Management Company Duties Checklist
Disclosure Statement to Board before Contracting
The management company must give a written statement to the board, no earlier than 90 days before entering a contract, containing the following: (a) Names and business address of the owners or partners of the management company. If the management company is a corporation, it must include: (a) the names and business addresses of the directors and officers plus shareholders who hold more than 10% of the shares; (b) A statement containing the names of any of the above persons who hold relevant California licenses in areas such as architecture, construction, engineering, real estate or accounting, the licenses they hold and the dates the licenses are valid; (c) A statement containing the names of any of the above persons who hold relevant professional certifications or designations in areas such as architecture, construction, engineering, real estate or accounting, which certifications or designations are held, what that certification or designation is and who issued it and the dates the certifications or designations are valid; (d) A statement disclosing any business or company the manager or management company has any ownership interests, profit-sharing arrangements, or other monetary incentives provided to the management company or manager; and (e) A statement as to whether or not the manager or management company receives a referral fee or other monetary benefit from a third party provider distributing documents pursuant to CC §§4528 & 4530. [CC §5375] A manager or management company shall also disclose, in writing, any potential conflict of interest when presenting a bid for service to a board. “Conflict of interest” is defined as (1) any referral fee or other monetary benefit that could be derived from a business or company providing products or services to the association or (2) any ownership interests or profit-sharing arrangements with service providers recommended to, or used by, the association. [CC §5375.5] [CC §5375]
Professional Certification Disclosures
On an annual basis, an association manager must disclose to each association board, (a) whether or not the manager is “certified,” as defined in the statute, (b) the name, address, and telephone number of the professional association that certified the manager, the date the manager was certified, and the status of the certification, (c) the location of the manager’s primary office, (d) whether the fidelity insurance of the manager or the manager’s employer covers the current year’s operating and reserve funds of the association, and (e) whether the manager possesses an active real estate license, (f) disclose information required in Section 5375 of the Civil Code, (g) Whether or not the common interest development manager receives a referral fee or other monetary benefit from a third-party provider distributing documents pursuant to Section 5300 of the Civil Code, (h) An affirmative written acknowledgment that the disclosure provided to a member or potential member pursuant to Sections 4528 and 5300 of the Civil Code, and all documents provided thereunder, are the property of the association and not its managing agent or the agent’s managing firm. See statute for more details. [B&P Code §11504]
Unfair Business Practices
It is an unfair business practice for a manager or management company to hold oneself as “certified” without meeting the requirements of B&P Code §11504, to state or advertise that the person is certified, registered, or licensed by a governmental agency to perform the functions of a certified common interest development manager, to state or advertise a registration or license number, unless the license or registration is specified by a statute, regulation, or ordinance, or to fail to disclose or misrepresent any item to be disclosed under B&P Code §11504. [B&P Code §11505]
Separate Bank Accounts
The management company must deposit all funds belonging to the association either into: (1) an escrow account with a bank, savings association or credit union, or (2) an account under the control of the association, or (3) a trust account with a bank, savings association or credit union located in California, insured by the federal government or is a guaranty corporation subject to Financial Code §14858, and held there until disbursed according to the association’s instructions. [CC §5380(a)]
Interest-bearing Accounts
Upon the association’s written request, the management company must deposit all funds it accepts or receives on behalf of the association into an interest-bearing account in a bank, savings association or credit union located in California that is insured by the Federal Deposit Insurance Corporation, National Credit Union Administration Insurance Fund or a guaranty corporation subject to Financial Code §14858. (1) The account must show the management company as trustee for the association, (2) the fund must be insured by an agency of the federal government, (3) The funds must be kept separate from the management company’s own funds and from other funds the management company holds in trust, (4) Disclose the nature of the account and any interest, service charges, notice requirements, and early withdrawal penalties, (5) Interest cannot benefit management company or employees, (6) Transfers from operating or reserves require Board approval unless the transfers are less than $5,000 or 5% of estimated income for associations with 50 or fewer separate interests, or less than $10,000 or 5% of estimated income for associations with 51 or more separate interests. In no event may those funds be invested in stocks or high-risk investment options. [CC §5380(b)]
Maintaining Accounting Records
The management company must keep a separate record of all funds received and disbursed from any account described in CC §5380, including any interest earned on the funds. [CC §5380(c)]
Commingling Funds
The management company may not commingle association funds. [CC §5380(d)]
Lien and Foreclosure Actions
If a management company undertakes lien and foreclosure work on behalf of an association, there are significant, technical requirements to follow. [CC §5650 et seq. & §5700 et seq.] If a lien is recorded in error, there can be significant economic costs and delays to an association to correct the error. [CC §5685]
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