During construction, the condominium building remains the sole responsibility of the developer. Thus, the developer must govern the operations of the condominium association. But once construction is complete and they have sold a portion of the units, the developer must relinquish control to a duly elected board of directors.
The following article is about managing condo board members turnovers and what effect this process has on the condominium association.
What is Turnover?
A turnover happens when a condominium developer hands over control of the condominium association to a board of directors. Depending on the prevailing state laws, the process begins when a certain percentage of the condo units are sold. Most condo associations have written statues which govern what should take place during the turnover process. Should the association not have statues to guide it, the developer will have to follow state legislation on the matter. This usually means that turnover will happen when 50% of the units are sold to non-developer owners.
Managing Turnovers with Condominium Board Members
There are several factors at play during a condominium turnover, such as the association’s regulations and state legislation.
For example, the State of Florida states that the developer must elect a board of directors once construction has finished and they have sold a portion of the units.
Also, the law entitles unit owners to choose most of the members that will make up the board of directors. But, they can only do so when one of the following conditions prevails:
– Within three years of selling 50% of the units to non-developers;
– Within three months of selling 90% of the units to non-developers;
– When construction is complete and a portion of the units are in the hands of non-developers, and the developer is not selling the units that remain;
– When the developer files for bankruptcy;
– When a court-appointed receiver for the developer does not liquidate within 30 days.
– Within seven years from the date upon which the mapper and surveyor’s certificate was recorded.
In most scenarios, the developer will still own 50% or more of the condominium association. In that case, they have a right to elect a majority of the board of directors. The developer will also control 50% of the voting interests of the association. The association will hold the developer liable for the actions taken by the board and for the condominium’s operations.
Florida law further states that the developer must call an election meeting and give 60 days’ notice before the said meeting. If the developer holds 5% of the condominium units for sale, they may elect at least one member of the board of directors if the condominium has less than 500 units.
Once the turnover is complete, the developer may keep their voting power and use it to vote on any of the developer-owned units. But, the developer cannot regain control of the board of directors or majority control of the association after the turnover.
Timing of Turnover
The timing for developer turnover is determined by the association’s documents. As mentioned, the unit owners are typically entitled to turnover when the developer has sold at least 90% of the units in all phases. Although a single association member can determine turnover, often the unit owners organize themselves into a group or committee that hires legal counsel to provide competent guidance through the process.
Once it is determined that the developer has sold enough units to warrant turnover, the developer should relinquish control of the units. But, this isn’t always the case. Luckily, the developer can be compelled by a court to relinquish control of the association and turn it over to the unit owners.
If the developer refuses to start the process, the unit owners, with the help of a qualified lawyer, can schedule the turnover election on their own and elect their own board. At that point, the developer will be obligated to transfer all the association funds and property.
The developer must also turn
overall documents related to the association, including but not limited to:
– The associations’ articles of incorporation and its by-laws
– The originally recorded declaration of condominium
– Financial records
– Minute books
– The association’s personal property (i.e. computers, office equipment, furniture etc. )
– Bank accounts and statements
– Certificates of occupancy
– Unit-owner roster
– Service provider contracts for telephone, cable, security etc.
– Construction plans and specs.
– Names and contacts details of all the suppliers, contractors, and subcontractors that were involved in the condo construction or any remodelingwork thereof.
After the developer turns over control
After the turnover, the developer must also provide a professional audit and an engineering report addressing the financial and structural health of the community. A neutral and certified public accountant must prepare the financial audit while an engineer or architect must compile and sign the engineering report.
In the inspection report, there must be details about the replacement costs for drainage, irrigation, roof, pavement, structure, fire protection systems, elevators, pool, HVAC systems, plumbing, electrical- you name it!
It’s important for unit owners to compare the data presented in the inspection report with the actual state of these different aspects. Should there be any discrepancies between the two, the board may hire its own engineer or architect to conduct another inspection. This is to make sure that the developer did not overlook any defects.
The financial report must include a detailed account of the expenditures, cash receipts and other records that show how the developer was charged for services rendered. The association is free to hire its own account to audit the financial report if some of the members are unhappy with it.
The developer must submit all the above-mentioned documents within 90 days after the turnover. Should the developer not do so, the association is well within its rights to take legal action. Hopefully, this will force the developer to release the documentation and pay for the legal fees that the association will sustain during the litigation.
New condo board members
The turnover also means that the previous directors must resign and transfer the bank account/s to the association’s newly elected board of directors. The new condominium board members may also check the contracts entered into by the developer to make sure they don’t have any needlessly long terms. If so, the association may cancel any long-term contracts that were entered in to by the contractor. But, 75% of the board members must vote in favor of the cancellation.
Experts advise associations to address any issues they have with the financial state or construction of the units immediately. This means; do not wait until after the turnover process. If the association waits too long, then the developer may claim the issues resulted from mismanagement or lack of maintenance by the association itself.
The Election Process of the Association’s Board of Directors
The following are a few of the most important processes that the association must follow during an election:
Board elections must occur according to the timetable set by the association’s CC&R’s in conjunction with relevant state laws. State law requires that an association should conduct consecutive elections for the various board positions to avoid the need for annual board elections.
This means the board can change two members one year and maybe one to three the next year. Either way, the board should always have a healthy mix of experienced members and new blood. It’s of vital importance for the association to follow the law when conducting elections and provide ample notice beforehand to avoid creating the suspicion of hand-picked candidates. The goal is to have fair elections based on a consistent timeline.
– Identify the candidates:
It’s important for the board to disseminate information about the candidates to its residents. This will ensure that everyone votes for the candidate they want and that they could pick that candidate from a wide list. Each unit owner should get a letter with details of the election process and the details of each candidate.
– Mail the vote:
This is the final stage of the election process, and it includes ballot submissions that must be tabled. This process must be managed well and with transparency. State legislation requires associations to send out nomination forms to unit owners at least 90 days before the election date. The unit owners must return the forms within 30 days of receipt, after which the association will provide them with the personal statements of the nominees -as well as the ballots- 50 days before the election. These forms can also be sent out and signed electronically.
The turnover process from the developer to the board of directors is a once-off event. Yet, it has a lasting effect on the association’s financial future. A turnover is a positive event for the unit
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