Condo Q&A: How Does Developer-to-HOA Handover Work?
Developers have almost exclusive control over a homeowners association until turnover, and some owners preparing to take over their HOA ask for transfer advice.
STUART, Fla. – Question: Our homeowners association is still being developed, and the developer is almost done. A few owners are trying to get prepared for turnover, but we don’t know where to begin. Any tips? – N.B., St. Lucie West, FL
Answer: This is a common question, and there are many misperceptions about the turnover process. Turnover is ultimately an election whereby a majority of the board is elected by the homeowners. Before turnover, all or a majority of the board is appointed by the developer and the homeowners have very little input and no decision-making power.
After turnover, the developer has a minority position on the board, and the owners therefore become in control of the budget, vendor relationships, rules and regulations, and many other aspects of community operations.
There are a number of things you can do to prepare.
First, you can ask the developer to amend the covenants. Before turnover, most community covenants are drafted so that the developer can amend the covenants with a stroke of a pen. After turnover, most covenants require a vote of the owners, and this can be expensive and difficult to maneuver right after turnover. Many developers will agree to change amendment approval thresholds, some use restrictions, board composition and election procedures, and other operational provisions. The developer does not need to agree to this, but it is common and very helpful.
Next, the group can interview professionals like engineers, accountants and attorneys. These three relationships are very important, and there are many qualified firms. These interviews obviously do not guarantee that the vendor will be selected because you can never be sure who will actually be elected to the board and therefore making the hiring decision, but this due diligence can give the board a head start after the election.
Third, the group can become familiar with the financial records, reserve schedules and contracts. It is helpful to know, for example, if an existing contract contains an auto-renewal provision shortly after turnover so that the board knows whether it will need to make an immediate decision on whether to continue with that specific vendor. It is helpful to know if there are delinquencies, any reserve balances and whether the reserve schedule requires any large expenditures shortly after turnover.
Again, the group doing this research may not ultimately be elected to the board, but I often find that this group is an active participant in post-turnover operations and can provide helpful insights to the newly elected board.
A common misperception is that turnover is a deadline, and that the owners are hindered if they wait until turnover to start this due diligence process. This is not true because, again, it would be impossible to know who will be elected to the board before turnover, and it would therefore be impossible to fully prepare for taking control of the board at turnover. As a result, I think it is a great idea to prepare for turnover and engage the residents in this process because there are a lot of moving parts in those first few months after the turnover election.
Being prepared helps the board begin work on the first day, but it is also not necessary to have a successful transition.
John C. Goede Esq. is co-founder and shareholder of the Law Firm of Goede, Adamczyk, DeBoest & Cross, PLLC. The information provided herein is for informational purposes only and should not be construed as legal advice. The publication of this article does not create an attorney-client relationship between the reader and Goede, Adamczyk, DeBoest & Cross or any of our attorneys. Readers should not act or refrain from acting based upon the information contained in this article without first contacting an attorney, if you have questions about any of the issues raised herein. The hiring of an attorney is a decision that should not be based solely on advertisements or this column.
© 2021 Journal Media Group