The Financial Landmines Inside Every Management Transition

Switching managing agents sounds straightforward — until it isn't. In this episode Meredith Wettach, manager at WilkinGuttenplan, unpacks the financial surprises that quietly derail co-op and condo buildings during management transitions. Wettach has seen it all: missing records, dormant accounts nobody knew existed, and six-figure expenses that slipped through the cracks for years before anyone noticed. She walks boards through the specific documents, accounts, and vendor relationships that demand immediate attention when a new agent takes over — and explains why even well-intentioned, hardworking boards so often miss them. Habitat's Carol Ott conducts the interview. 

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Transcript

NYC Best: Problem Solved is sponsored by NYC Best Property Management. NYC Best Property Management partners with co-op, condo, and community association boards, developers, and high-rise property owners to provide expert guidance on operational decisions and budget strategies, ensuring efficient and effective property management.

At NYC Best Property Management, we go beyond just managing properties. We focus on creating a place where you truly feel at home. Together, we make living easy and enjoyable. Contact info@nycmgt.com to learn what NYC Best Property Management can do for you 

Carol Ott: Welcome to Problem Solved, a conversation about challenges facing New York co-op and condo board directors.

I'm Carol Ott with Habitat Magazine. Changing managing agents is a huge transition for any building, and during that process, sometimes boards learn about financial issues, missing records, or other surprises left behind by the prior management. Today we're talking with Meredith Wettach, manager at the accounting firm of WilkinGuttenplan, about the financial issues that often surface when buildings change managing agents.

Welcome, Meredith. 

Meredith Wettach: Hi. Thank you. Thank you for having me. 

Carol Ott: So it's such a big deal to change management companies. What are the areas where things most commonly fall through the cracks? 

Meredith Wettach: Yeah, that's a great question. So whenever a client comes to me and they are considering changing managing agents, I always ask them, "Why are you wanting to make the change?

What is it that is driving this right now? And is there anything specific that the current managing agent can do to fix it?" Oftentimes they're at a point where they're ready to move on. So at that point, I say clearly identify what is the issue that you're currently having and make sure the new managing agent is aware of that.

And one issue I know that caused a managing agent transition, during our audit, we had identified that there was a lapse in communication or processes at the former managing agent whereby unit owners were be- being provided in-unit services and were not being charged back for those services in their apartment.

Now- 

Carol Ott: What kind of services are you talking about? 

Meredith Wettach: It was specifically here related to HVAC charges, but sometimes we see this with alterations. The building might have a specific architect that they require being used. In this case, it was specifically for HVAC repairs were the responsibility of the unit owner.

Now, what ended up happening, we brought this to the board's attention, management's attention, and ultimately it was about $150,000 worth of expense- 

Carol Ott: Oh ... 

Meredith Wettach: that the building, yeah, had paid on behalf of unit owners and had not charged back to those unit owners. So when this transition happened was one of the first things that the new managing agent really focused on.

It took them about three months to really get it cleared up. It also required going back to a unit owner and saying, "Hey, I'm sending you an invoice for an expense from a year ago." So obviously the unit owners were not thrilled in that case. But yes, to your point, things start to come out of the woodworks a little bit when these managing agent transitions happen, and hopefully the new managing agent can get it sorted as quickly as possible.

Carol Ott: So I expect that sometimes the problem isn't uncharged things or missing money. It's money in accounts that the new management company doesn't even know exist. 

Meredith Wettach: Yeah. 

Carol Ott: Talk to me about that. 

Meredith Wettach: Yeah, absolutely. So cash and the transition of cash can be an absolute headache sometimes for buildings.

When a managing agent transition occurs, the cash that was previously held by the former managing agent is generally transitioned to the new managing agent. So operating accounts, working capital reserve accounts, those are generally closed out and sent over. Now, there's always two kind of words of caution I give my clients when this cash process transfer is ongoing.

The first is, do you have any debt accounts or debt service that the building has? Oftentimes within the loan covenants, there will be specific provisions that a specific debt account has to remain open for the entirety of the loan, and a minimum balance has to be maintained. Now, sometimes that account is closed out and the cash is sent over, and people don't even think twice in reopening that account.

A client I had actually got a notice from the bank that they were out of compliance with their debt covenants and that caused red flags, right? So they quickly reestablished the account and all was fine, but I always tell clients, "Make sure your debt service accounts are taken care of." Another item is board-held accounts, investment accounts, and sometimes the board member is the main signatory and is the main one managing that.

Make sure the new managing agent is aware that account exists. You want to ensure that they're still getting those bank statements, that they're aware of the balances. When you're thinking of then capital funding and planning, they can then incorporate those account balances into those future plans.

Carol Ott: So beyond these kind of bank accounts and debt accounts What kinds of records or documents are most likely to get overlooked during a management transition? 

Meredith Wettach: Oftentimes we see a lapse in- permanent documentation, as in the governing documents, commercial leases, amendments to leases. Especially on a co-op, they might have had a tenant for, say, 20 years.

