per-unit rate. But you need to examine the whole business deal of the management contract and not just what the monthly or per-unit fee is going to be."
Here, White and other attorneys who represent associations reveal fees they've seen slipped into their clients' management contracts and invoices. They also offer tips for addressing them.
1) Per-activity collection fees. Two attorneys tell HOAleader.com that they've seen management companies charge a fee each time they have to perform some collection-related activity, whether it's preparing a file to send to an attorney for collection or sending a demand letter to owners in arrears. "Property managers' profit margin has been cut into immensely because of the housing crisis," explains Donna DiMaggio Berger, managing partner at Katzman Garfinkel in Ft. Lauderdale, Fla., who represents community associations. "They agreed to work for a certain amount of money thinking they'd have one collection file, and now they have 25. They've got to make that up.
"So we've seen fees for preparation of collection files," Berger adds. "But we're seeing a lot of disparity among property management companies and managers in terms of the fees to get a collection file together to send to an attorney. We're seeing fees as low as $25, but one property manager tacked on $995, which is ridiculous, and we wouldn't take the cases."
Berger and other Florida community association attorneys tried during the last Florida legislative session to curb the fees. "We drafted language that would have capped property managers at $75 per collection," she says. "Unfortunately, that didn't go, so right now, Florida statute doesn't address what a management company can charge. I'm not saying there's widespread abuse, but it's something that should be addressed legislatively."
Until state legislatures act—if they do—you have to talk to your management company. "It's like anything else," says Berger. "You'll need to talk to vendors about what you can and can't pay."
Also be on alert for per-letter fees. "Management companies might charge per demand letter they send out," says Kristen L. Rosenbeck, a partner at the Mulcahy Law Firm PC in Phoenix, which represents associations. "Maybe you can work something out with them and negotiate for a bulk fee."
While associations can often shift all collection fees back onto delinquent homeowners during the collection process, be sure your association documents allow you to do that. "The association should be mindful of whether it can legally bill those fees back to the homeowner," says Rosenbeck.
2) Meeting fees. While you might think your management company will automatically send a representative to your board and owners' meetings, ask first about the charges for attendance. You might assume that attending a board meeting is "part of the contract, but you get an extra charge," says Berger.
White has also seen such fees. "There may be additional fees tacked on if the board meets more than once a month and if the manager is going to be expected to attend or have personnel attend," she says. "I've seen management companies say that attendance at any meetings after 5 p.m. will be at $50-$100 per hour. I understand they'll want a specific expectation of how much time managing a property is going to take, that they need to protect their personnel from having to go to meetings at all hours of the night, and that they have to get compensated fairly. But you have to come to an agreement on what services are really being given."
3) Miscellaneous fees. "There could be printing costs for a hard-copy newsletter, including markups on things like postage and mileage," says White. "One management company tried to sneak a fairly significant fee for mileage that was double to triple what the Internal Revenue Service allows."
Also know whether your management company charges to oversee a document inspection request and how much, in addition to fees imposed if your manager has to prepare documents for a real estate closing. "There's a range of fees that management companies charge to prepare an estoppel certificate when a unit changes hands," says Berger. "In Florida, I've seen it cost about $150."
Finally, look for general contractor fees. "There are lots of hidden fees in management companies' contracts," says Berger. "One states that you agree to have the property manager serve as your general contractor in the event of a casualty. A lot of associations aren't aware that's there and may not want that. They may not want the property manager overseeing repairs, and there may be a pretty hefty premium for doing so."
As with many other service providers today, the key is going into any agreement with your eyes open. "It's like the airlines with all the fees you didn't see years ago," says Berger. "Management companies are the same way today—things you'd expect to be included might be an extra charge. Make sure there's a clear fee schedule, and you're going to have to read it."
Also ask questions about your contract. "It's important for both sides to have a real dialogue of expectations," says White. "Get beyond the superficial and find out what each party's expectations are. You don't want to find yourself locked into a contract where the monthly rate may be good, but the add-ons exceed the monthly rates."