Thursday September 21, 2023
What is an HOA transition from developer?
When an HOA transition from developer control occurs, it typically means that the developer, who initially owned and managed the property, is transferring ownership or control of the property to another entity, such as a homeowners association (HOA), property management company, or individual property owners. The specific process and outcomes of an HOA transition from developer control can vary depending on the type of property, its purpose, and the governing documents in place. Here are some common scenarios:
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Homeowners Associations (HOAs):
In planned communities or condominiums, developers often establish HOAs to manage common areas and enforce community rules and regulations. When a certain number of units or lots are sold, the developer typically hands over control of the HOA to the homeowners. Homeowners then elect a board of directors from among themselves to manage the HOA's affairs. The transition often involves transferring financial records, governing documents, and control of common amenities to the HOA.
Typically, a developer will already have a partnership with a professional management company, which then assists with the transition process and goes on to oversee the community association.
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Residential housing developments:
In some residential developments, developers may retain control over certain aspects of the community, such as landscaping and maintenance, until a specific development phase is completed. Once the development reaches a predetermined milestone, control may be transferred to a homeowners association or a property management company.
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Legal and financial matters:
During the transition, there may be legal and financial considerations, such as transferring titles, deeds, and financial accounts. The new entity or property owners will need to ensure that all contracts, permits, and legal obligations are properly transferred and upheld.
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Maintenance and management:
The responsibility for property maintenance and management may transfer to a different party. Maintenance, repairs, and upkeep of common areas and infrastructure may become the responsibility of the homeowners, tenants, or a hired property management company.
The specifics of this transition will depend on the contractual agreements, local regulations, and the established governance structure of the property. It's essential for all parties involved to work together transparently and legally to ensure a smooth transition and the continued effective management and maintenance of the property. Legal counsel and experienced property management professionals often play key roles in facilitating these transitions and ensuring compliance with all relevant laws and agreements.
11 steps for a successful HOA transition from developer
A good HOA transition team will be concerned with more than a seamless handover of control. Instead, it’s about setting up the new homeowners association for success in the long term. After all, how the HOA transition from the developer stage is handled can affect the community for many years.Below is a list of best practices to help position your homeowners association for success as it transitions from property developer to HOA control.
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Partner with the right people
Your transition team should be comprised of individuals who are both qualified and invested in a successful outcome. As a good rule of thumb, your team should include at least one member of the homeowners association board, interested community members, and, ideally, at least one industry professional with experience in associations and development. Ideally, partnering with a professional property management company with HOA transition experience can provide expert insights and guidance for the community.
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Know the team’s purpose
Make sure all transition team members understand their duties and goals. They will be involved in reviewing management and onsite staff (if applicable), developing a “punch list” for completion of common areas, compiling all necessary association documents, reviewing the association’s financials and prior audits, community guidelines, and both architectural guidelines and approvals, meeting with the developer’s representatives and more.
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Conduct a reserve study to help budget effectively
Fiscal responsibility is the foundation of a healthy community, and a good budget is critical to your association’s financial stability, now and in the future. Property developers are usually experienced in creating budgets, but that’s not always true for homeowners who volunteer to serve on their associations’ boards. Hiring a professional to conduct a reserve study can help.
A reserve study is a long-term capital budget planning tool to help board members anticipate capital repairs, replacements, and other long-term projects. It pinpoints the amount of money needed to fund the association’s reserve fund, the useful life of each item, and defines how these funds should be allocated to cover future expenses.
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Training
Sometimes, newly formed associations are comprised of HOA board members with more commitment and enthusiasm than actual association experience. That’s okay – and it’s also why the transition stage is a great time for new board members to undergo training on key association matters, i.e., what makes an effective association, strategies for effective leadership, compliance, including relevant statutes and laws, and more.
An experienced property management company, like FirstService Residential, can provide board member training and resources. Visit our board member resources page to see free educational resources and content.
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Transfer all paperwork
The complete transfer of all documents from the property developer to the HOA board is essential. Typically, these documents include the articles of incorporation, declaration of covenants, conditions and restrictions, and bylaws.
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Communication
During the HOA transition phase, the team should arrange web forums, printed communications, and meet-and-greets between the developer and homeowners. This is a great way to keep everyone apprised of the ongoing progress and help manage homeowners’ expectations. The transition begins when a specific number of units are sold, according to state statutes and the association documents. When that target is reached, your goal should be to communicate to all owners in a way that is transparent and effective. At its core, this means educating homeowners on what an association is – and, just as importantly, what it is not.
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Seek professional expertise
A homeowners association must meet the needs of many stakeholders – while adhering to strict state statutes and laws. To ensure effectiveness and compliance, the team can consult or contract experienced professionals, such as insurance providers, engineering firms, attorneys and property management companies for guidance.
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Ensure ongoing maintenance.
The transition team should be clear on exactly when the owner-controlled board will assume responsibility for the maintenance of equipment, systems, amenities, and common areas. There should be no ambiguity on this point – otherwise, these areas may fall into disrepair.
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Transfer all financial records
It’s a good idea to put an owner-treasurer in charge of the books as early as possible during the transition stage. Books and financial records should be complete, including annual audits and clearly differentiated categories for association funds and developer funds.
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Conduct an engineering inspection
The transition team should tour the development with a qualified engineer and request a summary report that includes a description of the property, recommended maintenance schedule, and a comparison of what’s been built with what’s outlined in the plans.
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Purchase insurance
Though the developer will have insured the property during construction, once control is transferred to the owner-controlled association, the proper insurance coverage must be reviewed by an agent, and there may be a need for additional purchased coverages to ensure effective gap coverage.
A professional management company can offer assistance with insurance vendor selection or even in-house insurance experts. FirstService Financial is an affiliate of FirstService Residential that provides exclusive insurance solutions and guidance to its communities.