Maybe there's been an amendment or two throughout, and when the transition happens, that amendment gets lost. I always tell my clients, make sure your new managing agent has all of the documents, the amendments, the leases, the bylaws, the offering plans, all of those things to ensure that going forward everything is done in accordance with those documents.

If you don't have them or the new managing agent has not provided them, reach out to your accountants. They probably have copies of them. Reach out to your lawyers. Reach out to your real estate brokers. I always want my clients to know that you have a network of professional service providers that want to help you during this transition, and generally they will have the documents that you're looking for in those cases.

Carol Ott: I'm wondering for commercial leases- 

Meredith Wettach: Yeah ... 

Carol Ott: often there's riders or there's something that You know, get screwed up in the transition. Can you talk to that? 

Meredith Wettach: Yeah, absolutely. So I would say a very common occurrence that we see when any unit owner, and specifically maybe a commercial tenant, is set up in the new accounting platform, the charges that the prior managing agent was charging are just continued on.

So I always tell my clients, make sure you review the lease to see if there are escalations in that commercial tenant's lease, if there are real estate tax clauses where they're being charged back for a portion of the building's real estate taxes, if there's utility charge-back provisions, because sometimes those charges are not an every month reoccurring, but maybe one time a year or two times a year.

And we've had situations that during an audit we identify that after the managing agent transition happened, they did not re- realize necessarily that they were supposed to be charging that back. Really knowing all of the provisions of those leases to ensure that you're really not leaving money on the table.

Carol Ott: So I'm just curious, in your experience, are most of your board clients on top of all these documents and due dates and debt accounts? No. 

Meredith Wettach: No. It's a lot. It is so overwhelming because also boards are volunteers. They have full-time jobs and they are on the board because they care about their investment and they care about the betterment of their home which is oftentimes people's most important investment.

But no, it can be a lot and hopefully you transition to a managing agent that is on top of these things, right? Like the managing agent is the one who should be responsible for recognizing these things. I give these words of caution because we have seen that they are missed, and that's where hopefully you have great accountants and you have great other service providers who can step in when things fall through the cracks.

Carol Ott: If you were gonna give a board a very simple checklist, one that they could manage, what are the first three things you'd tell them to confirm when they transition, if they were transitioning to new management? 

Meredith Wettach: Great question. So the first is when the transition happens, make sure that any amounts due from unit owners or prepaid common charge balances are transitioned over correctly.

Especially if you have collection issues at your building, make sure that's something that the new managing agent is focusing on. Otherwise, you're gonna have unit owners coming to you complaining that they're, they haven't gotten credit for their prepaids or that their balance is wrong. So make sure that's set up correctly.

Make sure the new agent is aware of all cash accounts at the building and new accounts that are needed to be set up are set up. Make sure that the new agent has all of the permanent documents, governing documents for the building. Make sure you're informing vendors. Make sure they're aware of that change so that they're sending their invoices to the right people.

And then fifth, just have open communication with your new managing agent. They want to improve your building. They want to have long-term success. The first month or two or six months of a transition can be painful, but it generally is worth it in the long term. 

Carol Ott: And for a board, you mentioned a lot of things that I frankly don't know that a board would be able to determine if it was transitioned correctly.

Meredith Wettach: Yeah. 

Carol Ott: Is it typical that they ask their accountant to review all this stuff? Is that how this works? 

Meredith Wettach: Yeah, that's a great question. They should be. And I like to say our firm provides this white glove service, like when we know a managing agent transition happens, because we see these errors and these problems so frequently, they are things that we specifically focus on to ensure are addressed as soon as possible.

So I would say that if a managing agent transition has occurred at your building, tell your accountants, tell those professional service providers that you want them to pay a little extra attention here, and let them know. 

Carol Ott: That's really good advice, and a good lesson for all boards. That's Meredith Wettach, manager at the accounting firm of WilkinGuttenplan.

I'm Carol Ott, and this is Habitat's Problem Solved, a series that dives into dozens of real-world examples of everything co-op and condo boards face as they try to maintain and position their buildings for the future. Experts provide cost-saving tips, board-focused strategy, and of course, lessons learned.

If you're a board member with your own story to share, we'd love to hear from you. Please get in touch online at habitatmag.com or use the contact details in the monthly print magazine. Thank you so much, Meredith, for joining me today. 

Meredith Wettach: Thanks, Carol 

WilkinGuttenplan: You've been listening to Meredith Wettach, a manager at Wilkin Guttenplan.

Managing your building's finances shouldn't feel like guesswork. Wilkin Guttenplan helps co-op and condo boards take control with clear audits, smart tax strategies, and financial insights that stand up to scrutiny. From reserves to compliance planning, Wilkin Guttenplan guides you every step of the way with accuracy you can trust and expertise you can depend on.

Visit wgcpas.com to strengthen your community's financial future.