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One of the most underestimated and least thought about occurrences in the life of a homeowners or condominium association is “turnover.” Turnover is the transition of administrative control of the association from the declarant1 to the homeowners association. This transition, however, is more often a process rather than a singular event. While its importance is often minimized or misunderstood by the declarant and homeowners alike, the ramifications and repercussions of a bad turnover can last for years if it is not done properly or in an organized manner. The purpose of this article is to look at those elements of the turnover process that are integral to a successful transition from declarant to homeowner control.
Declarant-Control Period
A community and its administrative homeowners or condominium association are created when the documents governing the community (CC&Rs and bylaws) are recorded with the county in which the community is located. These documents usually provide for a period of declarant-control of the association. At the conclusion of this period of declarant-control, the administrative control of the association, and thereby the community, must be turned over from the declarant to the homeowners. Most often, the governing documents provide that the declarant must turn over control of the project once 75% of all homes or units in the project have been sold. Homeowners whose community is still under declarant-control should review their governing documents to determine the declarant-control period.
Transitional Advisory Committee
Prior to turnover, Oregon law requires, with some exceptions, that the declarant create a transitional advisory committee to facilitate the transition from declarant-control to homeowner control. Many governing documents require that the transitional advisory committee be established once 50% of the lots or units in the community are sold.
As the name suggests, the committee is purely advisory: it has no voting power or membership on the declarant-controlled board of directors. However, it can request access to the information, documents, and records that the declarant must deliver to the owners at the turnover meeting. It also provides owners with an opportunity to become familiar with the association’s governing documents, architectural and other restrictions, budgets, financial records, rules and regulations, and other aspects of the association prior to assuming total control of the operation and management of the association.
Turnover Meeting
Oregon law requires that the declarant call a “Turnover Meeting” within 90 days of the expiration of the declarant-control period established by the community’s governing documents. If the governing documents do not specify a declarant-control period, then Oregon law further specifies by when the turnover meeting must occur.
Notice of the meeting must be given to all owners in the manner established by the governing documents. If the declarant does not call the turnover meeting within the time specified by Oregon law or the governing documents, then it may be called and noticed up by an owner or the transitional advisory committee.
The biggest event at the turnover meeting is the election of a board of directors by the owners. Directors are elected from the body of homeowners. Remember, however, a developer who maintains a large number of lots or units may still maintain some practical control of the association because of the voting rights attached to those lots or units. It is common for the developer to remain on the board of directors after turnover simply because he or she can marshal his or her votes together to get him or herself elected to the post-turnover board of directors.
In addition, the declarant is obligated to deliver all the property and records of the association to the owners at the turnover meeting. Oregon law specifies what documents and records must be turned over. The documents to be turned over include, but are not limited to, the association’s governing documents, financial records, deeds to common property, association and board of directors meeting minutes, income tax returns, bank signature cards and account statements, reserve account and reserve study information, and insurance policies. Frequently, one of the biggest problems associations have at turnover is getting all of the records and documents the declarant is obligated to turn over, so associations should pay close attention to the documents that have been turned over and secure legal counsel if documents and records are not being turned over.
Post-Turnover Meetings with Declarant
Oregon law also requires that the declarant, or an informed representative of the declarant, be available to meet with the post-turnover board of directors during the three-month period following the turnover meeting. The declarant, or declarant’s representative, must meet with the board on at least three mutually accepted dates to review the documents handed over to the owners at the turnover meeting.
Audit of Association Affairs
Finally, it is advisable that all post-turnover boards of directors audit the affairs of the association after turnover. With the help of legal counsel, property management professionals, accounting professionals, and insurance professionals, the association should review various aspects of its history and operation. Certainly the board of directors should determine the breadth and scope of the audit; however, the board should, at a minimum, consider the following areas to review: (1) status of the physical property, (2) corporate status of the association, (3) association records, (4) assessment collections, and (5) special declarant rights. By looking at these areas, the board of directors will be able to determine the strengths and weaknesses of the association, the condition of the property, and the needs of the association. In doing so, the post-turnover board is acting to safeguard the assets of the association and the owners, and to protect property values.
Turnover is an important time for homeowners and condominium associations. It sets the tone for the future of the association, and if the transition is disjointed and problematic, the repercussions could last for years. Post-turnover boards of directors should seek professional guidance in leading the association through this important time, and should be vigilant in ensuring that the rights of the association are being protected throughout the turnover process.
Christopher M. Tingey
Attorney at Law