Unhappy employees might be thinking high turnover rates are the sign of miserable work conditions. Salespeople might be thinking low turnover in sales is a sign of inefficiency. Broncos fans might be thinking three turnovers in the first quarter is a sign of….well, not sure how to finish that sentence.
I, on the other hand, think of two things: First, apple turnovers are heavenly; second, Declarant turnovers to owner control are not. Why you might ask? Because often Declarant turnovers to owner control are filled with misinformation and misunderstanding of the turnover process.
In the last few months I’ve been asked by a number of Northern Colorado community associations to assist them with transition to owner control. Good sign? Maybe, as for some communities this means they’ve broken out of the “no sales” holding pattern, and completion of the community is on the horizon. But it also means that it’s time for homeowners to step up and become involved in governing the community. And this requires a clear understanding of the turnover process.
If your community is in the process of turning over from Declarant to owner control, here are some things you should keep in mind:
1. Turnover of board control does not mean termination of Declarant rights.
The Colorado Common Interest Ownership Act (“CCIOA”) requires the period of Declarant Control to terminate upon the first to occur of either the sale of 75% of the Units that May be Created to owners other than the Declarant, two years after the Declarant exercises a reserved right to add additional property to the community, or two years after the last sale of a unit in the ordinary course of business. When one of these trigger events occurs, the right to elect the Board is turned over the homeowners from the Declarant.
But this simply means that the Declarant no longer has the right to appoint and remove directors and officers of the Board. This does not mean the Declarant’s development and other rights have expired. The Declarant is still permitted to exercise all Declarant rights that are reserved to it in the Declaration, and under CCIOA. For example, Declarant might still be able to exercise architectural control, maintain model homes and development signs, annex additional properties, among other things.
2. Turnover of board control is only one piece of the transition process.
Some boards view transition as one event: the meeting at which the Declarant turns over control of the board to owners. Thinking about it as an event rather than a process might create unreasonable expectations in the new board, such as being able to completely take over community operations overnight. This is simply not the case.
Transition should be viewed as a process occurring over a period of time during which owners gradually become more involved in the governance of the community. Transition includes a number of components, including turnover of Board control, of financial operation of the association, of common area, and of certain documents. Turnover of Board control is only the beginning.
3. Turnover of association documents and other required items should occur within 60 days of election.
CCIOA states that no more than 60 days after the election of the board by the owners, the Declarant must remit to the Association, among other items, the original recorded copies of the declaration, an accounting of association funds including control thereof (i.e., the transition audit), all tangible personal property that has been represented to be the property of the Association, plans of the community, all insurance policies and any other corporate records in the Declarant’s possession (a full list of the documents is contained in C.R.S. 38-33.3-303(9)). The new board needs to ensure all required records are turned over within the required 60-day timeframe.
4. Don’t forget Turnover of common area.
In addition to the records required to be provided to the Association by Declarant, the board should complete a walk through of the community to identify any items that may need Declarant attention prior to Declarant’s departure. This should also include requesting documentation evidencing that the common areas have been properly deeded to the community. Transfer of common area is often overlooked and if not caught early, could be years before it is noticed.
One consequence of failure to transfer common area is that if Declarant failed to pay taxes on the common area, this could result in the common area being encumbered by tax liens. The exemption from taxes does not kick in until the common area tract is transferred to the association.
For more articles on what to expect when transitioning from Declarant to owner control see additional Altitude Community Law articles.