Transferring Power from Developer to Board Passing the Torch

Transitions are subjective; a prospective homeowner puts a bid on a condo unit or townhouse, navigates the normal channels, and upon receiving approval looks forward to settling into his or her new home. There's a lot to do before that can happen, though: packing, moving, changing addresses, getting used to the new commute, meeting the new neighbors, and finally becoming a link in an association's chain.

Despite all that, a new owner's transition is small potatoes compared to another reality—that of the developer. You know; the "guy" or corporation that made the new home and community possible. He has to move too, and it's not just equipment and construction materials—he has to sell every unit in the development, and eventually relinquish control of the whole thing to the board of directors.

At this point, the transition from developer control to association control begins. While most transitions run smoothly, it's important to understand the laws that govern the process and what the developer is responsible for before a new board is elected to govern the association's current and future affairs.

According to the New Jersey Department of Community Affairs (DCA), developers are required to register with the DCA and file an application for registration containing a variety of exhibits concerning the legal status of the property and condition of title and financial information, as well as brochures used for advertising and promotional purposes. Developers must apply and become registered before offering units for sale.

The Developing Deal

Once a community is completely "built out,"—meaning all units are on the market for sale—the developer must construct a governing board for the association. This is a gradual process which is aimed at properly equipping new board members with the know-how to effectively manage a board. This responsibility falls to the developer, and is written into the contractual law, explains Wendell Smith, senior partner at the Woodbridge-based Greenbaum Rowe Smith Ravin Davis and Himmel LLP. "The developers have to formulate governing documents—bylaws and regulations—before any unit can be offered for sale," says Smith.

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2 Comments

  • HOA corporations who are expunged from the state's business registry, since 1984, for failure to reregister and who is out of "service"for close to a decade should not have the right to sue townhouse owners.
  • I live in an Asbury Park condo of 27 units converted by developer. The developer has sold is units and is not on board. We have begun transition. I have the following questions. 1. In the State of NJ do you have 6 years form filing of developer need to present common area balcony structural issues to the developer for monetary remedy prior to transition? 2. How do you determine if the board has been properly funded by the developer prior to transition? He left 20K in reserve for a 27 unit conversion. 3. Who acts as the mediator prior during transition? The developer recommended the property manager and I do not know if they have our best interest in this matter.