Management Contract – poorly written

MANAGEMENT CONTRACT

FOR SCA

This contract is poorly written and open to various interpretations. The contract was not a negotiated contract and does not adequately protect the interests of the SCA (the Association). It is written solely by IMS (the Management Company) for the benefit of the Management Company.

Contract made this 1st day of October 2011 between SCA (hereinafter called the “Association”) and represented by its governing body, the Board of Directors, organized and established in accordance with the Covenants, Conditions and Restrictions (CC&Rs) and IMS of Arizona having its principal office on N. Oracle Road, Tucson, AZ  (hereinafter called “Manager”).

Different business names were noted in the contract. According to the Arizona Corporation Commission, IMS is also registered as an LLC corporation. Are we dealing with a corporation or some other business entity? No changes were revealed between this contract and the 2011 contract and that needs to be investigated.

WITNESSETH:

In consideration of the terms, conditions and covenants hereinafter set forth, the parties hereto mutually agree as follows:

A MAJOR ISSUE: the contract lists Articles 1, 2, 3, 8, 9, and 11. Where are Articles 4, 5, 6, 7, and 10?

ARTICLE I: PURPOSE OF CONTRACT

(A) The Association hereby appoints the Manager, and the Manager hereby accepts appointment on the terms and conditions hereinafter provided as Homeowners Association Management Company for the SCA located in Tucson, AZ.  It is understood that the term Manager will be used interchangeably to mean either one of the assigned managers or both assigned managers.

The contract does not name any individual(s) as Manager. The contract should say that the contract cannot be assigned to another person by the named Managers without the approval of the Board. It should also say the Board has final authority to disapprove a different Manager if that individual does not have the qualifications to do the job. The Board also must be involved in the interview process if that person is hired for the express purpose of working at SCA.

(B) The Manager fully understands that the Association Board of Directors has the primary responsibility for insuring the maintenance of community standards affecting the common elements within SCA and that the Board will delegate the execution of specified duties to the Manager. Both parties agree that the purpose of this agreement is to provide efficient, professional and continuous management for XCA in order to protect and enhance the value of all properties and to maintain the standards of the community.

‘Enhance the value of all properties’ should be removed. There is no measurable standard by which that can be determined.

The Manager agrees, notwithstanding the authority given to the Manager in this Agreement, to confer fully and freely with the Board of Directors of the Association in the performance of Manager’s duties, as herein set forth. It is further understood and agreed that the Manager will perform such duties as may be directed by the Board of Directors.

(C) The duration of the Agreement shall be effective October 1, 2011 for a term of 12 months.  Each year thereafter, this contract will be automatically renewed on the 1st day of October unless terminated prior to the renewal date. The Manager may terminate this Contract without cause by giving the Association (30) thirty days notice, in writing, of its intent to terminate.  The Association without cause may terminate this Contract by giving no less than (30) thirty days notice, in writing.

The automatic renewal clause needs to be eliminated. This clause puts the burden on the Board for giving 30 days notice before the expiration of the contract. 

ARTICLE II: DUTIES OF CONTRACT MANAGER 

Comments: The management firm should not have the right to contact the association attorney without prior approval by the board. 

The Board of Directors and the Manager are in agreement that the Manager will perform the following duties:

(A) The Manager will supervise and manage all operations which are necessary to administer the Association as set forth in Arizona State Statutes pertaining to Planned Communities, the Association CC&Rs, By-Laws, Rules and Regulations and Community Association Institute standards. The President of the Association will be notified of any YMS staff changes.

This article makes no mention of the SCA job description as a part of their duties. The job description should be included by reference or attachment. In the event of a conflict between the language in the contract and that in the job description, there is no provision for resolving conflicts. In that case, the language in the contract will likely prevail. Also, any reference to the Community Association Institute should be removed. 

This article should be changed to read:

The Manager will supervise and manage all operations necessary to conduct the business affairs of the Association as set forth in the SCA General Manager job description, the Arizona Revised Statutes Titles 10 and 33, the Association CC&Rs, By-Laws, Rules and Regulations. The President of the Association will be notified, and approve any SCA staff changes.

(B) At least one Manager will be present and on site for a minimum of thirty-five (35) hours per week according to a pre-determined schedule that is to be approved by both the Manager and the Association.

(C) Barring extenuating circumstances, both Managers will be in attendance at all Board meetings.  One or both The Manager will review meeting minutes and at the Board’s request, advise on association matters and procedures.

(D) The Manager will assist the Board of Directors and/or Finance Committee in preparation, revision, and updating of an annual budget and reserve fund in accordance with the current financial procedures approved by the Board.  The Manager will work closely with the bookkeeper to ensure proper fiscal reporting and practices.

(E) The Manager will supervise administrative and maintenance staff and will act as liaison between the Association and staff as well as contractors.

(F) At the Board of Director’s request, the Manager will draft and solicit proposals for repairs, maintenance or improvement work within the community, make recommendations to the Board and oversee such work.

(G) The Manager will work with the Association staff and Board of Directors to address issues within the community while ensuring the Governing Documents are enforced fairly and within Arizona state statutes.

The use of the words Arizona state statutes throughout should be changed to Arizona Revised Statutes. A clause needs to be added stating the Manager(s) will treat the residents with courtesy and respect at all times.

