Turnover: Transitional Considerations for the Homeowners’ Association

Part one of this blog discussed turnover in its initial stages: the events that trigger turnover and the files and papers the developer is required to produce to the homeowners’ association at the time of turnover. Once an association has completed those steps, the board must then turn to critical business and make crucial decisions for the association. Associations and their boards should bear in mind the following issues as they go through turnover and immediately thereafter.

Subsequent to turnover, the association is independent from the developer and its support. At that time, the Board must ensure that the developer delivered on all its promises, and that the physical property and the association’s finances were properly maintained during the time period the developer was in control of the association. Turnover provides a narrow window during which the association can identify and resolve issues before the responsibility for doing so lies solely with the association.

As discussed in part one, the developer is required to pay for a certified public account to audit the association’s books. Subsequent to turnover, it is critical that the association’s new board examine this audit and determine if it is accurate and complete, or if there is any reason to doubt its accuracy. If the board does not share in the audit’s conclusions or wants to verify the financial information contained in the audit, the association should hire its own certified public account to conduct a separate and independent audit. The association can then determine if the developer followed proper procedure and protocols for running the association prior to turnover, or whether there are financial issues that should be addressed with the developer.

Further, the new board should examine the contracts entered into by the developer, paying particular attention to their duration, cost, and termination provisions. Florida Statute §720.309 provides that any grant or reservation, or contract with a duration longer than 10 years, that is made by the developer before turnover and which provides for operation, maintenance, or management of the association must be fair and reasonable. Additionally, the developer may have entered into contracts that the association believes are unnecessary, or the association may believe they can obtain a better and/or more competitive contract from another vendor. Florida Statute §720.309 additionally provides that any contract entered into by the board may be cancelled by a majority of the voting interests present at the next regular or special meeting[1].

Accordingly, after turnover, the board should examine all such contracts to determine their duration, ensure any contracts with a duration longer than 10 years are fair and reasonable, and otherwise make sure that the contracts entered into by the developer are serving the best interests of the community. If there are problems with the contracts entered into while the developer controlled the association, then the board and the association should move swiftly to address those contracts, in the manner provided for under §720.309.

Post-turnover, the board should also ensure that the developer did not violate any of the community rules or policies as provided for in the community’s documents. The board should additionally consider retaining a professional to examine the condition of the community’s common areas, which will assist them in planning for long-term maintenance and repairs to things like gyms, roads, clubhouses, pools, etc. The board should immediately address any construction or financial issues with the developer during the turnover process or immediately thereafter because the longer the association waits to remedy any such issues, the easier it is for the developer to allege that such problems are the result of the association’s failure to adequately maintain the common areas or the association’s failure to maintain proper financial records and practices.

While this blog addresses the turnover process for homeowners’ associations, condominium associations should also be aware of the process and the unique laws governing condominium turnover. For more on that topic, please see part one and part two of our blog posts regarding condominium turnover.

[1] It should be noted that any member may make a motion to cancel a contract, but if no motion is made or if the motion fails to obtain the required vote, the contract will be ratified for its duration.