By: Dan Rich, Esq.
Clark, Campbell, Lancaster & Munson, P.A.
One of the most important events a homeowners association will face is its “turnover” or “transition” from the developer of the community to the unit owners. Despite the importance of a turnover, what I’ve found is that many unit owners are unaware of the basics surrounding a homeowners association’s transition. This article is intended to serve as an overview of the transition process for homeowners associations and developers that may be undergoing the process, are on the verge of a transition, or who just want to educate themselves on what a proper turnover entails.
“Transition” or “turnover” of any homeowners association means that the unit owners of the association, as opposed to the developer, are now entitled to elect at least a majority of the members of the association’s board of directors. This is a huge step for any association, as the board of directors, or board, serve as the voice of all unit owners while also conducting the day-to-day affairs of the association. For homeowners associations, the turnover process is governed by Section 720.307, Florida Statutes. Section 720.307 provides that a turnover is triggered upon any one of the following six events occurring:
- Ninety percent (90%) of the parcels in all phases of the association have been purchased, in which case turnover must occur within three (3) months of the developer reaching the 90% sale threshold;
- Some other percentage of parcels have been purchased, a certain “triggering” event has occurred, or a specified date has been reached, as particularly specified in the association’s governing documents;
- The developer abandons its responsibilities to maintain and complete the amenities or infrastructure as disclosed in the association’s governing documents;
- The developer files for Chapter 7 bankruptcy;
- The developer loses title to the association property via foreclosure or a deed in lieu of foreclosure, unless the subsequent owner has accepted an assignment of the developer’s rights and responsibilities; and
- A receiver is appointed by a circuit court judge for longer than thirty (30) days, unless the court determines that the transfer of control would be detrimental to the homeowners association;
Upon the occurrence of any of the above triggering events, unit owners, other than the developer, are legally entitled to elect at least a majority of the association’s board. However, so long as the developer is still holding for sale at least five percent (5%) of the association’s parcels, the developer remains entitled to elect at least one member onto the association’s board.
Section 720.307 goes on to provide that once unit owners have had the association turned over to them, the developer must also “turnover” all of the association’s documents to the association. These documents include, but are not limited to, the original recorded declaration of covenants, a certified copy of the association’s articles of incorporation, a copy of the bylaws, the minute books, financial records (more on this below), bank accounts and statements, personal property of the association (i.e. indoor and outdoor furniture, office equipment, computers), and all of the construction plans and specifications, which must include a list of the names, addresses and telephone numbers of all contractors, sub-contractors, or others in the current employ of the association. The developer is also required to provide unit owners with copies of all insurance policies, certificates of occupancy, permits, warranties, unit owner roster, and all of the contracts that the developer controlled association may have executed for services such as cable, telephone, security and other services.
Importantly, for all homeowners associations incorporated after December 31, 2007, the financial records that the developer must provide to the unit owner controlled association must be audited by a certified public accountant. Additionally, the audit must cover the time from incorporation up and until turnover, or the time span from the most recent audit to turnover, if an audit has been performed for each year since inception. The purpose of these stringent audit requirements is to allow the unit owner controlled association to determine whether all expenditures were made for association purposes, and to also determine if the billings, cash receipts and related records reflect whether the developer was charged, and in turn paid, the proper amount of assessments.
Hopefully this step-by-step analysis will help prepare developers and unit owners facing a “transition” or “turnover” of their association. However, if the procedures – as outlined above – are not followed properly, it can result in expensive legal exposure that ultimately could have adverse effects for the association, its finances, and its unit owners. This is why you, as a developer or interested unit owner, or your association, should strongly consider consulting an attorney who is knowledgeable in Florida community association law for guidance on the appropriate turnover procedure for your specific association.
Dan Rich is an attorney with the law firm Clark, Campbell, Lancaster & Munson, P.A. in Lakeland. Questions can be submitted to email@example.com.