Question: My association is about to “transition.” What exactly does this entail, and what should homeowners do to prepare for it?
Answer: Transition refers to the transfer of control from the developer and the board the developer controls, to the community association and the board owners elect to represent them. This is the point at which owners assume responsibility for managing their community.
The easiest and most successful transitions are those for which owners have prepared in advance – by learning as much as possible about the association’s finances and operations. Most industry professionals recommend that developers create a transition committee for that purpose, so owners can work with the developer and the developer’s board during the pre-transition period. If the developer doesn’t establish this committee, owners can establish an informal one of their own. There is no guarantee developers will cooperate, but the developers and the community will both benefit if they do.
With or without a transition committee, here are some of the most important steps owners should take to prepare for the transfer. This is not a complete list, but it should give you an idea of just how much information owners will need and how much work they should be prepared to do before the transition and in the critical period immediately after it.
• Before the transition, if possible, begin interviewing managers and other professionals the board will want to retain to provide the specialized advice the association will need. Owners can’t sign contracts or spend association funds before the transition, but they can begin the selection process so the new board will be able to move quickly after taking control.
• Hire an engineer to perform a transition study to assess any structural problems owners will want the developer to address. This is one of the first things – if not the first – a new board should do, for two reasons:
The developer will become less sensitive to complaints as time passes; and
Construction defect suits are subject to strict time limits. Delays in discovering structural problems could prevent the association from pursuing legal action or reduce its recovery prospects.
• Have an accountant review the association’s financial records. You want to verify, among other things, that the developer has:
Collected all the revenue owed the association.
Paid his/her share of the common expenses on units the developer owned before they were sold.
Paid all outstanding bills and properly allocated expenses (which means, not using association funds to pay for expenses not related to the community).
Established a reserve account and funded it appropriately.
Established a realistic budget, based on reasonable projections for income and expenses. The developer has a vested interest in keeping fees low to appeal to prospective buyers; the association needs to be sure the fees are adequate to maintain the property and finance essential operations and services.
• Review the association’s governing documents. Attorneys suggest that you watch particularly for “poison pill” provisions requiring the developer’s consent to amend the documents or to file suit against him, and take steps immediately to eliminate those provisions if you find them.
• Collect essential documents and records: Governing documents, contracts, insurance policies, warranties, construction plans and design specs, minutes of board meetings, bank statements and financial records – it is a very long list and you want everything on it. When it comes to the transition process, there is no such thing as too much information.