Mgmt Agent liquidated damages if terminated
Hi Dennis…is it customary for a mgmt co to collect liquidated damages if the Association terminates them? This termination clause was recently negotiated by the Board and went into effect 1/1/24. If proper termination notice is provided, the Association shouldn’t have to pay the management company liquidated damages. If you ask me, this is a waste of homeowner funds and not in our best interest.
The base monthly fee is $2,388.17.
Section 3. Termination. Either party may terminate this Agreement for any reason upon sixty (60) days prior written
notice via certified mail. The termination date shall be sixty (60) days after receipt of such notice or a later date
mutually agreed upon by the Parties. Upon termination of this Agreement, Managing Agent shall have no further
obligation or liability to Association or its vendors. Upon termination by Association for any reason, Managing Agent
is entitled to the lesser of the remainder of the then current term of this Agreement of base monthly management
fees described in Section 1, or four months of base monthly management fees described in Section 1, as liquidated
damages. Upon termination by either party, any charges for services performed by Managing Agent under Section 5.7,
which were considered deferred or remain unpaid for any reason, are due and payable immediately upon notice of
termination, and Managing agent is expressly authorized to deduct amount due from Association funds.
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Kathy,
The Arizona Constitution prevents any laws that will impact the freedom of two parties to agree to a contract. Because the board was completely stupid to agree with such a term is not illegal. We can never legislate integrity or against basic stupidity. Management companies put basic boilerplate in their contract that protect them, and for the most part inexperienced board members across the state do not understand that they have the right and in fact the duty to negotiate contracts to favor the association and the community. What happened to your community happens every day in communities across the state. There is absolutely no need for any board to ever accept such a restriction on their ability to terminate the contract with the community management company. If the management company refuses to alter their boiler plate negotiate a memorandum of understanding that will supersede that boilerplate provision. You are free to negotiate every single word in any contract but once you sign it you are bound to it for the term of the contract. If the management company will not negotiate, walk away, management companies are a dime a dozen in this state, and you will find one that is willing to work for your business. This community management could rob the association blind and the board could not fire it without paying the cost for the rest of the year. Why would any board member agree to such a term. If this clause is ever required to be implemented each and every homeowner would have a cause of action against their board personally based on breach of duty to the community. It is time that boards are held accountable for basic stupidity in the management of the community.
Boards do not hesitate one minute to call their attorney whenever they want deal with a homeowner, but they will never have their attorney review any contract they sign to make sure that the terms favor or at least do not penalize the rights of the association. Your association money would be far better spent doing that then having a lawyer write a useless “Cease and Desist” letter to intimidate a homeowner.
Dennis
Thanks Dennis. Believe it or not this negotiated term was better than the original term which made the association responsible to pay them a monthly fee until the end of the term which is a year. The mgmt coaccepted all the terms the Board proposed.
This makes it even worse. The board knew that they could negotiate terms, and this is what they ended up with. Pretty poor negotiation skills in my opinion. very little difference between the original terms and this provision. Words are different but the outcome is exactly the same. They pay a lump sum for the remainder of the contract instead of monthly billings.
Sorry but totally irresponsible. The contract should be able to be terminated with or without cause by either party with 30 days’ notice. Period. no continued payments for no work and no penalty payments. If the management company does not do their job, they get fired plain and simple. Boards need to get a backbone and stand up for their homeowners instead of giving away the farm because they are too lazy to negotiate a contract that is reasonable and fair.
Dennis