UNDERSTANDING THE TRANSITION PROCESS IN A COMMUNITY ASSOCIATION

“Transition” (more commonly referred to as “turnover”) is the process by which the non-developer owners in a condominium or homeowners’ association obtain control of a majority of the Board of Directors.

Many residents fear turnover and even attempt to delay turnover. They believe turnover is similar to a real estate closing, and expect that all owner/developer issues will be resolved at the turnover meeting. Actually, turnover benefits the non-developer owners. Turnover is something that owners welcome when they are educated about its benefits.

Turnover is the point at which owners can utilize their community association to assert their legal rights with respect to matters of common interest to the community, as opposed to issues specific to their units/homes.

Turnover describes: the legal method by which non-developer owners elect a majority of the Board of Directors; and the meeting at which the election occurs and the developer “turns over” the community association’s official records. The turnover process is set forth in Chapter 718, Florida Statues (Condominium Act) and Chapter 720, Florida Statutes (informally known as the “HOA Act”).

Condominium Associations

Section 718.301 of the Condominium Act is titled “Transfer of Association Control”. This section of the Condominium Act mandates when the non-developer owners are entitled to elect directors. When owners other than the developer own 15% of the units that will ultimately be operated by the association, those owners may elect not less than 1/3 of the Board of Directors. Non-developer owners are entitled to elect a majority of the Board of Directors at the first to occur of the following:

(a) Three years after 50 percent of the units that will be operated ultimately by the association have been conveyed to purchasers;

(b) Three months after 90 percent of the units that will be operated ultimately by the association have been conveyed to purchasers;

(c) When all the units that will be operated ultimately by the association have been completed, some of them have been conveyed to purchasers, and none of the others are being offered for sale by the developer in the ordinary course of business;

(d) When some of the units have been conveyed to purchasers and none of the others are being constructed or offered for sale by the developer in the ordinary course of business;

(e) When the developer files a petition seeking protection in bankruptcy;

(f) When a receiver for the developer is appointed by a circuit court and is not discharged within 30 days after such appointment, unless the court determines within 30 days after appointment of the receiver that transfer of control would be detrimental to the association or its members; or

(g) Seven years after the date of the recording of the certificate of a surveyor and mapper pursuant to s. 718.104(4)(e) or the recording of an instrument that transfers title to a unit in the condominium which is not accompanied by a recorded assignment of developer rights in favor of the grantee of such unit, whichever occurs first; or, in the case of an association that may ultimately operate more than one condominium, 7 years after the date of the recording of the certificate of a surveyor and mapper pursuant to s. 718.104(4)(e) or the recording of an instrument that transfers title to a unit which is not accompanied by a recorded assignment of developer rights in favor of the grantee of such unit, whichever occurs first, for the first condominium it operates; or, in the case of an association operating a phase condominium created pursuant to s. 718.403, 7 years after the date of the recording of the certificate of a surveyor and mapper pursuant to s. 718.104(4)(e) or the recording of an instrument that transfers title to a unit which is not accompanied by a recorded assignment of developer rights in favor of the grantee of such unit, whichever occurs first.

The developer is entitled to elect at least one member of the Board of Directors as long as the developer holds for sale in the ordinary course of business at least 5 percent, in condominiums with fewer than 500 units, and 2 percent, in condominiums with more than 500 units, of the units in a condominium operated by the association. After the developer relinquishes control of the association, the developer may exercise the right to vote any developer-owned units in the same manner as any other unit owner except for purposes of reacquiring control of the association or selecting the majority members of the board of administration.

Within 75 days after the first date described in (a)-(g) above occurs, the developer-controlled condominium association must send not less than 60 days’ notice of an election of directors. The notice must inform the owners that they shall send notice of their intent to be a candidate in the election not less than 40 days prior to the election. Owners may also include a candidate’s resume on one side of an 8 1/2 x 11 sheet of paper. The association then sends a Second Notice of the election (if there are more candidates than seats to be filled) which includes an election ballot and instructions on voting. If the number of candidates does not exceed the number of seats to be filled, the candidates are automatically elected as directors — their names are announced as new directors at the turnover meeting (and they fill their seats upon adjournment of the turnover meeting).

