 The Insider, a mighty show about living in an association, primarily condos. This show is an educational show and it's all about being if you're one of the board of directors or a homeowner or what it's like to live in a condo, what the common questions are and the common myths and misunderstandings. And I think I'd like to begin this show by wishing a happy marriage to a good friend of mine, Charlie Beck, who recently got married from tropical roofing, he's a good friend, a longtime supporter of the industry and he got married. Congratulations, Charlie, we're thinking of you and hopefully we can all get together and have a glass of an adult beverage in the near future. That being said, I've been in this industry 25 years and forever I keep hearing from owners or board, well we have a property manager, so they should do this work. And I decided to invite today a property manager, which we often call community association manager, to talk about what we really are because we're not really property managers, we're what technically in the law says a managing agent and there is some things called a property manager and what the differences are and what can boards expect from their management company. That being said, I bought a very, very dear friend of mine for a very, very long time, who I tell her all the time she's smarter than me almost and that being said, I brought in Cheryl Franklin. Hello Cheryl. Hi Richard. We've been friends for so long. We have. We have. You know, and would you share with everybody where you work and what your title is and so we know what your background is a little bit. Yes, I work at Associate Hawaii. My title is Vice President of External Affairs. I've been in the industry about 13 years. I too am a friend of Charlie, so I would like to congratulate him as well. But yeah, I've been in the business half as long as you have. You like the business? I do. I do like the business. I enjoy the business, but you're right. Very often customers or clients, they use the term property manager very loosely and it kind of crosses over into two very different industries. Well, you know, from my understanding, you're feel free to correct me if I'm wrong, although I think 1973 was the last time I was wrong, but anyway, the term, the technical term is managing agent under the statute. Yes. And so from your perspective, what is the managing agent and who do they work for? The managing agent works directly for the board of directors of the association. They take all of their direction to manage the property from the board. We don't make any decisions unless we're directed by the board. So the best option for homeowners or clients is to direct their questions and queries to the board of directors, not the property manager, or managing agent is the correct term. Right. Are all managing agents the same? I mean, is the contract exactly the same that the kind of work we do is going to be identical or is there a contract and scopes of work in all of this? It could be, but in most cases it's not. You have fiscal contracts where we just basically manage the financial affairs of the association. You have a full service contract whereby we manage the capital components or help the customer manage the capital components. So there are varying types of relationships that we can have with the board, but it all goes back to either fiscal or full service, basically, or the two. When I looked at the industry and as I said, fiscal would be, this is usually for the larger projects. You're basically doing the accounting, you're collecting the maintenance fees, you're paying the bills as approved by the board of directors, and you're producing a financial statement. You're assisting them with decisions with regard to where to invest their money in reserves, but it's important to recognize it's still the board of directors who makes those decisions, not the management company. The other extreme is what we call full service where you're actually engaged in the physical management of the property, but more times than not, my experience is that that contract is typically more with a smaller association because the larger associations will have a general manager, a site manager, and the association employees themselves handle all the physical management. And so issues with regard to the condition of the pool and whether the coconut trees were trimmed are really not in the contract of the managing agent. And somewhere in between we have what we call fiscal administrative contract where we do the finances, plus attend the board meetings, do the annual meeting, and do the minutes. Yes. Would that be a good way to describe it? You summed it up? And so... Very accurately. When a homeowner looks at that and says, we have a management company, what would your advice be about how they look at this? When a homeowner says we have a management company... Yeah, maybe they accept the pools not clean. Yeah. What they should do typically, they can reach out to the managing agent if they choose, but only as a liaison to the board of directors, or they can attend the board meeting, or send correspondence to the board to address. And then the board of directors will address it at the next board meeting, scheduled board meeting. I may ask this question two or three times, so I'm trying to make a point to our viewing audience. Okay. Does the managing agent have the authority to make decisions independent of the board? Absolutely not. So any decision has to be approved by the board of directors? All decisions have to be approved by the board of directions. And the board may set policy, for example, this is the official window standard, and you have to submit an application, and if the board has given the managing agent the authority to take action based on a set of standards, then the managing agent could... Absolutely. They could case in point, design guidelines if they want to install a certain type or style of window, and they've been previously approved by the board of directors, they can send that application to the managing agent, and the managing agent can approve it on behalf of the board of directors based on the guidelines approved by the board. So if an owner got a