Transitioning from developer control to HOA can be confusing, especially since homeowners often don’t know what to do. There are certain steps that must be taken before, during, and after the transition to ensure success.
Developer Control to HOA: When to Transition
Most planned communities start under the developer’s control. The developer establishes the association, creates the governing documents, and adopts an initial budget. Eventually, control will shift from the developer to the homeowners, reflected by a homeowner-led board of directors.
But when is developer turnover triggered?
The transition from a developer controlled community to homeowners association is often triggered when a certain percentage or number of homes have been sold. In some cases, turnover happens after a certain number of years. It ultimately depends on state laws and the association’s governing documents.
Turning Over Developer Control to HOA in Virginia
In Virginia, Section 55.1-1802 specifies the requirements for transferring control from the developer to the homeowners. Upon transition, the developer must settle all real estate taxes tied to the association’s common areas. After the owners elect a board majority, the developer must also turn over pertinent documents.
Section 55.1-1804 outlines these documents, including:
- All association records, including books, meeting minutes, and adopted rules
- Financial statements prepared using accrual accounting methods
- Information on both existing lots and any planned future lots
- As-built drawings or approved site development plans
- Copies of all active insurance coverage
- Warranties covering common or shared improvements
- All active contracts entered into by the association
- A directory of manufacturers for building materials used in the community
- Contact details for current board members
- Documentation for the stormwater management system, including plans or easements
What to do Before the Transition
Before the HOA transitions from the developer, owners must ensure the completion of the steps below.
1. Review the Governing Documents
Examine the governing documents, including the CC&Rs and bylaws. These documents typically explain when and how the transition must happen. State laws also play a role, such as in Virginia.
2. Form a Homeowner Transition Committee
Homeowners should create a committee to prepare for the change in leadership. This committee can gather information, review documents, and communicate with the developer to ensure a smooth turnover.
3. Hire Independent Professionals
Homeowners don’t always know what to do, so it’s common to hire professionals for assistance. An HOA management company can oversee the entire turnover process, but attorneys, accountants, and engineers can also help.
4. Request HOA Records Early
Developers are obligated to maintain accurate records from the start. Homeowners should ask for these records, including financial statements, vendor contracts, meeting minutes, and insurance policies.
5. Do a Preliminary Inspection
A preliminary inspection is a must. Owners can hire an engineer or a reserve specialist to inspect the common areas and assess their condition. This can also help identify any construction defects or incomplete work before the developer leaves.
What to do During the Transition
Below are the steps owners must take during the developer control to HOA transition.
1. Hold the Turnover Meeting
Generally, associations hold a formal meeting where homeowners elect a new board. This new board consists of only homeowners, with no one representing the developer anymore. Homeowners then assume voting control over board seats under the governing documents or state law.
2. Receive All Association Records
The developer should provide the association with all required documents. These usually include:
- Governing documents and amendments
- Financial statements and bank records
- Insurance policies
- Vendor contracts and warranties
- Architectural plans and permits
- Tax returns and audits
- Owner rosters and contact information
Reviewing these documents will give the new board an in-depth understanding of the association’s operations and current condition. Immediate review is necessary so that the board can clarify things with the developer if it spots any discrepancies or errors.
3. Transfer HOA Funds and Accounts
The developer must also turn over all association funds and bank accounts to the new homeowner-led board. This includes operating accounts, reserve accounts, and any investments.
New board members should make sure to change all passwords, codes, or credentials, too. The developer should no longer have access to or control over these funds. Signatories must also change for disbursements.
4. Transfer Control of Common Areas
During developer control, the developer owns all common areas and elements. Upon turnover, ownership must also be transferred or conveyed to the association.
5. Transfer Vendor Contracts
While the new board can change vendors when it assumes control, it can also choose to let existing contracts remain in place. Make sure to check the contracts for any early termination or renewal clauses. It’s also a good idea to conduct a performance review.
6. Obtain Warranties and Construction Documentation
Developers must provide warranties for roofing, equipment, and building systems. Homeowner-led boards should document these as well.
What to do After the Transition
After the HOA developer turnover, homeowners now control the association, but the work doesn’t stop. Here are the things owners must complete.
1. Conduct a Detailed Audit
The HOA or condo board should hire an accountant to perform a comprehensive audit of the association’s finances. This helps the board confirm whether the developer managed the funds properly.
2. Perform a Professional Engineering Inspection
A preliminary inspection before the transition can reveal construction defects or unfinished work. Yet, it is also a good idea to do a more in-depth inspection after the developer leaves.
This information will help the board decide if repairs are necessary. If the inspection finds issues, the board may request repairs from the developer or file claims under warranties.
3. Update Insurance Coverage
The new board should review all existing insurance policies. These policies should match the association’s coverage needs and address all risks. If the current policies are lacking, the board should pursue more comprehensive coverage.
4. Adopt Financial Controls
Generally, financial controls during the development period aren’t as detailed. The new board should establish standard financial procedures, including budgeting, reserve funding, and internal controls to avoid fraud.
5. Review and Update Rules
Homeowner-controlled boards can also adjust the community rules to better reflect the needs of current residents. Research and surveys are necessary to achieve this, but boards should expect a trial-and-error period.
6. Communicate With Homeowners
The transition process can be confusing and frustrating, even for homeowners who aren’t on the board. To help alleviate anxieties and worries, the board should communicate regularly with residents. Provide updates and educate them about the association’s next steps after the transition.
Getting Started the Right Way
Transitioning from developer control to HOA doesn’t have to be challenging. By following the strategies above, owners can ensure a smooth turnover throughout all stages. Nothing will be missed, and the new board can get the community started on the right foot.
Keymont Community Management offers expert HOA management services to associations in Virginia, Maryland, and Washington, DC. Call us today at 703.752.8300 or request a proposal to start your journey!
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