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Crunch the Numbers or Keep the Staff? The CPI Impact on Property Management Contracts (Community+)




Are you ready to dive in deeper on how to balance finances and keep consistent staff in your condo corporation? To explore the CPI impact on sustainable property management services, while also ensuring you consider the best interests of your corporation's ownership? Then we have a great Community+ article for you!


Last week, we discussed "The Critical Role of Contract (CPI) Adjustments for Effective Property Management: Balancing Budgets and Sustainability for Consistency in your Condo", an informative article on how Boards should deal with discussions about contract adjustments (CPI's, increases) that included the pertinent viewpoints of industry leaders.


Today, we're closing in even further on how crunching the numbers affects condo management staff and contracts. Our latest guest post (Community+) is a collaboration with Nicholas Chirametli (President of City Sites Property Management Inc.), who shares his first-hand insights on this issue and its impact across the condo industry.


Thank you, Nicholas, for sharing your perspective with our collective condo community! Let's get started!

-Stratastic Inc.


P.S. For more helpful resources such as this, don't forget to register now (it's free)! You can also check out our extensive Resource Library for over 10,000 hand-curated condo-related resource, at your immediate disposal!


 

Crunch the Numbers or Keep the Staff?

The CPI Impact on Property Management Contracts (Community+)


The Property Management Agreement is the single most important contract relationship between the Condo Board and third-party contractors. The average layperson needs to understand the role of the Manager and the Management Company to better understand where the Corporation’s money goes so they understand how best to compensate their Property Management Companies and by extension, their Property Managers. 


The Property Management Company’s continuing obligation is to support the Manager by making tools and resources available to them to assist them in the performance of their duties. Part of these responsibilities is providing the appropriate accounting and supervisory infrastructure to empower the Manager; but it’s important to look a little deeper. The Property Management Company’s first goal in establishing a contractual relationship with a client is to recruit a suitable Property Manager to assign to the Corporation. 


The Management Agreement provides for the total budget available for the Property Management Company to recruit this individual, provide training and lend its infrastructure and support both to the Manager and the Corporation’s Board of Directors. The greater the budget, the greater the range the Property Management Company has to offer a competitive salary to the Manager and sustain their employment over the course of the Contract. Additionally, the more time and resources the Property Management Company can dedicate to the overall operations of the community. 


In essence, the Property Management Company’s first task is to provide skilled labour to the Corporation within the budget provided by the Management Agreement.


The Property Manager’s role is to arrange for maintenance and repairs/replacement of common element components, manage the Corporation’s bank accounts and investment accounts including collecting funds from owners and issuing payments to service providers and suppliers, and is tasked with budgeting and enforcement. This is a broad summary of some of the tasks that the Manager is required to perform in any given fiscal year. 


Imagine if the Corporation hires a Property Manager that is inexperienced in contract negotiations or financial planning. What impact will this inexperience have on the Corporation’s financial position throughout the fiscal year? The Corporation might not benefit from the savings it might otherwise receive when a shrewd Manager monitors the Corporation’s finances. 


How about governance? An experienced Manager may cost more to hire but may save the Board of Directors considerable time in making decisions which enable them to focus on important tasks and make property improvements rather than struggle to accomplish their goals throughout the year. 


There are dire implications in hiring a Manager without the necessary skills or experience to handle complex tasks and doing so will cost the Corporation more money in the long term. In other words, you get what you pay for. Why is this important?


Well, we are all too familiar with the escalating cost of living in Ontario. The price of groceries, gas, taxes and in fact all other living expenses are tied to inflation. Over the past several years, inflation has escalated quickly, putting pressure on individuals and businesses alike. Not only are these pressures mounting on individuals, but the condominium management industry is also experiencing its own share of financial pressures.


Condominium Managers must now complete continuing education courses through the Condominium Management Authority of Ontario (“CMRAO”) in addition to paying an annual licensing fee to permit Managers to work in the province. These regulations require the Manager to pay fees to work and commit professional or personal time that might otherwise be spent working or enjoying their leisure activities to complete these mandatory courses. Conversely, Management companies must pay a fee for each Manager they employ along with providing additional resources. There are both direct and indirect costs to these pursuits. 


The Board must consider the financial pressures on Managers and Management Companies are increasing year over year. The condominium management industry is already suffocated by employment shortages due to the high number of condominiums being built in the province, and what is becoming a higher threshold for Managers to enter the condominium management industry. This effect has increased the salary expectations of Property Managers, while the service cost charged by Management Companies has remained relatively steady. 


Let’s say that the Board of Directors rejects a proposed CPI increase to the Management Agreement. Year over year, the Management Company will lose money to inflation, rising employment costs and other expenses assigned by the increasing regulations to the condominium management industry. Over the course of a standard three-year Management Agreement, the Property Manager themselves may wish to make a higher salary than is provided in the budget - and this may result in them seeking employment elsewhere. 


If the income to the Management Company does not increase year over year, how can Property Management Companies offer and sustain competitive salaries for their employees?


The risk is that there will be an increased likelihood that the Corporation may be assigned a more affordable Manager, but they may not be as qualified to meet the Board’s expectations, will come with a learning curve to the community, and may cost more money in the long term. There is also an increased likelihood that the Corporation will continue to experience a high degree of turnover of its Managers if payments to the Management Company do not increase with the cost of living. 


Although contract increases may be criticized by Boards which are seeking savings, in my view, it is far better to benefit from savings by hiring a skilled professional and compensating them fairly to properly manage the Corporation’s affairs. This approach encourages a more cohesive and consistent relationship between the Board and Management Company, where more time and resources can be invested in the Corporation’s success. By extension, your Manager will be far more motivated to perform to their highest ability.


-Nicholas Chirametli, President of City Sites Property Management Inc.

Edited by Stratastic Inc.


Nicholas Chirametli is the President of City Sites Property Management Inc., an Award Winning and ACMO 2000 Certified Company. He received the Genesis Award from the Association of Ontario for providing exceptional service to the condominium management industry in 2016. He was co-chair of the Education Committee for the Community Association Institute of Canada and a member of the programming committee for the Association of Condominium Managers of Ontario.


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