late fee, they didn't pay their maintenance fees on time, can the managing agent approve it, or approve waiving the late fee? Only if they've been given authority by the board of directors. And in some cases, boards will give the agent the authority to waive those fees under certain mitigating circumstances. And more times than not, my experience has been to allow... The board will make a policy and allow them to occasionally waive late fees if it's the first time. But if it's involved in legal and foreclosure, the managing agent can't waive those fees. Now, definitely when it, as it pertains to legal fees and things like that, once it's turned over basically to the attorney, we're not involved. And where does the authority to hire a managing agent come from? To hire the managing agent? Right. Where does the board get the authority? From their governing documents, from the bylaws. It's mostly true that the declaration and or bylaws states that you shall have a managing agent. And then the managing agent is described in the condo law as what it is. And therefore you have to hire a managing agent which meets the Hawaii law what a managing agent is. And they don't have the choice whether to hire that managing agent. They have to hire a managing agent, maybe a different company. Do you know what some of the requirements are to be a managing agent? Well, they do have to hire a managing agent unless they change their governing documents and that's a whole other show. But depending on what's in their governing documents, agents usually adhere to certain guidelines as you stated that are required by law. There has to be an assigned broker for the managing agent. And there are certain fiduciary responsibilities the managing agent has to have in certain qualifications that they have to have as well. They are pretty cookie cutter in the industry but there are legal qualifications that all managing agents must abide by in order to serve board of directors or in association. For your information, just a little historical background on that. The primary role of a managing agent is to protect the financial money of the owners in the association by having an independent company because boards change every year or change often, let's say. The legislature felt they wanted to have protection to have an independent company and as such the company had to have a principal broker which now puts all the broker laws on top of the responsibility requiring separate trust accounts and those types of things and requiring the managing agent to have a fidelity bond. So if that managing agent happened to be crooked and ran off with the money, the board had some fallback where if you just had a homeowner changing every year with no checks and balances, the risk was higher, it could be a problem. So most governing documents require and specify that the project, the board must hire a managing agent. Now, are there lots of managing agents in Hawaii, companies? Yes, there are. In fact, I'm kind of a nut on statistics, there's about 125 companies that are managing agents in the state of Hawaii. I didn't know that there were that many, I know the top five. There's probably a half a dozen that are big companies that really specialize in this. We have a lot of real estate brokerage firms that maybe manage one, two, three or four projects that do managing agent type work and they can hire any managing agent. Some declarations of the vital laws require the owner's approval on the managing agent, but my experience most do not, it's a board decision to pick the managing agent. What is the managing agent's duty to the board? As you just stated, to protect their financial investments, often to help them manage the capital components of the project to make sure that the value of the association continues to either be maintained or increased. It's basically to assist them with the operations of the association of the day-to-day. But like you stated earlier, in many instances, the larger associations, they have a general manager that manages the day-to-day, but it's the managing agent that will help them hire a general manager, make sure that they're vetted and do things like that, and help them organize the budget so that the general manager can go about the day-to-day. What I've learned over time that no disrespect the lawyers, but if there's a problem they sue everybody, which means they sue the board, they sue maybe individual directors, and they sue the management company. Does the management company responsible typically for the actions of the board? Is there any kind of hold harmless or indemnity attached to these responsibilities, or you want to shed any light on that? There is an indemnity clause in every managing agent. To answer your question, the responsibility of the decisions are the responsibility of the board of directors, and in some instances, when the board of directors kind of operate outside of their fiduciary duty, then they can become personally liable for any negligence involved in managing the property. The interesting thing about this industry is that by law, the board has to have a director and officer liability policy, like an errors and emissions policy. If they get sued, insurance defends the association, the board, and assuming they didn't have gross negligence or willful intent, they're going to be protected by the insurance. Like you said, and I said that they also send up suing the management company, and the management company, all the contracts that I know of have a hold harmless indemnity. You can't hold me managing agent responsible because you made the decision. The board made the decision. So when they say, well, sue the management company, they're really suing the association because the management company is going to turn it over to the association's insurance defense and say, you indemnified me, hold me harmless from all these actions. Right. And what many homeowners in an association don't realize is that when you sue the association, it's a form of suing yourself because you are a part of that association as a homeowner. And your insurance and all the legal fees are tied into the operational expenses of that association. But many times, owners just