(H) When authorized by the Board of Directors, the Manager will cause to be placed and kept in force, all forms of insurance needed to protect the Association, its members, mortgagees holding mortgages covering units, as their respective interests appear (or as required by law), including, but not limited to, public liability insurance, fire and extended coverage insurance, pertaining to the common elements

(I) In order to insure that the Association and the appurtenant Properties within the subdivision are maintained in a manner consistent with the Declaration, the Manager or her agents will do site visits and record the condition of the landscaping, roads and surroundings of the subdivision on an as needed basis or when requested.  These records will be discussed as part of the monthly management report at the Board meeting.

ARTICLE III: LIAISON WITH THE BOARD

The Association President will be the principal liaison with the Manager on any matters affecting the Association.  In addition, with the Board’s approval, the Manager will also recognize that each member who heads a Committee is authorized, within the functional area assigned to that Committee, to give the Manager instructions on what needs to be done to carry out the Board’s directives.

It is the Committee Chairperson’s responsibility to be certain his/her requests are consistent with the Board’s directions.  The Manager, however, may question any request, which in his/her judgment, may not be authorized under the CC&Rs, the By-Laws, the Rules and Regulations or other formal actions of the Board.  In the event of a dispute as to the directions of the Board, the Manager will rely on the minutes of Board meetings and/or present the problem promptly for clarification by the Board.

ARTICLE VIII: LIABILITY 

Comments: Make sure there isn’t a “hidden” provision in the contract that forces the association to pay for the legal defense of the Commuinity Association Manager if somebody files a complaint. It can get really expensive, as we have seen in many cases.  

The association should not agree to the following liabilities:….

The Association agrees to:

(A) Indemnify, defend and hold the Manager free and harmless from and against all claims, demands, liability, cost, expense, and damages based upon injuries to person or property by reason of any cause in connection with the management of the Property and common elements, provided that the condition or use giving rise thereto will not have been caused, in whole or in part, by the negligence, intentional misconduct, breach of fiduciary duty or responsibility by the Manager.

(B) Reimburse the Manager for any monies, which the latter is required to pay out for any reason whatsoever, either in connection with, or as an expense in defense of any claim, civil or criminal action, proceeding, charge or prosecution made against the Manager and/or the Association affecting or due to the condition or use of the common areas, provided that the condition or use giving rise thereto will not have, in whole or in part, exceeded the scope of agency or acted in a capricious manner or has intentionally abused the Manager’s authority to act on behalf of the members or by the gross negligence, intentional misconduct, breach of fiduciary duty or responsibility by the Manager or its employees, agents, contractors or subcontractors.

(C) The Association will carry liability insurance with commercially reasonable limits, which will include the Manager as a party insured under the liability policy. The Association will not be required to indemnify or defend the Manager with respect to any matter arising from or caused by the Manager’s negligence, intentional misconduct or breach of fiduciary duty or that of the Manager’s employees, agents, contractors or subcontractors.  The Association will provide the Manager with a copy of the Association’s liability insurance policy and all endorsements thereto and renewal policies.

(D) The Association will defend promptly and diligently at the Association’s expense any claim, action or proceeding brought against the Manager or the Manager and Association, subject to provision “B”, jointly or arising out of or connected with any of the foregoing, and the Association will hold harmless and fully indemnify the Manager against any liability judgment, loss or settlement on account thereof.  The Manager will promptly furnish to the Association and its attorneys all papers, documents and other evidence which, in the opinion of the Association or its attorneys, are pertinent to said claims or the defense of such actions or proceedings.  The Manager agrees to produce at the appropriate place or places, at reasonable times, such witnesses who are then under Manager’s control as will be required in connection with the defense of any claim or action against the Association or the Manager.  The foregoing provision of this paragraph shall survive the termination of this Contract.

ARTICLE IX: MANAGEMENT FEE

The compensation, which the Manager will be entitled to receive monthly for all services performed under this Contract, will be $4,875.00 due the first day of the month prior.

‘Due the first day of the month prior’ is very confusing terminology. Are we paying for services before or after we receive them? This needs to be restated for clarification.  

ARTICLE XI: ADDITIONAL TERMS AND CONDITIONS

  • The Board of Directors represents that it has authorized this Contract on behalf of the Association. Members of the Board of Directors as such will have no personal liability to the Manager hereunder for acts or omission in performing their normal duties as Board Members.
  • This Contract constitutes the entire understanding of the parties and may not be changed orally. No modifications hereof will be valid and enforceable, except by supplemental agreement, in writing, executed and approved in the same manner as this Contract.
  • If any action is instituted by either party to enforce the terms of this Contract, the successful party will be entitled to reimbursement of its reasonable attorney’s fees and costs from the other party. This contract is entered into within the State of Arizona and will be interpreted and enforced according to its laws.  The Association’s indemnity agreement with the Manager does not include disputes between the Association and the Manager. 

ACCEPTANCE

The undersigned, as proper authority for IMS and SCA, agree to this contract in its entirety.  In the event a dispute arises between the parties, both agree to use due diligence in attempting to negotiate a solution in good faith.

This contract provides for only one signature by the Board. When we write checks, two signatures are required even if the check is for $1.00. All contracts should require the signatures of at least two Board members and preferably a quorum of the current Board members.

By___________________________________________________________________

President, Board of Directors                                                            Date

By___________________________________________________________________

I Management Services                                                                      Date

ML President

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