New condominiums and HOA communities continue to get built all over the state. The developer gets to control the community while the place is being built and sold, but perhaps the most critical time period in the entire existence of either a condominium or homeowner’s association is when that control of the association eventually passes from the developer to the unit owners. This is commonly referred to as “turnover.” The turnover statute governing condominiums is 718.301 and for homeowner associations, 720.307.
When are the owners entitled to a seat on the Board?
In a condominium, if unit owners other than the developer own 15 percent or more of the units, the unit owners other than the developer are entitled to elect at least one-third of the members of the board of administration of the association.
In an HOA, members other than the developer are entitled to elect at least one member of the board of directors of the homeowner’s association if 50 percent of the parcels in all phases of the community which will ultimately be operated by the association have been conveyed to members.
When is turnover of control triggered?
Generally speaking, in both HOAs and condominium associations, the developer is required to turn majority control of the Board of Directors of the association over to the unit owners within three months after 90% of the units have been sold. Turnover is also triggered when a developer files a petition for bankruptcy. There are other trigger points, but these two are by far the most common. Most importantly, in a condominium, no matter how many units the developer sells, the developer must turn over control seven years after the declaration is recorded. There is no automatic deadline for HOAs.
Even after turnover – The Developer is Not Completely out of the Picture
In an HOA the developer is still entitled to elect one member of the Board of Directors as long as it holds for sale in the ordinary course of business at least five percent of the parcels in all phases of the community. In a condominium, the developer is still entitled to elect a member of the Board if it holds for sale in the ordinary course of business at least five percent of all units in condominiums with fewer than five hundred units, or at least two percent of all units in condominiums with over five hundred units.
Should the owners refuse to accept turnover?
Often times, this firm is told by unit owners that they don’t want turnover to occur because of the numerous problems facing the community. It would be incorrect to think that those problems are likely to be solved if the association remains in the hands of the developer who is creating the mess in the first place and who remains in control of the association’s funds. Moreover, turnover can’t be refused. It’s mandatory. The important thing to do however is to have a plan in place to make the transfer of power less difficult. The plan must start with the hiring of an attorney, a CPA and an engineering firm. The attorney can ensure that the developer turns over all documents required to be turned over by statute, resigns from the Board, and that the registered agent of the association is changed with the Secretary of State. The CPA can determine if the developer is financially indebted to the association and the engineer can advise the association as to construction defects. Based upon the conclusions reached by the CPA and engineer, the attorney may then be forced to pursue the association’s claims against the developer in a court of law, and as for construction defects, after compliance with the pre-suit requirements of Florida Statute 558. Remember, the statute of limitations for asserting claims against the developer begins to run from the date of turnover. Construction issues governing the common areas generally have a three year statute of limitations in condominiums that are new construction and only one year in conversion condominiums. Therefore, especially in conversion situations, the Board is almost immediately under the gun to learn what claims the association may have against the developer, if any. In a condominium, any claim against a developer by an association alleging a defect in design, structural elements, construction, or any mechanical, electrical, fire protection, plumbing, or other element that requires a licensed professional for design or installation must be examined and certified by an appropriately licensed Florida engineer, design professional, contractor, or otherwise licensed Florida individual or entity.
Next week we will discuss what the developer is required to give the new board upon turnover.