don't understand the dynamics of how a board is run. So they get a little confused in terms of what's a legitimate cause for a lawsuit. And it just becomes a check and balance down the line at some point. And I have some more questions. But what we're going to do is we're going to take a short break to give us a chance to get our thoughts scheduled. But I have a few more questions about this. And then I want to talk about a rental manager in that role as well. So we'll be right back after a short break. Aloha. Hi, I'm Lisa Kimura. I'm the host of Family Affairs on Think Tech Hawaii. Join us every Tuesday at 11 AM to talk about the issues that really matter. Everything from policies that need to be changed in Hawaii to the fact that we need better gender equality so that we can all have a better shot. Again, join us every Tuesday at 11 on Think Tech Hawaii for Family Affairs. Aloha. Aloha. This is Winston Welch. I am your host of Out and About, where every other week, Mondays at 3, we explore a variety of topics in our city, state, nation, and world, and events, organizations, the people that fuel them. It's a really interesting show. We welcome you to tune in, and we welcome your suggestions for shows. You got a lot of them out there, and we have an awesome studio here where we can get your ideas out as well. So I look forward to you tuning in every other week where we've got some great guests and great topics. You're going to learn a lot. You're going to come away inspired like I do. So I'll see you every other week here at 3 o'clock on Monday afternoon. Aloha. Welcome back to Condo Insider. We're sitting here talking with Cheryl Franklin, Vice President of External Affairs for Associate about the difference between a managing agent and what the managing agent's role is, and we're going to talk shortly about a rental manager. But where we kind of left off is we've said that a managing agent is an agent. An agent means they are the representative of another body in the sense they've been assigned as an agent to do certain work, which is defined by a scope of work in the contract, which may include the financial, probably always includes the financial, may include board meetings and annual meetings, and may or may not include physical management of the property and larger associations with their own staff. Typically those employees report directly to the board and those decisions are done by the board, not by the managing agent. So when you look at what an agent's role is, they may be the number one person to communicate with the owner on basic issues, but in the end the management agent, the managing agent does not have the authority to make decisions and will have to go to the board for approval and that managing agent is indemnified and held harmless because how can you hold someone responsible for instructions given by the board of directors? And Sheryl was basically saying that when you sue the board, you sue the managing agent, you're really suing yourself because it's you, the association. There are a lot of lawsuits, you know? Yes, unfortunately there are. Many of them are related to catastrophes or insurance claims, I should say, like water intrusion and things like that because there are disputes in terms of who's liable. As we know in general, if you have water intrusion, you should absolutely contact the insurance company and especially one end involves multiple units, so you know there's some mitigation that has to happen there, but quite often what happens is the homeowner either doesn't have an HO6 policy or they want to dispute the decision of the insurance company in terms of who's responsible and deductibles and things like that, so they tend to try to circle back and sue the association because they believe that the association should be on the hook for the entire thing. Yeah, what's interesting to me about that is my experience anyway, is attorneys are expensive, they're not cheap, the process is slow. Over the last few years the condo statute has been amended that for $175 for each party, meaning a total of $175 for an owner, they can get to mediation or binding arbitration before a judge on the matter, they don't have to hire a lawyer and the cost, the balance of the cost after the first, if it's two parties, $175 times two is $350, all the costs thereafter are borne by the real-sake education fund, the condominium has put money and all condominiums into this fund, there's well over a million dollars in this fund. The purpose of that is to keep, because a lot of arguments have been that the board has all the money, they can hire lawyers, the owners have no money, they're at disadvantage. The law has changed to allow dispute resolution efficiently for $175 a party where the balance is paid by the condo education fund and that's not used as often as it should be. Yeah, I was going to comment on that because I think that the managing agent, it's imperative that they educate their boards that these resources are available because many of them are unaware that they are available and they end up going a different route, but it all goes back to the managing agent's responsibility is to often lead and advise the board, not legal advice, just kind of leave them and make available to them what resources are out there to help them with their responsibilities. Hawaii condos statutes are fairly specific on insurance and deductibles and there's certainly a longstanding protocol with regards to that. Wouldn't it be simpler if the owner began with just going and talking to the board, either an executive session or at a board meeting saying, I don't understand why we have this problem and looking for ways to address it? Yeah, in simple terms, you're absolutely right, but what sometimes happens is boards aren't as savvy and condo law as they should be as well and homeowners sometimes, like you said, they assume the associations, they have all this money that they're hoarding and they can fight legal claims and so they want to sue because it goes back to your involvement with the association and trust. And if you can garner a relationship where you're educated, meaning the board is educated and they can thereby educate owners, then it's