When a condominium project is developed, provisions are built into the homeowner association’s legal documents that allow the developer to exercise control over the direction of the association until a designated time in the future or until a certain percentage of units have been sold to homeowners.
If you are a developer of a condominium project or a new condominium homeowner yourself, you have a vested interest in ensuring a seamless transition from developer to homeowner governance of the condominium association. After all, you’re all in this together. So, here are some suggestions to guide an uneventful transition:
Keep open lines of communication.
Because developer control can last for several months or years, the developer’s representatives often serve as members of the Board. As such, they have to act as fiduciaries and in the best interests of the association. However, conflicts often arise because what’s best for the association often results in increased costs for the developer. This can be solved by recognizing the conflict and by maintaining transparency and open lines of communication.
The developer should encourage homeowner involvement along the way.
The developer should include benchmarks for gradually involving more and more homeowners and giving them limited participation in the affairs of the association. Some benchmarks can include the formation of an advisory committee to make recommendations to the Board or phased in appointment of homeowners to the Board. This will assure that the homeowners are well prepared to assume taking over association responsibilities when the time comes.
Keep a watchful eye once the owners are in control.
This is a critical time for all. The transition is usually accomplished at a special meeting held to elect homeowners to serve on the Board. It’s important to note that the developer’s responsibility to the association does not end at this point — only his control over the association does. It’s up to the homeowners to develop a strategic plan to go forward, but the developer should still remain involved if he cares about his reputation.
It can be beneficial for both sides to get an experienced real estate lawyer involved to help with the transition process to ensure a vibrant, financially and legally sound condominium development for years to come.
