DECLARANT TRANSITION – PART I
WASHINGTON DC CONDOMINIUMS
Transition of Association Governance from Declarant to Unit Owner Control
This is a two part article concerning “declarant transition,” the process by which the governance of a unit owner’ association is transferred from declarant to unit owner control. Part I, below, is an overview of the legal requirements in the District of Columbia that govern the transition process. Part II of this article will contain a “transition checklist” for transitioning unit owner-controlled boards of directors.
NOTE ON TERMINOLOGY
As used herein, the term “unit owners’ association” means a condominium association; the term “declarant” means a condominium developer; and the term “executive board” means a condominium board of directors. This is the terminology used in the District of Columbia Condominium Act and it is generally adopted for this article.
PERIOD OF DEVELOPER CONTROL
The declarant initially controls a unit owners’ association because it owns all unsold units in the newly created condominium. As such, the declarant has the controlling votes associated with majority ownership and can appoint its own employees and representatives as the initial members of the executive board and thereby control how the unit owners’ association conducts its affairs. This is referred to as the “period of declarant control,” during which the declarant makes all decisions on behalf of the association.
The declarant also prepares the condominium instruments that create the condominium, including the condominium bylaws and declaration that govern the unit owners’ association (the “governing documents”) and establish its executive board which has the authority to act on behalf the unit owners’ association in governing the condominium. This enables the condominium declarant to dictate, subject to applicable law, the procedures and time periods under which control of the executive board will ultimately by transitioned to the unit owners.
In Washington DC, a condominium declarant is authorized by statute to control the operations of a unit owners’ association by appointing and removing the members of its executive board (“board members”) and its officers during the period of declarant control. District of Columbia Condominium Act (“DC Condo Act”) § 42-1903.02(a) and (c).
THE TRANSITION MEETING
In the District of Columbia, a transition meeting to allow the unit owners to democratically elect all members of the executive board is held following the end of the developer control period. DC Condo Act §42-1903.01(b). The date on which the period of declarant control ends is determined by the the application of a formula set forth in the DC Condo Act. Generally, the declarant control period will end when: (1) units representing 75% of the undivided interests in the common elements have been conveyed by the declarant to purchasing unit owner; or (2) three years from the date the first unit is conveyed by the declarant to a purchasing unit owner (two years for non-expandable condominiums), whichever occurs first. See DC Condo Act §42-1903.02(a).
OVERLAPPING TERMS OF DECLARANT-APPOINTED AND UNIT OWNER-ELECTED BOARD MEMBERS
The DC Condo Act permits overlapping terms of declarant-appointed and unit owner-elected board members. Two special meetings must be held in order to allow non-declarantr unit owners to elect up to 1/3 of the board membership. These elections occur when approximately 25% and 50% of the units at the condominium have been conveyed. See DC Condo Act §42-1903.02(d). These elections can result in overlapping terms of declarant-appointed and unit owner-elected board members during the period of declarant control. Once the period of declarant control ends, the entire executive board membership is elected by the unit owners. DC Condo Act §42-1903.01(b)
TERMINATION OF CONTRACTS
Under DC Condo Act, certain contracts entered into by the condominium declarant on behalf of a unit owners’ association during the period of declarant control may be terminated without penalty upon not less than 90 days’ written notice. DC Condo Act §42-1903.02(b)(1). These include association contracts with declarant affiliates, management contracts, employment contracts and agreements to lease parking spaces. DC Condo Act §42-1903.02(b)(1).
Part II of this article will contain a checklist of items to be addressed by the first unit owner-elected executive board once it assumes control over the unit owners’ association following the transition meeting.
NOTE ABOUT ARTICLE: This Article was published in two parts in the Community Association Institute, Chesapeake Region Chapter, publication “the Beacon.”
NOTE ABOUT AUTHOR: Nicholas D. Cowie is a partner in the law firm of Cowie & Mott, P.A. and has been representing condominium associations for over 25 years. Mr. Cowie is licensed in Maryland and Washington DC and has extensive experience representing condominiums with declarant transition issues including financial disputes over payment, collection and use of assessments and construction defect claims.