Chapter 19 THE PROPERTY MANAGEMENT COMPANY

• Jurisdiction: North Carolina

19 THE PROPERTY MANAGEMENT COMPANY

§ 19.01. In General

It is very difficult for a voluntary board of directors to handle all the administrative tasks that come along with running an association. In just over a decade, the North Carolina legislature has heaped so many laws and regulations on homeowners associations and condominium associations that professional management is almost a necessity for all but the smallest associations.¹ While not mandated by statute, it is a good idea for most associations with budgets exceeding $400,000 and extensive property maintenance responsibilities to hire professional management. Some smaller communities may find professional management unnecessary when the complexities of the association are few. For instance, an association for a small planned community with no exterior maintenance responsibilities and no amenities to maintain may find management unnecessary for the few duties the association has relating to the common elements. On the other hand, communities with exterior maintenance responsibilities, extensive common elements, hundreds of owners and sizable annual budgets, will oftentimes find it impossible to operate the daily activities that must get done without the assistance of a professional community manager. In most communities with any significant level of responsibility, members of the association will benefit from professional property management.² Recent polling suggests that most homeowners have a favorable opinion of the professional management companies their associations use.³

Property management companies generally handle the day-to-day administrative and accounting aspects of association management, such as sending letters to owners; producing income and expense statements, balance statements and other financial documents; assisting with the preparation of the budget; coordinating the work of contractors and service providers for the association; fielding membership requests for information and documents; providing payoffs for assessment liens at closing; coordinating with legal counsel for the association and facilitating other activities an association is responsible for by law or under its governing documents. Importantly, in all instances, the board is the body that makes substantive decisions for the association — not the community manager or the management company. While the management company and manager may make certain ministerial decisions for the association (such as the logistics of mailing, payment of ordinary recurring expenses, places for meetings, storage of documents, use of software to track accounting entries, etc.), more substantive decisions are made by the board. This is a subtle, but important, distinction. Although the overwhelming majority of community managers and property management companies are honest people and organizations, complacent boards who fail to pay attention to association business because "the community manager is handling it" can lead to significant financial losses to the association. In some cases, courts have even found management contracts that transferred all decision-making authority to the management to be unenforceable.⁴ In short, the consequences and repercussions of a board's actions or inaction on substantive issues that come before the board are and should be traceable directly to the board, not necessarily the community manager.

Association management in North Carolina is one of the few industries in which tens of millions of dollars of other people's money are handled without any mandatory state licensure, regulation or rules.⁵ Unlike other states, community managers are not necessarily regulated by the North Carolina Real Estate Commission, although those licensed by the Commission as a real estate broker remain subject to its jurisdiction even in their management business.⁶ There are, however, various professional designations and certifications that community managers can achieve that ensure a minimum level of knowledge, competency and experience for managers. While these designations exist and are important, an association need not contract with a community manager or management company with any particular certification. The law in this area is still very much unregulated and left up to the boards for associations to determine the type of manager and the management company, if any, it wishes to engage for management services.

§ 19.02. Accreditation

In order to make sure a community is being managed by a competent professional, it is advisable that an association select a manager that has been trained in various association operations, including accounting, record retention, meetings, reserves and maintenance related issues. Without a licensure requirement from the State, the best way to know if a manger has the requisite knowledge and experience is to review any professional credentials they may have, as well as their formal training and practical experience. This can be done by reviewing the credentials the manager holds from an appropriate respected organization.

The Community Association Managers International Certification Board administers the Certified Manager of Community Associations® (CMCA) certification program, which is an internationally accredited certification program in the community association industry. CMCA applies to managers of homeowner and condominium associations and cooperatives. In order to obtain the certification, a manager must demonstrate knowledge on basic association operations such as budgets, reserves, investments, and assessments, insurance, maintenance and meetings of the membership and the board. In addition to the CMCA, the Community Association Institute (CAI) awards the following designations to managers: Association Management Specialist^® (AMS) and the Professional Community Association Manager®. In order to earn the AMS designation, the manager has to have at least two years' experience in financial, administrative and facilities management for at least one association and successfully pass the CMCA exam and two (2) CAI courses. The PCAM designation requires five years of management experience and successful completion of the CMCA exam and six (6) CAI courses. Once a manager has achieved the PCAM designation, he or she can earn the Large-Scale Manager (LSM) designation, which recognizes experience in "large-scale" community management.⁷

In order of least to most experience, these credentials are as follows: CMCA, AMS, PCAM, and LSM, as applicable. If a manager has the CMCA credential, you know he or she has enrolled in and successfully completed a professional development course with respect to association operations. If the AMS designation has been achieved, you know the manager has successfully completed the CMCA course of study, as well as additional formal education, and has two years of experience in financial, administrative and facilities management. Finally, the PCAM designation assures the association that the manager has even more formal education, as well as at least five years of professional experience.

CAI also accredits property management companies in addition to the managers themselves. The Accredited Association Management Company^® (AAMC) designation is awarded to companies that have a minimum of three years of experience providing community association management services, a PCAM designee as the company's senior manager and a staff of which 50% of managers hold a professional credential (CMCA, AMS, or PCAM) and have been with the company for two years, among other qualifications. The AAMC ensures the association is contracting with a company comprised of employees with a significant level of experience and knowledge in association operations. It is important that associations determine if the management company has any specified credentials and also what credentials have been earned by the company's managers themselves.

§ 19.03. The Contract

All planned communities and condominiums, regardless of when formed, have the power to hire and discharge managing agents and other employees, agents, and independent contractors.⁸ A community manager is a managing agent and therefore, these associations are empowered by statute to "hire" and discharge them.⁹ Both the PCA and the Condominium Act allow such managing agents to be used "unless the articles of incorporation or the declaration expressly provides to the contrary."¹⁰ In most instances, the bylaws for the association specifically authorize the board to contract with a community manager and the declaration and articles are silent in this regard. In these cases, the association would be entitled to contract with a property management company for management services. In fact, the only time in which an association would not be empowered to contract with a community manager is when there is express, affirmative language in the declaration or articles prohibiting it, a rare (and short-sighted) occurrence indeed.¹¹

The duties of the community manager are a matter of contract between the association and the property management company. Some associations need full-scale management services, which include non accounting-related functions and some only desire assistance with accounting functions. Some property management companies, for example, will offer limited services designed for otherwise "self-managed" associations. Such partial services include accounting services such as collecting assessments, sending delinquent notices to owners, preparing income and expense statements and balance sheets. Other associations will have a more comprehensive contract with the association that obligates the manager to do all these things, plus send violation letters to owners, inspect the property, attend board meetings, interact with various vendors and other business of the association. The nature and extent to which the community manager is involved in all the business of the association is dependent on...