DEVELOPER TRANSITION: MD CONDO & HOA LAW – PART I   Recently updated !


Maryland Condominium and Homeowners Transition Law Attorneys

DEVELOPER TRANSITION – PART I

MARYLAND CONDOMINIUM & HOMEOWNERS ASSOCIATIONS

Transition of Association Governance from Developer to Homeowner Control

 

INTRODUCTION

This is a two-part article dealing with “developer transition,” the process by which the governance of a condominium or homeowners association is transferred from developer to unit owner or lot owner control. Part I, below, is an overview of the legal requirements that govern the transition process. Part II will contain a “transition checklist” for transitioning owner-controlled boards of directors.

PERIOD OF DEVELOPER CONTROL

A developer initially controls an association because it owns all unsold units or lots in the newly created community. As such, the developer has the controlling votes associated with majority ownership and can appoint its own employees as the initial members of the board of directors and thereby control how the association conducts its affairs. This is referred to as the “period of developer control,” during which the developer makes all decisions on behalf of the association.

The developer also creates an association’s governing documents, allowing it to dictate, subject to applicable law, the procedures and time periods under which control will eventually be transferred to the homeowners.

 

THE TRANSITION MEETING

The period of developer control continues until a “transition meeting” is held to elect members of the board of directors from amongst the association’s membership (i.e., the condominium “unit owners” or, in the case of a homeowner’s association, the “lot owners”). A developer-controlled condominium association must hold the transition meeting within 60 days after the date that units representing 50 percent of the votes in the condominium have been conveyed by the developer to the purchasing unit owners. Maryland Condominium Act (“Condo Act”) §11-109(c)(16)(i)1. A developer-controlled homeowners association must hold the transition meeting within 60 days from the date that at least 75% of the total number of lots are sold to the public for residential purposes. Maryland Homeowners Association Act (“HOA Act”) §11B-106.1(a)(1).

The transition meeting can be held earlier if the developer specifies a lesser percentage of conveyances or sales in the governing documents as a trigger for the 60 day period to commence. Condo Act §11-109(c)(16)(i)2 and HOA Act §11B-106.1(a)(2).

 

OVERLAPPING TERMS OF DEVELOPER-APPOINTED BOARD MEMBERS

The terms of board members appointed by the developer during the period of developer control must end 10 days after a replacement board member is elected at the transition meeting. Condo Act §11-109(c)(16)(iii) and HOA Act §11B-106.1(c). This law is designed to prevent overlapping terms of developer-appointed and owner-elected board members.

 

DOCUMENT/ASSET TURNOVER

Within 30 days following the transition meeting, a condominium developer is required to turn over specified documents and assets to the newly-elected board of directors. Condo Act §11-109(c)(16)(iv), §11-132 and HOA Act §11B-106.1(d). This includes financial records, contracts, architectural plans, condominium funds, owner records, etc. A complete list of these items is set forth as an Appendix to this article.

 

TERMINATION OF CONTRACTS

Following the transition meeting, the newly-elected, owner-controlled board of directors has a right, without liability, and upon 30 days prior notice, to terminate any association contracts entered into during the period of developer control to handle financial matters, maintenance, or other services for the community. Condo Act §11-109(c)(16)(v) and HOA Act §11B-106.1(e). However, this right to terminate does not apply to contracts for the “the provision of utility services or communications systems.” Condo Act §11-109(c)(16)(v)2.B and HOA Act §11B-106.1(e)(2) (ii).

 

TRANSITION CHECKLIST

Part II of this article will contain a checklist of items to be addressed by the first owner-controlled board of directors once it assumes control of the association following the transition meeting.

 

NOTE ABOUT AUTHOR: Nicholas D. Cowie is a partner in the law firm of Cowie & Mott, P.A. He has been representing community associations for over 25 years. Mr. Cowie contributed to the drafting and worked to obtain passage of House Bill 667, enacted on October 1, 2009, which created the laws discussed above that strengthen the rights of Maryland condominium and homeowners associations in the transition process.

 

APPENDIX

DOCUMENTS & ASSETS TO BE TURNED OVER BY MARYLAND CONDOMINIUM DEVELOPER 

  1. Articles of incorporation, recorded declaration, and all recorded covenants, bylaws, plats, and restrictions of the condominium
  2. All books and records, including financial statements, minutes and completed business transactions
  3. Policies, rules, and regulations
  4. The financial records from the date of creation to the date of transfer of control, including budget information regarding estimated and actual expenditures by the condominium and any report relating to the reserves for repairs and replacement of common elements
  5. All contracts to which the condominium is a party
  6. The name, address, and telephone number of any contractor or subcontractor employed by the condominium
  7. Insurance policies in effect and all prior insurance policies
  8. Any permit or notice of code violation issued to the condominium by the county, local, State, or federal government
  9. Any warranty in effect
  10. Drawings, architectural plans, or other suitable documents setting forth the necessary information for location, maintenance, and repair of all condominium facilities
  11. Individual owner files and records, including assessment account records, correspondence, and notices of any violations
  12. A roster of current unit owners, including mailing addresses, telephone numbers and unit numbers
  13. The condominium funds, including operating funds, replacement reserves, investment accounts and working capital
  14. The tangible property of the condominium

DOCUMENTS & ASSETS TO BE TURNED OVER BY MARYLAND HOA DEVELOPER 

  1. Deeds to the common areas
  2. Articles of incorporation, declaration, and all recorded covenants, plats, restrictions, and any other records of the primary development and of related developments
  3. By laws and rules of the primary development and of other related developments as filed in the depository of the county
  4. The minute books, including all minutes
  5. All books and records, including financial statements, minutes of any meeting of the governing body, and completed business transactions
  6. Policies, rules, and regulations
  7. The financial records from the date of creation to the date of transfer of control, including budget information regarding estimated and actual expenditures by the homeowners association and any report relating to the reserves required for major repairs and replacement of the common areas
  8. All contracts to which the homeowners association is a party
  9. The name, address, and telephone number of any contractor or subcontractor employed by the homeowners association
  10. Any insurance policies in effect;
  11. Any permit or notice of code violations issued to the homeowners association by the county, local, State, or federal government
  12. Any warranty in effect and all prior insurance policies
  13. The homeowners association funds, including operating funds, replacement reserves, investment accounts, and working capital
  14. The tangible property of the homeowners association
  15. A roster of current lot owners, including their mailing addresses, telephone numbers, and lot numbers, if known
  16. Individual member files and records, including assessment account records, correspondence, and notices of any violations
  17. Drawings, architectural plans, or other suitable documents setting forth the necessary information for location, maintenance, and repairs of all common areas

 

 

Maryland Condominium Lawyers Transition Attorneys

410-327-3800

cowiemott.com

2310 Boston Street, Baltimore, MD 21224 

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Cowie & Mott is a community association law firm that represents condominiums and homeowners associations throughout the state of Maryland and Washington DC (District of Columbia). The Maryland condominium lawyers and transition attorneys at Cowie & Mott represent boards of directors in the legal matters that arise in the developer transition process. Contact the Maryland condominium lawyers and transition attorneys at Cowie & Mott for references and a free consultation regarding your community’s transition issues.