The Main Provisions of a Financial Management Agreement for a Condo Community or Home Owner Association (HOA)
So you decided to have a company help your board perform the monthly accounting tasks to operate your community. The commencement of this service is documented with a Financial Management Agreement. Curious about the main provisions of a financial management agreement? The agreement will help explain what tasks will be performed, when they will occur and what they will cost. The more information included in the agreement the more likely expectations will be met. Furthermore a well written agreement will help educate future board members about the service.
Service agreements are written by lawyers so there are legal paragraphs and legal wording. If you peel back the legal language there are several main paragraphs that spell out the business terms of the service. The following is a list of the key provisions:
Parties Involved
The community and the company providing service and their addresses
Contract Date
Typically the date when signed
Start Date
The date when service begins
Term
Typically the term is for 1 year from the start date. Some communities ask for longer terms to feel there is a longer term commitment and that is ok too.
Auto Renewal
Many agreements renew automatically for additional 1 year terms on the anniversary of the start date. This saves work of reviewing and resigning the service agreement each year. The termination clause will end the relationship if there is an issue that cannot be solved along the way or the community decides to go in a different direction.
Termination
Typically the contract is cancellable by either party with 60 – 90 days written notice.
Included Service Activities
There will be several paragraphs that go over the details of collecting and depositing association funds as well as paying bills.
Financial Reports Included
The monthly or quarterly financial report package includes many reports. The main reports included in the package are listed in this paragraph.
Frequency of Financial Reports
Typically financial reports are delivered monthly but some boards request quarterly.
Timing of Financial Report Delivery
Typically the prior month’s books are closed and delivered to the board between the 20-25th of the following month. For example June’s financial reports are delivered between July 20th – 25th. Accommodations may be able to be made to provide the reports if the association’s board meetings are earlier in the month.
Fees
The base monthly fee plus an outline of potential additional charges.
Payment
There is a base monthly fee that is charged at the beginning of each month. At the end of each month you will be invoiced for the actual materials used or any special projects.
Insurance
Is the service insured? If so the type and limits of the insurance is listed. Is the community insured? The paragraph may also include what coverage the community needs to have. This section may also require that each parties insurance name the other as “an additional insured”.
Signors
Typically a Board President or Treasurer signs the agreement and it is countersigned by an employee or officer of the company providing the service.
After the board reviews the document to make sure the business terms are the same as what was discussed you will want to have your community association attorney review the document as well. Attorney’s may add language specific to your state’s regulations and make good suggestions to discuss with the service company. However, don’t let the attorney go wild and try to re-write the agreement and make a lot of changes just to charge a higher fee.
Summary
A financial management agreement helps explain the services being provided to a community. Besides the required legal paragraphs, a good agreement is clearly written, long enough to be descriptive and even educational. Don’t be disappointed if the agreement is several pages in length, remember this document helps to ensure your expectations are met. Schedule a free consultation with us to discuss your property, receive a quote and then a financial management agreement to review.
