DEVELOPER TRANSITION - Frequently Asked Questions
Q: What is Developer Transition?
A: Transition (more commonly referred to as "turnover") is simply the process in which the right to control the association shifts from the developer to the homeowners. Some homeowners mistakenly believe that "turnover" is the point in time they receive title to the buildings and common property and confirm that the developer has met all of its obligations. This is not the case. The transfer of property takes place as each home or unit is completed and sold. What is transferred at developer transition is control of the association.
Q: Why is Developer Transition significant?
A: Developer transition is an important milestone for a community. Following a successful transition, the homeowners are in control of their own community and can make all the decisions through their elected Board of Directors.
Q: When does Developer Transition occur?
A: For condominiums, transition or turnover begins when the developer has sold 15% or more of the total units. At this point, the homeowners are entitled to elect one-third (1/3) of the members of the Board. The homeowners are entitled to elect a majority of the Board three (3) years after 50% of the units have been sold, or three (3) months after 90% of the units have been sold, whichever occurs first. There are other statutory events that can trigger the transition, such as bankruptcy or receivership for the developer, which should be discussed further with legal counsel.
For homeowners associations ("HOA's"), the homeowners are entitled to elect a majority of the Board three (3) months after 90% of the homes have been sold.
Q: Can the Developer require an earlier Transition date?
A: Yes. The developer may provide an early transition date in the community documents.
Q: For how long will the Developer be entitled to elect Board members?
A: The developer will be entitled to appoint at least one member to the Board provided the developer holds for sale at least five percent (5%) of the homes.
Q: My condominium association is ready for Developer Transition but nothing has happened. What happens next?
A: Within 75 days after the homeowners are entitled to elect a member or members of the Board, the association (as controlled by the developer) shall give not less than 60 days' notice of an election for the members of the Board. The notice may be given by any unit owner if the developer-controlled association fails to do so.
Q: Must the homeowners accept Developer Transition?
A: Yes. When the homeowners are legally permitted to take control and control is tendered by the developer, the homeowners must accept operational responsibility.
Q: Is the developer obligated to turn over anything other than control of the Board?
A: Yes. At the time of transfer of control, the developer must deliver to the new Board, at the developer's expense, all property of the association including, but not limited to, association funds, meeting books, original Declaration and bylaws, plans and specifications, insurance policies, agreements and service contracts and all warranties. The association's legal counsel should also ensure that title to all parcels is deeded to the association, free and clear of liens. These items must be delivered within 90 days of the date that the homeowners are entitled to take control of the association. The association's legal counsel can provide a comprehensive checklist of items that must be delivered by the developer.
Q: How do the homeowners confirm at Transition that the association's finances are in good order?
A: The association's financial records generated since the incorporation of the association through the date of turnover must be audited by an independent CPA, at the expense of the developer. The accountant determines if expenditures were made for association purposes and whether the developer paid the proper amounts of assessments.
Q: Following Transition, can the homeowners cancel or break agreements entered into by the Developer-controlled Board?
A: Yes. With the vote of 75% of the membership, a condominium association can cancel original contracts entered into by the developer for the maintenance, management or operation of the condominium property. This is significant because it allows the homeowner-controlled Board to make its own choices for management, vendors and other services such as television programming services.