Can a HOA management company add service fees not included in the contract? This is a common question among board members, especially when they see charges they don’t recognize on the invoice. Managers are supposed to make things easier for the board, but the working relationship can quickly become strained by unexpected fees.
Understanding HOA Management Contracts
Homeowners associations are run by a board of directors, who handle everything from dues collection to rule enforcement. Oftentimes, self-managed boards find it difficult to run the entire operation on their own and require the help of professionals. These boards hire an HOA management company.
The contract is where everything starts. It’s supposed to spell out what the management company will do, how much it will be paid, and which services are included. The contract usually lays out tasks such as handling homeowner calls, sending notices, running financial reports, and coordinating vendors.
It’s important to have a transparent and comprehensive contract. A good management contract makes expectations clear. On the other hand, a weak contract leaves holes, and that leaves a lot of room for arguments. Boards need to treat contracts like guardrails. If it isn’t written down, it’s not part of the deal.
Typical Fees Included in HOA Management Contracts
While management contracts can vary from one company to another, some charges are more common than others. These include the following:
- Base Fee. This is the main monthly or annual amount. It can come as a flat rate or a per-door cost.
- Initiation Fee. This fee covers the cost of onboarding a new client. Companies need to start new profiles, set up bank accounts, and the like.
- Administrative Costs. This includes the cost of postage, mailings, and copies.
- Vendor Coordination. This covers the cost of working with landscapers, maintenance companies, or security firms.
- Financial Services. This includes audits, reserve studies, and reports.
- Early Termination Fee. This is the fee companies charge if the association or client wishes to cancel the contract before its expiry.
Management contracts also outline the scope of work included in the base and other fees. Some companies bundle everything together, while others list them à la carte. Some companies charge extra fees for optional services.
Can an HOA Management Company Add Service Fees Outside the Contract?
What happens when new fees appear mid-term? Can an HOA management company add service fees just because they think more work is involved? The short answer is no. The management contract is in control here.
If the management company claims a new law requires extra work, that’s fine, but they don’t get to decide the board will pay for it unilaterally. Both sides have to agree. This is why attorneys often recommend including a clause that says any new fee must be approved in writing. It prevents the company from sneaking in charges without consent.
Some companies might even include fine print, stating that they can charge added fees at their discretion. Boards should carefully examine contracts before signing to ensure protection from such predatory behavior. In fact, it is best to have an attorney review the contract with them.
At the end of the day, contracts should not cater to only one side. If compliance requires new tasks, the company can propose to take them on. That said, the board gets to decide whether to accept those costs, negotiate, or find another solution.
Homeowners’ Right to Review Contracts
Board members should make management contracts available for examination. Many state laws even require this. For instance, both the North Carolina Condominium Act (Section 47C-3-118) and the Planned Community Act (Section 47F-3-118) give homeowners the right to review books and records.
Additionally, board members often must present financial reports to homeowners. These reports include a breakdown of the association’s expenses, including the fees paid to the management company.
Red Flags: Hidden or Unauthorized Fees
There are certain charges boards should always question if they appear unexpectedly. These include the following:
- Late Payment Processing Fees. These are extra charges for collecting past-due assessments.
- Vendor Markups. This involves adding a percentage to third-party invoices.
- Technology or Portal Fees. This covers billing for access to online tools or systems.
- Document Prep Fees. This involves charging for tasks like disclosure documents that might already fall under recordkeeping duties.
If these are in the contract or listed in a fee schedule, they are usually valid. In contrast, if they show up without explanation, they may not be valid. This is precisely why a board should never let an HOA management company add service fees outside the written agreement.
How HOAs Should Handle Disputes Over Extra Fees
If a board gets blindsided by a new invoice, it’s important not to panic. Here are the steps board members can take to address such issues.
- Check the Contract. The first thing board members must do is review the management contract. Confirm if the fee is, indeed, written or listed in the agreement.
- Ask for Documentation. The next step is to speak directly with the manager or the management company. Request a written explanation of the fee.
- Refuse Unauthorized Charges. If the fee isn’t in the contract, the board may decline the payment. Since the agreement doesn’t cover it, it isn’t enforceable.
- Get Legal Advice. Finally, the board should contact an attorney for protection. An HOA attorney will also be helpful should the situation escalate.
How to Avoid Disputes About Management Fees
Boards that want to avoid money-related drama should take a proactive approach. Here are some strategies that will help prevent conflict over management fees and hidden charges.
1. Get Specific
The contract should list exactly what services are included. Clear fee schedules also make a huge difference. Listing what’s included in the base fee, what counts as additional work, and what the price will be saves everyone from conflict later. If posting documents, updating portals, or handling mailings is included, that needs to be evident from the start.
Boards should also negotiate clearly before signing anything. This means removing vague language and replacing it with clauses that require mutual agreement.
2. Require Approval
Write in a clause requiring board sign-off for any new fees. This clause should say that no fee changes are valid unless both sides agree to them. Never let a HOA management company add service fees without an agreement in writing.
This way, if state law changes and new compliance tasks arise, the board and the manager can return to the negotiating table. The company can explain the cost of the additional work, and the board can decide whether it’s worth paying for it.
3. Review the Contract Annually
The HOA board should review the contract annually and confirm compliance. If there are new tasks the board doesn’t want to pay the manager to handle, the board can outsource them or hold them internally.
Can an HOA Management Company Add Service Fees? Explained!
Unless the contract clearly allows it and the board agrees, extra charges have no place on the invoice. Boards can help prevent such practices by advocating for strong contracts, reviewing them annually, and maintaining consistent oversight.
Clark Simson Miller offers HOA management services to community associations. Call us today at 865.315.7505 or reach out to us online to request a proposal!
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