TROUBLE-FREE TRANSITION

by: J. David Paisley CMCA, AMS, PCAM

How can the transition from the developer to a unit owner controlled board be as smooth and problem free as possible?  Establishing a cohesive team of professionals before the first shovel of dirt is turned over is the ticket. 

The transition of control is generally referred to as the “turnover” from the developer’s staff  to the unit owner elected board.  While control of the association is transitioned to the owners, it does not remove any of the developers obligations to fulfill warrantee work, meet all local governmental ordinances and community requirements.  Even the criteria for the developer to receive a refund of bond funds posted with the local government remain the same.  The developer is still obligated to complete the community as originally planned and to obtain local governmental approval for the work that is completed.  While this process appears simple, it contains many facets that begin at the initial planning stages and carries through until the project is completed and the owners are in control of the association. 

When a builder is contemplating the development of a new community, that is the time to begin the process of planning for a smooth transition to unit owner control.  A smart developer assembles a team to develop and discuss the entire concept of the project. The team should include its corporate counsel, financial, marketing, construction personal, and a professional property manager.  The team should review the community’s physical attributes and amenities, develop a realistic stabilized budget that will accurately reflect the cost to the unit owners for maintaining all of the items that the owners will be responsible for, and establish a timetable for owner involvement in the administration of the community. 

During this beginning period, the community’s governing documents, declaration and by-laws need to be developed. Clear and concise wording for initiating the final transition process should be included in the documents.  The turnover date is generally defined in terms of specific time limits, such as; when the documents were recorded to a future date, when a certain level of units have closed generally seventy-five (75%) percent, or if the developer decides to turn over control to the owners sooner than either of the aforementioned events. 

A well developed declaration should clearly state what the association’s maintenance and replacement responsibilities for the infrastructure and buildings of the community as well  as thee maintenance and replacement responsibility of the individual owners. The delineation of responsibility is critical in the development of a stabilized budget that sets the assessment obligations of all owners.  In addition to defining responsibilities, unit owner education and involvement should begin early.  Making a conscious decision to educate and involve unit owners from the beginning will facilitate a smooth transition of control when the time is appropriate.

It is during this initial stage of organization and conceptualization that the decisions concerning an orderly transition of control should be made.  The decisions on unit owner education and involvement should be made early in a proactive mode rather than a reactive situation.  Making a conscious decision to educate and involve unit owners from the beginning will mean a smooth transition of control when the time is appropriate.

The Interim Period:  With construction continuing, landscaping being installed and closings taking place the community is growing.  During this phase of transition is when the assimilation of owners into the affairs of the Association begins.  The key elements in this phase are communication and education with the emphasis on communication.  This assimilation may take on the complexion of any or all of the following:

• Education of owners as to what an association is and what the purpose is for the association and what the obligations of the association are as defined in the associations governing documents. 
• Reviewing the governing documents with the ownership so there is an understanding of what the Declaration, By-Laws, and Rules and Regulations are and what is there importance in running and managing the association.
• An explanation detailing the eventual turnover of control of the board of directors may be done during this phase.  The new owners should be made aware of the process that will be used, the requirements for being on the board, the officers of the board and how they are selected, the quorum required for a membership meeting and how to achieve the required level of participation either in person or by proxy.  Discussion on what a proxy is and its importance is helpful.

The dissemination of all this information may be in the form of written communication, however, perhaps the best format is the use of periodic informational meetings of the membership. During these meetings, the owners may be appraised of the progress of the development of the community including specific items such as what future target dates are in place for landscaping, streets and streetlights, etc.  Owners may also be introduced to their governing documents with an explanation as to their importance and purpose.  Budget development, explanations, and details may be shared with the owners so that they may have a better understanding as to where their assessments dollars are going and how they are being spent.  Accurate stabilized budgets reflect the responsibility of maintenance and replacement that are the responsibility of the association. Most importantly owners will have an opportunity to ask questions and have dialogue with the developer and the management team. 

Communication with all the owners is important during this interim period.  Because some owners will not attend open meetings, the use of informational letters or the development of an initial newsletter is important.  Informational letters may be sent out describing the legal foundation and purpose of the association and the relationship the owners enjoy.  Seasonal reminders may also be included in the periodic newsletter informing owners of any restrictions or pre-approvals they must obtain before exterior changes are begun.  These reminders should also include a reference to the section of the governing documents that apply to an individual situation so that the owners learn to have an appreciation for the documents they have agreed to live with.

An important benefit during this period of the transition process is that owners have an opportunity to become involved and have their comments and concerns addressed.  Additionally, the developer has an opportunity to remediate any situations that require attention after discussion with the owners.  This can lead to a win-win situation for both the developer and the owners, making the final turnover of the control of the board to unit owners worry free.

The Turnover:  This final phase now may become the easiest step.  Instead of unit owners and developer looking upon this step with trepidation and suspicion, they can look upon it as just another step in the maturity of the new community.  By having followed the above procedures, the developer and property management firm have now developed an informed community with unit owners educated in community association development and government.  Because the developer and management firm have attended community meetings and have taken the opportunity to remediate real or perceived problems within the community, the actual turnover becomes a mere formality of electing unit owners to serve as members of the association’s board of directors.

So as you can see, by using the tools available and understanding the project concept from the beginning, the transition from developer control to homeowner control of the association does not have to be difficult.  Coordination and communication between the developer, the management firm, and the unit owners can make the transition and turnover smoothe and trouble free.      

Note:  Of course we would be remiss if we did not mention the many educational seminars and opportunities offered by the Community Association Institute that may be attended by new board and committee members.  One such course offered by CAI is the ABC’s A Basic Course which is designed as a one-day class presented by an accountant, lawyer and property manager designed for the new board member and gives a good overview of community governance and the areas involved.