Developer Transition Queries in New Haven HOA

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P.A. from New Haven County writes:

Dear Mister Condo,

I recently had a new home built in an over 55 condo community that currently has 28 free standing homes completed out of a potential 60 units. Since we are in the development phase, we are seeking advice as to how the governance should be structured. We have a property management company who reports directly to the Board, which consists of the 3 builders and developers. Although there are 2 residents unofficially on the board, we are not able to impact any decision as we do not have a vote. Because of this structure, there is a constant disagreement between builders and residents as to who is responsible for things like replacement of dead shrubbery in the common areas, vandalism, and/or stolen building material left on site, etc…

Once more than 50% of the units are complete, one board member will be replaced by a resident and continue to replace the builders as additional units are completed until the entire community is finished and the builders leave. In the meantime, should we have a resident occupy an official board seat now? Should we have elected association officials before 50% of the units are finished? It is not our intention to create an antagonistic relationship with the builders. We just need clarification on rights and responsibilities for both parties.

We will most probably need to obtain some legal advice but there is a meeting on Friday with the builders so we are hoping to present some information for discussion at that meeting.

Mister Condo replies:

P.A., condominiums and HOAs that are transitioning from developer control to full Board control can be a tricky time in the association’s life cycle. This is no time to go it alone. The Board needs guidance from professionals like attorneys, Property Managers, and CPAs, preferably folks who specialize in community association law and have experience with developer transition and governance issues like what your community is now experiencing. You can find the resources you need in the Service Directory at the Connecticut Chapter of the Community Associations Institute website at http://www.caict.org/?page=Directory. Check it out.

I did reach out to an experienced community association attorney for some quick advice to your question. Here is what the attorney had to say:

“The developer is entitled to control the executive board (and therefore to direct the management company) while the first several units are being marketed and sold. Sixty days after one-third (in your case, 20) of the units are sold, the developer must allow at least one-third of the board members to be elected by the owners. Sixty days after two-thirds (in your case, 40) of the units are sold, or after certain other events like the developer stops selling units, all of the board members must be elected by the owners. The developer can surrender some or all of the board seats earlier than this, if either it wishes to or the declaration so requires. But for as long as the developer legitimately controls the board, the only constraints on its powers are that it act with fiduciary good faith and in accordance with the law and the governing documents. You and the other unit owners should consider retaining an attorney to review your declaration and bylaws to ensure that the developer is both obeying them and giving up control of the board along the proper timetable.”

Hope that helps and hope to see you at future CAI-CT functions. Welcome to community association living!

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