Turnover: An Important But Often Misunderstood Event for Homeowners’ Associations

One of the most critical events a homeowners’ association will face is the “transition” or “turnover” of the association from the developer of the community to the homeowners of the community. However, many homeowners and purchasers may be unaware of what the process of turnover entails, or even what turnover of the community really means. “Transition” or “turnover” of the association means that homeowners in the community are entitled to elect at least a majority of the members of the board of directors of the homeowners’ association.

Turnover is governed by Section 720.307 of the Florida Statutes, and is triggered by one of the following six events:

1. 90% of the parcels in all phases of the community have been purchased, in which case turnover must occur within 3 months;
2. Some other percentage of parcels has been purchased, a certain event has occurred, or a certain date has been reached, as specified in the association’s governing documents;
3. The developer abandoning or deserting its responsibilities to maintain and complete the amenities or infrastructure as disclosed in the governing documents[1];
4. The developer filing for chapter 7 bankruptcy;
5. The developer losing title to the property via foreclosure or a deed in lieu of foreclosure (unless the next owner has accepted an assignment of the developer’s rights and responsibilities); or
6. A receiver being appointed by a circuit court for longer than 30 days, unless the court determines that transfer of control would be detrimental to the association within 30 days of the receiver’s appointment.

Subsequent to the occurrence of one of these triggering events, parcel owners other than the developer are entitled to elect at least a majority of the board of directors. Further, parcel owners other than the developer are entitled to elect at least one member of the association’s board if at least 50% of all parcels in all phases of the community have been conveyed to parcel owners. However, so long as the developer is still holding for sale at least 5% of the parcels, it is entitled to elect at least one member of the association’s board of directors; the developer may exercise its right to vote in the same member as any other member of the board, except that it may not vote on the issues of reacquiring control of the homeowner’s association or selecting a majority of the members of the board of directors.

Pursuant to §720.307, after the parcel owners have had the association turned over to them, the developer must also turn over the documents necessary to run the association, and must do so at its own expense. The documents to be turned over include, but are not limited to: the association’s original recorded declaration; a certified copy of the articles of incorporation and bylaws; the minute books, financial records, bank accounts and statements of the association; the association’s personal property such as furniture, office equipment, and computers and telephones; and all deeds to the association’s common property. The developer is also required to give the owner-controlled association copies of all of the insurance policies and warranties in effect, permits, a roster of all homeowners (including address, phone number, and section and lot numbers), and all of the contracts to which the association is a party, such as those for cable, security, and management.

Importantly, for all associations incorporated after December 31, 2007, the financial records must be audited by a certified public accountant, with the audit covering the time from incorporation to turnover, or the time from the last audit to turnover, if an audit has been performed for each year since incorporation. The purpose of the audit is to determine whether all expenditures were made for association purposes, and if the billings, cash receipts and related records reflect whether the developer was charged and paid for the proper amount of assessments.

Accordingly, one can see that there are many requirements for associations facing turnover and that failure to adhere to the statutory requirements controlling the process could have adverse effects for the association, its finances, and its members.

[1] There is a presumption the developer has abandoned the property if, for two years, the developer has unpaid assessments or other bills it is statutorily required to pay.