Imagine the following scenario:
- Single family community
- Developer transitions or otherwise abandons control of the community to the owners
- Developer fails to convey tracts of common areas to the association
- Developer does not respond to repeated requests to voluntarily convey the tracts or conveys tracts encumbered by unpaid taxes to the association
Do you know of an association in this position? What remedies are available to an association in such a situation? Often, the declaration will provide that upon expiration of all development rights, or upon transition, all real estate then owned by the developer will become common elements, but what happens if the governing documents are silent on this issue?
Altitude Community Law recently handled a case in which the declaration contained no such provision. The developer transitioned to owner control, but failed to pay taxes and convey numerous parcels of critical common area to the association. In addition, the developer was leasing fully constructed, but not yet annexed, houses in the community. In effect, the developer was profiting from the rents but was not yet technically obligated to pay assessments.
In this situation, the association sued the developer for breach of covenant, breach of fiduciary duty, civil conspiracy, and to quiet title to certain lots. The association prevailed and/or settled each of the claims to its satisfaction. The developer ultimately deeded the tracts to the association, annexed the leased houses into the community, and began paying assessments on the rented lots.
But we’ve also been involved in situations where associations did not choose to initiate legal action against the developers and “bit the bullet” and paid property taxes on common area tracts to obtain clean title to these tracts.
If your declaration does not have a provision automatically vesting title to common areas upon transition or expiration of all development rights, your association could also potentially be exposed to these issues, so it’s never too early to start reviewing the state of title to your common areas or to request copies of deeds from your community’s developer to ensure the proper transfer of common area to the association.
If you have further questions or would like assistance in determining whether your common area has been properly annexed, please contact any one of our attorneys at 303.432.9999.