A 13 Point Plan for Successful Transition From Developer to Owners

As construction and home ownership continue to be a growth industry in New Jersey, one issue that will be faced by more and more HOA members is the transfer of power from community developers and sponsors to the new homeowners who will actually be living in the community. Though not everyone reading this article will agree with everything in it—or even anything in it—few would disagree that the power transfer is not always an easy or entirely transparent process. It can, however, be made much easier if both the outgoing developers and incoming new board members observe the following helpful points:

Point One

It's best to transfer common property before control of the board passes to unit owners in large or slow selling projects. It's a mistake for both the developer and the unit owners to postpone the transfer and/or acceptance of the common property by the association until after 75 percent of the units have been sold and the unit owners assume control of the governing board. This is especially true when there is a significant time lapse due to either the size of the project or the slow rate of sales. Under those circumstances, I would much rather see a sponsor-controlled board permit the minority unit owners to select an independent engineer—at the expense of the association—to inspect the completed portions of the common property and to negotiate the extent of the remedial work with the sponsor. That work should be subject to an express written agreement that there is no waiver of any legal rights by either the association or the sponsor pending turnover of control of the board to the unit owners.

Although this approach may not be feasible in every circumstance, it encourages the separation of construction defects from maintenance problems and helps to isolate the responsibility for each type of problem. It also eases problems of proof for both sides, should formal proceedings ultimately be instituted. The approach encourages cooperative rather than adversarial solutions with respect to any physical problems that may exist, but most importantly, it allows the developer to look to its subcontractors to remedy defects while they are still on the job, and while monies have been retained under their contracts. Some developers of large projects have included similar "early transition" provisions in their governing documents—and the current version of New Jersey's Uniform Common Interest Ownership Act (UCIOA) also includes a mechanism for transition.

Point Two

Independent association counsel should be appointed shortly after the first transition election when 25 percent of the units have been conveyed. It is usually beneficial to both the developer and the unit owners to appoint independent counsel at this point, especially where the transition period is expected to be an extended one.

The presence of independent counsel should significantly increase the comfort level of the new unit owner-board members and help build communication between them and the sponsor. Selection of the independent counsel should be done by the unit owner board members to maximize trust and confidence between the unit owners and the attorney, which will hopefully result in a continuing, positive relationship throughout transition and afterward, when the unit owners take over full control of the board.

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