It pays to have a competent, active board at the helm of a building community - a strong, stable board translates to better value for shareholders. But just how hands-on should a board be? Sometimes the daily management of a co-op or condo is best left in the hands of a managing agent. However, other situations may require not only the board's involvement, but also that of outside legal counsel. Effective management ultimately comes down to teamwork and communication.
Standard management agreements state what the managing agent can and cannot do without consulting the board. Some managing agents have the authority to enter into service contracts or issue checks up to a certain dollar limit, which also is dictated by contract. However, when it comes to matters beyond the daily call of duty, the board must be called in.
A good managing agent knows when to consult the board. However, when it comes to daily operations, he or she operates unilaterally. "It's the board's responsibility to oversee the managing agent," explains Lynn Whiting, director of management for the Argo Corporation, a management firm based in Manhattan. "The board shouldn't have to be involved in routine activities - there should be building policies in place."
The amount of interaction between a manager and a board must be of a certain comfort level, says Neil Binder, a veteran property manager with Bellmarc Property Management in Manhattan. "It's very much a perception of what the board's level of comfort is," says Binder. "If the board is uncomfortable, the manager's interaction should be heightened. If the board is very comfortable, the manager's involvement should be at board meetings, which occur once a month."
Sometimes increased interaction occurs because of ongoing board activity, Binder says. A capital improvement project that is commencing, for example, might require "an increased need for communication between a manager and a board."
Things regularly happen that require board involvement. That can range from emergency repairs - for which the managing agent has authority to spend a certain amount - to the receipt of legal notices and breaches of security. "It would be the managing agent's responsibility if something happened in the building and a shareholder was dissatisfied," suggests Whiting. A shareholder's dissatisfaction with a building service provider also must be brought to the board's attention. "You wouldn't want to put a board president in a position where he would be confronted by someone in the building who was riled up, and [the president] wouldn't even know what they're talking about," Whiting says. In those situations, she explains, it's courteous for the managing agent to notify the board of the incident.
"I believe that a good managing agent should run the building," adds Binder. "And all things associated with running the building should be the domain of the managing agent. I believe that boards should direct the management of the building, that is, they should oversee it and direct it but not manage it."
The board itself reviews applications from new purchasers and conducts interviews. The board also approves an operating budget and ensures that the building maintains anticipated expenses. Managing agents can work with the board to prepare an operating budget, but only the board can adopt it and - if necessary - increase it. Typically, only a board may set or change building policies.
The authority vested to a managing agent by the board varies from building to building, according to Binder. Some boards, for example, limit the authority that a manager has in making a disbursement of funds, while other boards are "much more liberal" in that area, he says. Another caveat is entering into agreements. Some boards readily permit their managing agents to negotiate with vendors or sign a contract believed to be in the best interest of the building, Binder says. "Other boards would never permit that."
All transactions related to buying and selling of apartments and the shareholder approval process typically come under the purview of a managing agent; all scheduling matters, such as monthly meetings or annual elections; overseeing all staffing issues; and control over institutional records, notes Binder.
All buildings, regardless of size, face the same issues in terms of economics, management, maintenance, litigation, and even disgruntled shareholders, he says. However, the key is balancing the various tasks and the unique personalities involved to ensure that day-to-day operations of the building run smoothly.
"One of the things I frequently tell my property managers is that the greatest compliment you can get from a board is silence," says Binder. I think a building is well-run if things are quiet. It doesn't mean you don't call a managing agent to get things taken care of. But it means there's no upheaval."
A property manager, Binder says, has to remain calm in a crisis and be adept at working with others to arrive at a reasonable solution. "One of the critical elements of good property management is temperament. I think it's important for a property manager to be a good communicator and to have rapport skills and to be empathetic."
Circumstances under which to bring in legal counsel are somewhat subjective. Often the board president may contact the building's lawyer on their own while other boards may choose to let the property manager contact the attorney when their services are required.
Phyllis Weisberg, a partner of Kurzman Karelsen & Frank, LLP, a New York-based law firm, says counsel doesn't necessarily get involved in daily operations unless it's something outside the daily routine. Examples of the latter would be a faÃ§ade contract or Local Law 11, both of which involve the board when selecting a contractor. "Counsel's going to prepare the contract, and the board's engineer or architect is going to be involved because they're going to prepare the specifications for the job," Weisberg says.
Conditions that necessitate legal counsel can be complicated, according to Weisberg. "It really varies from building to building in my experience," she says. "Sometimes there's a lawyer on the board who wants to work directly with counsel." Another board might have a managing agent with whom they are very comfortable working." In those instances, counsel works more directly with the managing agent, but the board still makes the final decisions. The managing agent, Weisberg adds, can't make decisions as to whether to instigate litigation.
