The Developer Journal Issue 3 | Page 58

C O M M U N I T Y L I V I N G SMOOTH AND SEAMLESS TRANSITIONS A development is not a residential estate – it’s a place with houses in a greater or lesser stage of completion. But there comes a time when the developer steps out, and the homeowners association steps in – and from that moment, the estate becomes a community – a place where people live. What is transition? Transition is a term that has evolved in recent years to describe the general process by which the control and responsibilities of the governing board of a community association are transferred from the developer to home owners. Although it includes the assumption of the obligation to maintain the physical assets for which the association is responsible, and is often viewed only in that narrow context, the transition process is much broader in scope. It includes the transfer of governance, the acceptance of the common property, and the accounting for funds. Transition is not a single event, such as the election of an owner-controlled governing board or the execution of a settlement agreement regarding construction defects in the common property. It is a multistage process of many events taking place over a period of time. Governance A primary component of the transition process is the assumption of responsibility for the governance of the association through control of the board, which is responsible for the operation and administration of the community association, and the maintenance of the common property. Preferably, this should be a gradual process that allows the owner board members the opportunity to receive proper training and to gain experience. Also, a progressive transfer of control helps protect the developer from unfriendly and financially harmful actions by the owner members of the board while the developer still retains a substantial economic interest in the project. In some estates, legislative or regulatory mandates require that turnover of control of the governing board from the developer to the owners occurs over the course of development. Commonly, the statutory guidelines require the election of a minimum number of owner board members at various stages of sales, based on the number of projected closings that have actually occurred, beginning at 25% and continuing to 75%. At this point, the owners usually elect the entire board with the exception of one developer representative who can remain until the completion of sales for the project. Thoughtful document drafting will create a governance structure within which transition is viewed as successful by all stakeholders – if all those stakeholders take responsibility for their roles in the process. Though there are differences from community to community and estate to estate, transition is most successful in associations where the following practices occur: • Educate owners as to what a community association is and isn’t. • Educate board members. • Recognise the duties owed to the association and owners, and establish policies that enable the board to carry out these duties. • Ensure all board members act in a fiscally responsible manner. • Engage professional management. • Hire independent legal counsel to represent the association. • Support the homeowner board through the completion of the community. • Maintain a relationship between the association, the developer and the owners after turnover. Preparation of the documents Documentation includes the articles of association, conditions, restrictions and bylaws, and an initial community association budget. Throughout the construction and conveyance process, the developer typically controls the decisions of the association. It is critical that the developer manage the expectations of the home owners through this process. By creating an acceptance procedure and maintenance manual for home owners, addressing potential issues, soliciting home-owner involvement, and turning over the amenities and open space areas to the association, developers can create community and avoid