a win-win. But often you see situations where there's some little mistrust and that's where those kind of the other dynamics come in in terms of, you know, I'm going to sue and things like that. But you're right, everything is pretty clear in terms of the law and in terms of the insurance company summary because obviously they'll come back and they'll say, okay, this unit caused the leak, this unit is responsible and then the managing agent will say go back and file this with your H06 policy and sometimes owners just don't want to do it because for whatever reason they think their rates will go up or something. Yeah, part of the problem is I don't think anyone knows the history of insurance in the sense that going back in the old days when the buildings were younger, the board would get an insurance policy for water claims and all water claims are covered by the association's master policy. All claims, I don't care if it's a dollar, is theoretically a claim. Now the association through its deductible may have agreed to assume part of the risk but it's still a valid claim with regard to the claim. Now what happens is in the old days the board used to have like a thousand dollar deductible. But as more and more claims happen as buildings got older, the claims got to be $10,000, $20,000, $30,000 the deductible. And so what they did is the law change allowing the board to require the owner to be responsible for the deductible. And so the H06 policy of the owner covers the deductible. And so the board doesn't have to be your fault. The board has the right to assess the deductible and the purpose behind that was a typical H06 policy is a couple hundred dollars a year. The cost of reducing the association's deductible to a thousand for all claims would be thousands of dollars a year per owner because they know they're going to have a claim and it's going to be some risk. So it was a way to tap into the fact there's multiple H06 policies by multiple insurance companies and put that portion of liability on multiple companies versus the master policy. Maybe I didn't explain that very well, but the idea behind it was, even though the board can't specifically identify that you caused that damage, they still have a right under the law to assess you the deductible if your unit is involved in the repair. Correct? Correct. So again, I would just encourage people to talk to your board and certainly your management company. But oftentimes they'll give you the answer and people immediately react because it doesn't make common sense to them. And they all get a who-who and they get a sue. And and and I would tell you that the state of Hawaii has the largest number of director and also liability claims in the country. Yeah, I know that. And we but we also have the most condos per capita. That's true. Yeah. So and they lose. Let's take a property manager because the owner and the property rents out their unit to a tenant and so they hire a property manager who a real estate company to be their manager of the unit. How is that different from a managing agent? That's completely different. That is relegated to the inside of the unit and a rental lease. Managing agents basically manage the common common components along with the board of directors. You can have a managing agent that's one company and individual owners are free to hire another property management company to rent out their unit. So it's basically dealing with rental leases and things like that for tenants opposed to owners. A lot of people may not realize if a owner hires a management company to rent their unit and there's now an insurance claim that the insurance company will not deal with that property manager and will only deal with the owner. Yeah, because ultimately the owner is responsible, especially when in condo land, if you will, everything is is is based on the relationship with the owner because they're ultimately responsible. It's like hiring any other owners can hire any other vendor that they choose. So when there is an insurance claim, the condo association is not going to deal with that vendor. They're going to deal with the owner. It's interesting, I was in a hearing last day or so regarding an owner and their argument about the property manager's duty with regard to an insurance claim. And under the testimony, it came out that that the property manager tried to work with the insurance company and they refused to work with the insurance company, refused to work with the property manager saying, look, the owner of the H.O. Six policies owner, we have to work with the owner. And as far as a claim for a certain amount of money, it's an issue with the owner. It's not an issue with the property manager. And actually, the insurance company refused to provide information to the property manager what was going on, saying it's a privacy matter of an insurance claim between an owner and the insurance company. Yes, that's true. And so that case, the owner was blaming the management company for the property manager, not the managing agent, but the property manager for not getting it done. So anyway, we are down to the last few seconds of our show, believe it or not, went fast. It does. We could probably do this for hours. We could. And we should probably have a glass of wine and a bottle of wine and maybe two or three bottles of wine and really dig into this at the greatest level possible. In summary, I just want everybody to know that when they're looking at working with their managing agent or their rental property manager, they need to realize this is governed by very specific laws and is primarily driven a lot by the scope of work. But also there are certain privacy issues that come about that may to you not make common sense. Before you go sue anybody, file any claims, go to your board of directors, go to your property manager, the realtor, try to get more information. And if you have to, there are dispute mechanisms available that are practically free and are available to you. On that note, we want to thank you for watching Condo Insider. We hope you found the information today useful. And we will hopefully see you next Thursday at three o'clock for another edition of Condo Insider. Aloha.