Issues requiring counsel's involvement include construction contracts and litigation, the former of which could involve a dispute with a tenant shareholder or a city agency. The allocation and sale of shares to a shareholder or the overhaul of corporate documents also requires counsel. Weisberg says her firm speaks with the managing agent or the board of some buildings on a near daily basis and others only once every six or eight months. "It depends on the needs of the building and what's going on," she says.
A board's attorney must be kept in the loop at least some of the time. By keeping tabs on their activities, counsel can then curtail potential problems before they become catastrophic. "The attorney should be aware of what's going on in the building, simply because a board may have embarked on a course of conduct or made a decision and not understood the legal implications of what they've done," Weisberg says. It's much easier to advise a client before they've created a problem rather than get them out of one after the fact, she adds.
Counsel must be kept advised in order to remain proactive. Weisberg feels some boards and managing agents have the innate sense as to whether to run something by counsel first, but she says her firm requests a copy of the monthly minutes from some of their clients. After reviewing what the board has been talking about, her firm contacts them if they see something that may create a problem or have implications that the board hasn't considered. Weisberg says her firm operates "as a corporation's general counsel would, and therefore we want to know what's going on and be as proactive as we can, rather than just deal with problems after they arise."
Should a problem arise, the board can take several courses of action, depending on the nature of the problem and the parties involved. "If it's litigation or a significant problem, usually at that point you're dealing directly with the board," Weisberg says. She adds that many boards have legal committees, which might include members who are lawyers.
A building's books, documents and bylaws must be made available to all parties who need them. Naturally the board has access to the books, which the managing agent maintains. Weisberg says "as counsel, I may want to see minutes occasionally. But I don't go through the financial records unless it's being produced in the context of litigation." She says when her firm becomes involved with a building she likes to get a copy of its bylaws, certificate of incorporation and proprietary lease in order to learn something about its structure. Beyond that, "it's really on an as-needed basis."
The board, its treasurer and the accountant receive a monthly financial accounting statement, or operating statement, from the managing agent. The attorney, who gets an audited statement, does not have the same access to financial information as the board and the accountant.
Instead, Whiting says, the accountant prepares the annual tax returns, a deduction letter for mortgage interest and real estate tax deductions, and an annual financial statement that goes out to the shareholders. On a monthly basis the board's treasurer reviews the building's activities by way of the financial report provided by the managing agent. "They should keep an eye on that and look at the budget," Whiting says. "They're supposed to look at the payables and see how many bills are outstanding to make sure the building is able to meet their expenses."
"I think boards have to be very hands-on about the finances of their own building," adds Carole Newman, a partner of Newman, Newman & Kaufman, LLP, a New York-based accounting firm specializing in co-ops and condos. To do that, she continues, one must gain an understanding of the costs and operations. "The board has to be very involved and have more than a general understanding but a very specific understanding."
She says that although the building accountant responds to specific needs, "the board is making decisions, and they're making these decisions with the advice of their accountant and their managing agent, but they are ultimately making the decisions."
Newman says boards often confer with their accountants about operating and capital budgets, financing needs, alternative mortgage financing, alternative financing for capital improvement, and investing funds for the best return.
"It's important for boards to keep their accountants in the loop, because they may be making decisions that affect certain accounting matters of the corporation," Newman says. An accountant who is unaware, she continues, cannot properly advise. Newman says that although accountants, who don't come to most management meetings, don't appear to be involved all year, they do perform an annual audit. She says they also examine monthly managers' reports, and that "if decisions are being made that might affect accounting matters, it would be good for the board to check in with the accountant."
Management maintains accounting records, pays the bills, accumulates the receipts and disperses them in the monthly management report, which the accountant then audits.
Effective building management occurs when board members possess certain personality traits that foster a strong professional relationship. Weisberg says those include "good communicators and good listeners in terms of telling the lawyer what the whole story is and a good listener in terms of listening to what the lawyer has to say."
"Boards should be very specific as to what their needs are and plan for those needs by giving enough notice to get projects they would like done complete," Newman says. They must also understand that professionals are working for many boards. A common problem, she claims, is that many boards expect a certain involvement of the accountant but never advise the accountant of what involvement they want. Every board, she explains, is different - some want minimum and others want major involvement. "The important thing is for boards to communicate," Newman says.
"Mutual respect is the basis of any good relationship," Whiting says. An effective board, she claims, has members suited to their positions. "It's nice if you have a diverse board - a different group of people with a diverse background covering different areas," Whiting points out. She says board members and managing agents alike should be accessible and responsive.
Effective management boils down even more effective communication. If everyone is kept in the loop, the building community is already far ahead of the game and is even more likely to thrive.
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