In addition to the election process, turnover refers to the physical transfer of association documents. Section 718.301 of the Condominium Act contains a list of official documents which the developer must provide to the owners, including the original condominium documents, unit owner list, minute books, resignations of developer-appointed directors, accounting records, and plans and specifications for the condominium. The developer is also obligated to provide, at its own expense, an audit of the association’s finances, prepared by an independent certified public accountant. The turnover audit must be provided at least 90 days after the turnover meeting.

The benefit of turnover is both practical and legal. The practical benefit is that the non-developer unit owner directors now control the day-to-day operations of the association. The new directors now determine what management and vendors the association will retain (subject to existing agreements, which may or may not be terminated). The new directors are responsible for the association’s finances.

The legal benefit of turnover is that a condominium association has the legal right to represent the unit owners on “matters of common interest”, including the developer’s handling of association finances prior to turnover and the quality of construction of the common elements. The developer of a condominium is obligated by statute to grant the owners and the association certain implied warranties concerning the construction of the condominium. The unit-owner controlled Board has the authority to assert the owners’ rights, whether through a negotiated agreement with the developer, or through legal action. Certain warranties concerning the units may be asserted only by the unit owner (except in a situation in which a defect in a unit is common throughout the community).

Homeowners Associations

Turnover of a homeowners’ association is governing by Section 720.307 of the HOA Act. Owners other than the developer are entitled to elect a majority of the Board of Directors when the earliest of the following occurs:

(a) Three months after 90 percent of the parcels in all phases of the community that will ultimately be operated by the homeowners’ association have been conveyed to members;

(b) Such other percentage of the parcels has been conveyed to members, or such other date or event has occurred, as is set forth in the governing documents in order to comply with the requirements of any governmentally chartered entity with regard to the mortgage financing of parcels;

(c) Upon the developer abandoning or deserting its responsibility to maintain and complete the amenities or infrastructure as disclosed in the governing documents. There is a rebuttable presumption that the developer has abandoned and deserted the property if the developer has unpaid assessments or guaranteed amounts under s. 720.308 for a period of more than 2 years;

(d) Upon the developer filing a petition seeking protection under chapter 7 of the federal Bankruptcy Code;

(e) Upon the developer losing title to the property through a foreclosure action or the transfer of a deed in lieu of foreclosure, unless the successor owner has accepted an assignment of developer rights and responsibilities first arising after the date of such assignment; or

(f) Upon a receiver for the developer being appointed by a circuit court and not being discharged within 30 days after such appointment, unless the court determines within 30 days after such appointment that transfer of control would be detrimental to the association or its members.

For purposes of this section, the term “members other than the developer” shall not include builders, contractors, or others who purchase a parcel for the purpose of constructing improvements thereon for resale.

In addition, members other than the developer are entitled to elect at least one member of the board of directors of the homeowners’ association if 50 percent of the parcels in all phases of the community which will ultimately be operated by the association have been conveyed to members.

The developer is entitled to elect at least one member of the board of directors of the homeowners’ association as long as the developer holds for sale in the ordinary course of business at least 5 percent of the parcels in all phases of the community. After the developer relinquishes control of the homeowners’ association, the developer may exercise the right to vote any developer-owned voting interests in the same manner as any other member, except for purposes of reacquiring control of the homeowners’ association or selecting the majority of the members of the board of directors.

Unlike the Condominium Act, the HOA Act does not provide a precise time frame for when the developer controlled homeowners’ association must send a notice of the election and the number of days’ notice. The homeowners’ association’s governing documents and Section 720.306(8)(b) and (9)(a) of the HOA Act.

At the turnover meeting, the developer must deliver the official records described in Section 720.307 of the HOA Act. A turnover audit is not required for homeowners’ associations incorporated prior to 2008.

Mandatory turnover does not apply to a homeowners’ association incorporated on or before June 14, 1995, or to a homeowners’ association, no matter when created, if such homeowners’ association is created in a community that is included in an effective development-of-regional-impact development order as of June 14, 1995, together with any approved modifications.

The practical and legal benefits of turnover of a homeowners’ association are similar with those in the condominium context.