What Condominium Owners Should Know About Developer Turnover of the Association: Part I

During the construction and initial sales of units within a condominium association, the developer will manage the association’s operations and governance. This means the developer controls the association’s board of directors. Once the development is constructed and a certain percentage of the units are sold, then turnover of control of the association to the unit owners must occur. What follows is an overview of what every condominium owner should know about developer turnover of the association.

Florida law regulates the turnover process and provides express procedures that a developer must follow for turning over the association operations and board of director governance to the unit owners. To illustrate, once unit owners other than the developer own at least 15 percent of the units, they are entitled to elect at least one-third of the members of the board of directors. Fla. Stat. § 718.301(1). Moreover, unit owners are entitled to elect at least a majority of the members of the board of directors upon the first to occur of any of the following events:

• Three years after 50 percent of the units have been sold to non-developer owners;
• Three months after 90 percent of the units have been sold to non-developer owners;
• When all unit construction has been completed, some units have been sold to non-developer owners, and none of the remaining units are being offered for sale by the developer in the ordinary course of business;
• When the developer files for bankruptcy;
• When a court appoints a receiver for the developer and the receiver is not discharged within 30 days;
• Seven years after the date of the recording of the certificate of surveyor and mapper. Fla Stat. § 718.301(1)(a)-(g).

During the time the developer is able to vote for a majority of the board of directors, and therefore controls more than 50 percent of the association’s voting interests, the developer is liable for all violations of Florida law or association rules and bylaws. 61B-23.003(7)(g), F.A.C. The developer is responsible to the association and its members for all of its actions. Within 75 days after the unit owners are entitled to elect at least one member to the board of directors, the developer acting on behalf of the association must schedule an election and provide not less than 60 days’ notice of the election meeting. Fla. Stat. § 718.301(2).

A developer is still entitled to elect at least one member of the board of directors if the developer holds for sale in the ordinary course of business at least five percent of the units (in condominiums with fewer than 500 units) or two percent of the units (in condominiums with more than 500 units). Fla. Stat. § 718.301(1). After turnover, the developer may still exercise its right to vote any developer-owned units in the same manner as any other unit owner. Once turnover occurs, however, the developer—or any successor or assignee of the developer—is precluded from regaining control of the board of directors. In other words, if the developer, or a successor or assignee of the developer, begins purchasing units after turnover, it cannot regain majority control of the association. Id. Stay tuned for part II of this blog series which will discuss specific document and financial disclosures required by the developer at turnover.