5 Prudent Actions a Community Association Should Consider When Navigating Turnover

Whether your community association is a Homeowners Association, governed by Chapter 720, Florida Statutes, or is a Condominium Association, governed by Chapter 718, Florida Statutes, there are important things the Community Association Board (hereinafter the “Board”) should know and important actions that a prudent Board should consider at turnover.  A Board’s failure to take such actions doesn’t constitute negligence or the breach of an express duty, but taking such actions helps to ensure the new Board has as much information as possible at turnover.  Turnover of a Homeowners Association is governed by 720.307, Florida Statutes.  Turnover of a Condominium Association is governed by 718.301, Florida Statutes.  Essentially, turnover means that the purchasers’ are entitled to elect a majority of the members of the Board of the Community Association.  Turnover is the act that strips a developer of its control over the Community Association, its community property and Community Association funds.

HOMEOWNERS ASSOCIATION SPECIFIC RULES AND DEVELOPER OBLIGATIONS

Turnover must occur when the sooner of the following occur: a) three months after 90 percent of parcels are conveyed to purchasers; b) upon the conveyance of a percentage of parcels to purchasers, as specified in the governing documents, necessary to trigger turnover; c) upon the developer abandoning its obligation to maintain and complete amenities or infrastructure; d) upon the developer filing bankruptcy; e) upon a receiver being appointed by a Court and the receiver not being discharged within 30 days of appointment; upon the developer losing title to property through foreclosure. 720.307(1), Florida Statutes.  Despite the above, when 50 percent of the parcels are conveyed to purchasers those purchasers are entitled to elect at least one member of the Board.  720.307(2), Florida Statutes.  Once a triggering event requiring turnover occurs, the developer is obligated to take certain actions, some of which are as follows: a) delivery of all deeds for property owned by the Association (or conveyance of all Association property in the name of the developer); b) delivery of the governing documents; c) delivery of all books and records of the Association, including policies, rules and regulations adopted; d) delivery of all resignations of board members resigning due to relinquishment of developer control; e) delivery of all Association’s audited financial records; f) delivery of all Association funds; g) delivery of all contracts in which the Association is a party; h) delivery of a list of all contractors and subcontractors; i) delivery of all insurance policies in effect; j) delivery of all warranties in effect; k) delivery of a roster of all members of the Association.

CONDOMINIUM ASSOCIATION SPECIFIC RULES AND DEVELOPER OBLIGATIONS

Turnover must occur when the sooner of the following occur: a) three years after 50 percent of units are conveyed to purchasers; b) three months after 90 percent of units are conveyed to purchasers; c) upon at least one unit has being conveyed to a purchaser and the developer ceases offering units for sale; d) upon at least one unit has been conveyed and no units being constructed or offering for sale; e) upon the developer filing for bankruptcy; f) upon a receiver being appointed by a Court and the receiver not being discharged within 30 days of appointment; g) upon the passing of seven years from recording certain documents.  718.301(1), Florida Statutes.  Despite the above, when 15 percent of the units are conveyed to purchasers those purchasers are entitled to elect at least one-third of the members of the Board.  The turnover election shall occur within 75 days of the turnover triggering event described above and there must be at least 60 days’ notice of the turnover election.  718.301(2), Florida Statutes.  Some of the statutorily required actions required at turnover are: a) delivery of all Association property held or controlled by the developer to the Board; b) delivery of all Association documents, including but not limited to all contracts to which the Association is a party and all insurance; c) delivery of the Association audited financial records; d) delivery of all insurance policies; e) delivery of the construction plans and specifications and lists of contractors, subcontractors and suppliers; f) delivery of all written warranties that are still in effect; g) delivery of a report, certified by a licensed architect or engineer, attesting to i) required maintenance; ii) useful life; and iii) replacement costs of certain common elements.

In light of the foregoing developer obligations and association member rights, the below are five prudent steps to consider when navigating turnover.

• ORGANIZE PRIOR TO THE TURNOVER ELECTION

Although an organized group cannot expend Association funds or formally act on behalf of the Association prior to the turnover election, there is nothing that prohibits a group of concerned members from acting as a watchdog group that communicates (or attempts to communicate) with the developer.  Although the developer may refuse to communicate with this organized group, such organization may help to ensure the developer minds their p’s and q’s.  Additionally, organization prior to turnover can often demonstrate leadership which may be beneficial in being elected to the Board at the turnover election.

• HIRE A MANAGEMENT COMPANY

Often the hiring of a management company is affordable even for small Community Associations.  The running of a Community Association is a complicated process and it is unlikely a Board, without the assistance of a management company, will have the skill and experience to run the Community Association efficiently while complying with the detailed requirements of the governing documents and Florida Statutes.  Furthermore, the Board is prohibited from accepting compensation for their service and having a paid management company handle the daily affairs of the Association will free the Board to focus their time and experience on the most important items, such as the budget and Community Association expenditures. A licensed community association manager will help to accomplish this goal.

• HIRE AN ATTORNEY

The level of attorney involvement in a Community Association will depend on the needs and size of that particular Community Association.  Larger Community Associations may have the need for legal advice on a monthly basis, while smaller Community Associations may only need legal advice on an annual basis.  However, the retention of an attorney is prudent to provide advice about the turnover process.  More often than not, by the time turnover occurs the developer is ready to move on from this project to the next project.  The developer’s focus is not on the delivery of required documents.  The retention of an attorney allows the Board to determine what documents and actions are required and what remedy is available if the developer doesn’t comply with the governing documents or Florida Statues.

• HIRE A PROFESSIONAL TO PROVIDE A CONSTRUCTION DEFECTS REPORT

The prevalence of building code violations and construction defects in new construction will generally warrant the expenditure of Association funds to determine if building code violations or construction defects exist in the common elements.  Your turnover attorney should be able to help with the selection of a professional but generally the professional should be an engineer, architect or construction professional.  Although the condominium statute requires the delivery of a turnover report, this report only requires the disclosure of maintenance requirements, useful life and replacement costs of certain common elements.  The statutory turnover report does not act to certify or warrant that the common elements are defect free or free of building code violations.  If the Community Association’s independent report can be prepared and delivered to the developer prior to the developer’s conveyance of the last unit it can place the developer in a difficult position.  Arguably, the developer would have an obligation to either make necessary repairs or disclose the building code violations/construction defects to potential purchasers.  If the developer refuses to adequately address the building code violations or construction defects identified in the report, the Association through the advice of an attorney experienced in litigating construction defects claims should determine the appropriate course of action.

• ENCOURAGE ASSOCIATION MEMBER PARTICIPATION

Life is busy and most association members don’t wish to be bothered by participation on a committee or by service on the Board.  Participation on the Board or a committee is time consuming and doesn’t allow for monetary remuneration.  However, fun community association events such as pool parties or cookouts can be a much more effective method getting the community together than expecting uninvolved association members to attend board meetings.  Every community association is unique and solving the puzzle as to how to increase community involvement will require effort and a comprehensive plan.  A community participation committee is generally a good start and making community participation a priority from the date of turnover is a usually a good idea because community interest at turnover is likely to be higher than at any other time.  As the Community Association matures, the Board may decide the certain actions that require approval of the majority or super majority of the members are important and necessary.  The Board will have a much greater likelihood of getting the necessary votes of the members if there is good participation of the members.