On June 14, 2022 from 8 a.m. to 3 p.m. the local Community Associations Institute Chapter is putting on the Annual Legislative and Legal Update. It will be held at the Holiday Inn in Newport News just off of I-64 at J. Clyde Morris Blvd. Our firm’s CA Team members, Jeanne Lauer and Matt Weinberg will be speakers at the event. Jeanne serves on the Statewide Legislative Action Committee for CAI and will be providing the latest news from the General Assembly session. Matt will be speaking on methods of dealing with difficult owner situations which have legal implications. Please take a look at the event info on the sevacai.org web site or call the CAI office at 757-558-8128.
A Guide to Successful Transition
If you live in an association which is still under developer control there are often changes desired by the community but the members are not yet in control of the association and no easy method to call meetings. So, what can you do? Most HOA documents allow the developer to transition control when it suits until a certain higher percentage of the units are sold — then transition is mandatory. Some developers will still want to stick around and maintain control over the community in which they continue to have a large investment and a desire to insure a quality level is maintained.
Having a successful transition from developer control to owner control in a homeowners association or a condominium association is not necessarily a difficult process. It does requires open lines of communication and information, common sense, perseverance, and some smart, energetic people who aren’t afraid of making a commitment to their community for a couple of years.
When an association is first started, the developer is investing large amounts of time and dollars to construction of the project, its infrastructure and amenities. In order to protect the developer’s investment, the legal documents have provisions built in that allow the developer to exercise control over the direction and processes of the community until a time certain, either a firm date several years in the future or when a certain percentage of units have been sold to homeowners. This means that the developer control period can last a couple of years and sometimes more depending on the rate of sale of the homes and size of the community. During that time, the developer’s appointees serve as members of the Board of Directors and they have a fine line to walk, since some decisions which are right for the community may result in extra expenses for the developer.
We recommend that during the period of declarant control, the developer should give the homeowners some exposure to, and limited participation in, the affairs of the association. These steps can include formation of an advisory committee to make recommendations to the Board, and/or phased-in appointment of homeowners to the Board of Directors, or the day to day operating of certain committees, such as the Architectural Standards Committee.
Many types of issues tend to arise during this period. Is the developer going to put in the pool that was promised? Why are some of the landscaped areas in an unkept state? Are all assessments owed by the developer up to date? One of the most frequent is the issue of warranty repairs. When do they begin and when do they end? That is one question that can only be answered by the applicable state or local law and the board should seek legal counsel on this topic. But having homeowner involvement early in the association can provide those answers and ease the concerns of the owners. Many developers encourage homeowner involvement and training along the way so that the owners are well prepared to assume the responsibility of directing association operations.
Transition is usually accomplished at a special meeting held for the purpose of electing homeowners to serve on the Board of Directors. Once the owners are in control, the real work begins! The only thing that ends at that meeting is the developer’s control over the association operations, not his responsibility to it and its members and not his involvement and interest in it. He may still be selling homes and may retain a seat on the Board.
The newly elected owner board members now have several responsibilities relative to the transition. They must insure that (1) the developer provides the association with any and all pertinent information; (2) the association reviews that information and questions the developer on any vague or ambiguous issues; and (3) the Board develops a strategic plan to go forward from that point. Make sure when electing the Board that you select those individuals who are clearly committed to the entire community and not just a single issue. If you have had an advisory committee during the developer control period, then the members of that committee can bring a great deal of experience and knowledge to the new board.
One of the first steps a new Board should take is an examination of the association’s financial situation. It is important for members of the Board, as well as all the owners, to satisfy themselves that while the developer was in control, all income and expenses were properly accounted for. That includes, but isn’t limited to, the financial obligation of the developer himself, if any, and aggressive pursuit of delinquent accounts.
All association boards, but especially condominiums, should consider hiring a professional engineer or architect to perform a comprehensive inspection of the property and its physical plant. This will serve two purposes: (1) it will determine if there are any warranty defects that may be the responsibility of the developer; and (2) it will serve as the basis for a repair and replacement reserve analysis. Such an analysis will estimate the useful life of a component, such as a building roof, the projected cost to replace it, and how much money needs to be set aside to ensure that special assessments are not necessary to maintain the association’s assets into the future. This study is required every five years under state statutes in both the Condominium Act and the Property Owners Association Act.
Good legal advice can also be important to the community. The association should retain independent counsel who is well versed in community association law and who can ensure that the new board and the developer abide by their respective legal obligations and commitments.
The following are documents an association management should obtain during the transition. This list is by no means exhaustive, but can serve as a checklist to guide you. Keep in mind that jurisdictional requirements may vary in terms of time frames for developer responsibility and specific transition documents. If your developer utilized professional management during the development period, you may find that your management has most or all of the following items in its files. The following are required to be provided by statute in Virginia:
1- All association books or records, financial and otherwise, held by or controlled by the developer (or its association management company) along with a statement of receipts and disbursements during the declarant control period.
2- Any and all contracts in which the association is a contracting party.
3- Complete set of site plans and as-built drawings, including detailed measurements and dimensions for any common buildings or amenities
4- Written warranties of the contractors, subcontractors, suppliers, and manufacturers, if any, involved in the construction and/or maintenance of the association’s facilities.
5- List of manufacturers of products and specifications used in the maintenance, repair or replacements in or on common areas or common elements.
Copies of any bonds or letters of credit posted with any state or local agency should also be requested.
Throughout the transition process described above, professional management can and should serve as an advisor to the Board, custodian of the association’s books and records and the entity to which the Board turns to assist in the development of long-term plans and goals to make sure that a community’s early due diligence translates into future continued success and financial stability for the owners. If that happens, all parties involved including the developer, transition board members, future board members, owners, and management will gain great satisfaction in a job well-done.
Please let us know if you have any questions about this topic. We wish you well in all of your endeavors but especially at the critical period of transition. We can be reached via email at the addresses shown on our website: www.vahoalaw.com. or by phone at 757-486-7055.