Guest Expert: T. Peter Kristian, CMCA, LSM, PCAM
Extra Fee
Q: Is it ethical or legal for a management company already compensated for managing a property to add an additional 10 percent to all contracts negotiated on behalf of the association?—Charleston, S.C.
A: It depends. If a management company feels it needs to restructure the method of calculating its compensation because of the increased demands of supervising the community's projects and services, it has every right to present such a proposal to the board. As long as the proposed fee is fully disclosed before it is added and the board has the opportunity to refuse the change if it feels it's not in the association's best interest, there is nothing wrong or unethical with presenting such a proposal.
The key is disclosure. If the management company imposed a 10 percent surcharge on contracts without first presenting the change to the board, the action would be unethical and—depending on how the management contract is written—perhaps illegal. The time to consider such a provision is before an agreement has been reached with a community. This is one of the many reasons why it is important to have an attorney familiar with your state's community association laws review all major contracts before they are awarded.
If the management agreement gives the company the right to charge an additional fee when additional company resources are required, the board needs to know that upfront. If such a provision is in the contract, but the board only learns of it after the contract has been signed, the board may be able to use a 30-day or 60-day no-cause termination provision that was, hopefully, included in the agreement.
However, if an association suddenly is faced with an unusually large or unforeseen project such as repair work after a hurricane or other natural disaster, the unusual circumstances may place an additional burden on the management company's resources. Under such circumstances, additional compensation may be appropriate. It's up to the management company to include a provision in the contract that would trigger an additional fee. Likewise, it's up to the association board to do its homework and be fully aware of such provisions before signing on the dotted line.
T. Peter Kristian is general manager of Hilton Head Plantation Property Owners Association at Hilton Head Island, S.C.
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