Every homeowners association will undergo an HOA transition from developer. But, how exactly does this process work? When should the transition happen and how long can developers remain in control? Let’s answer all of these questions in the sections below.
What is HOA Developer Turnover?
Homeowners associations are typically formed by a developer that plans the community. Once most of the community is built and sold, the developer can turn over governance to the community members. From then on, the homeowners are in charge of rule enforcement and common area management.
This shift in authority gives communities more control over how the neighborhood is run. The residents elect a new, non-developer-controlled board of directors who set the direction for the rest of the community. Board members and community residents can work together to decide which rules to keep or amend and how to manage operations.
When Should You Transition HOA From Developer?
How long can a developer control an HOA? Should a developer control the community for only a set period? Or can they control the HOA as long as the residents do not want to take over community governance?
Both state law and the governing documents provide guidelines for when the developer should start turning over community control. In Florida, the Florida Homeowners Association Act Section 720.307(a) states that transition must happen three months after 90% of all units have been conveyed to non-developer members. However, it also states that communities should follow the date, percentage, or event set by the governing documents, if any.
The community’s governing documents may also contain provisions about turnover. In many cases, the developer must sell the community after a certain time passes or a specific number of units have been sold.
However, the HOA transition from developer usually starts even before the deadline. Developers must make gradual changes at least one year before the official turnover date. This allows the community to adjust to the increased involvement and new responsibilities.
HOA Transition from Developer: How to Do It
The community can follow these simple guidelines to transition HOA governance from the developer.
1. Form a Task Force
Homeowners associations must follow the timeframes and benchmarks in the governing documents. However, keeping track of all the tasks and deadlines can be challenging. Forming a dedicated turnover committee one year before the transition date is better.
Committee members should include one industry expert — potentially an HOA manager — and several homeowners. The transition committee can collaborate with the current board, homeowners, and developers to decide when the elections will be held and how to transition community governance.
2. Create a Plan
The committee should create a detailed transition plan with critical milestones. All important events and tasks, such as board elections and training, must be planned in advance. Moreover, the team should comply with all regulatory and legal requirements.
3. Hire the Pros
HOAs need a network of professionals like engineers, community managers, accountants, and attorneys to handle the community. These individuals can help with financial management, address legal questions, manage the common elements, and handle any concern that requires a professional’s insight and expertise.
4. Establish Communication Channels
HOAs should create open and accessible communication channels with the board, homeowners, and developers during the transition. Everyone involved should be kept in the loop about how things are progressing. Poor communication can lead to misunderstandings and conflicts that could have been avoided.
In addition, frequent communication encourages involvement — something homeowners will need to adjust to once they begin managing the community. Establishing transparency is also key to a successful community in the long term.
5. Compile Essential Records
The developer must give the board all essential community documents during the transition. This includes, but is not limited to, the following records:
- Original and certified Declaration of Covenants, Conditions, and Restrictions (CC&Rs)
- Articles of Incorporation
- Bylaws and Meeting Minutes
- Rules and Regulations
- Comprehensive Homeowner List and Contact Information Sheet
- Tangible Property
- Association Funds
- Insurance Policies
- Financial Records
- Contractor, Subcontractor, Manufacturer, and Supplier Warranties
- Service and Employment Contracts
6. Audit Contracts and Documents
The developer often executes contracts on behalf of the community during development. These include contracts with vendors, insurance providers, and staff. It’s a good idea to conduct an audit of every agreement to understand the terms between the HOA and its third parties.
The new board should ensure every agreement is reasonable. Otherwise, the HOA may choose to opt out through the termination clause. An HOA attorney can also help navigate the complexities of termination and contract reviews.
7. Evaluate the Community
The transition committee can work with an engineer to inspect all the common areas. They can help the residents uncover any defects and examine alleged imperfections in the construction. This keeps the developers accountable for their mistakes so the community residents won’t have to suffer the consequences in the future.
In addition, the residents should assess the reserve study and get a financial audit to have a complete picture of the community’s current state. Make sure to also verify whether the association has enough insurance coverage in case of emergencies.
8. Set Transition Meetings
The developer can formalize the turnover by setting a transition meeting. During the meeting, they can relinquish control to the newly elected board. They might also discuss financial issues, transfer documents, and ongoing projects.
9. Execute Maintenance Items
The developer should guide the newly elected board in executing maintenance items. This process will teach them to handle maintenance tasks, so they know what to do even after the developer is out of the picture.
10. Transition Financial Control
The new board should check the developer’s accounting statements and records to ensure everything is in order. This can also help the community better understand the HOA’s financial health.
Apart from this, the board should slowly be able to get the community’s finances under their control. Consider working with a CPA to conduct financial audits and ensure all the funds have been handled well.
Ensuring a Smooth Transition
When it’s time to transition the HOA from the developer, there are many things to consider. The developer and community must work together to create a good transition plan to prepare for the future. This way, the community can easily handle itself when the developer finally needs to exit.
Does your HOA need help with developer turnover? A professional management company like Freedom Community Management can help. We provide excellent HOA management services across Florida. Call us now at 904-490-8191 or contact us online to learn more!
