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Ask an Expert: When does a property manager cross the payola line?

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Q.  Is there any situation where it is proper or legal for a property management firm to accept compensation or favors from the vendors it recommends to the board of my co-op?

Also, if the firm has an interest of any kind in the vendor, does it have to disclose it--or at least answer truthfully if asked?

A.  According to our experts, disclosure is the name of the game here.

"A managing agent holds a position of trust with respect to its cooperative clients and as such has a fiduciary duty to protect the cooperative’s financial interests," says real estate attorney Jeffrey Reich.  "Given its position of trust and fiduciary duties it would be improper for an agent to accept any form of compensation or favors from a vendor it recommends to its board client, unless the compensation and/or favor was fully disclosed to the board and the vendor's price to the cooperative was commercially reasonable and competitive in all respects."  

Along these lines, says Reich, all vendor contracts should include a representation by the vendor that it offered no compensation to any party in connection with the solicitation of the contract. 

If asked, a managing agent has a duty to disclose compensation or anything of value he or she may have received in connection to a particular contract with a vendor.


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