What is developer turnover?
Turnover is simply the process in which control of the community association shifts from the developer to the homeowners. Some owners mistakenly believe that “turnover” is a date where the developer leaves forever, writes a check, and agrees to fix every problem. Unfortunately, this is rarely the case.
Why is developer turnover significant?
Developer turnover is an important milestone for a community because the budget, vendor relationships, and other operations are controlled by the owners and not Directors appointed by a developer. It also provides the owners with the opportunity to ensure that a developer meets all of its financial and construction obligations to the community.
When does developer turnover occur?
The triggering event is based on the number of sold units and whether the developer is seeking to sell remaining units. The date of turnover can also be triggered by the passage of time in some situations, the date of the original governing documents, and may be specifically defined in your governing documents. Developers can also elect to turnover “early” if prudent.
For how long will the developer be entitled to elect members to the Board of Directors?
The developer will be entitled to appoint at least one member to the Board of Directors provided the developer holds at least five percent (5%) of the total homes in the community for sale in the ordinary course of the developer’s business.
Must the condominium unit owners or homeowners accept turnover from the developer?
Yes. When the owners are legally permitted to take control, and control is tendered by the developer, the owners must accept operational responsibility of the community.
Is the developer obligated to turnover anything other than control of the Board?
Yes. At the time of turnover, the developer must deliver a myriad of official records, construction documents, financial documents, warranties, and engineering documents. The association’s legal counsel should also ensure that title to all parcels is deeded to the association free and clear of liens. These specific set of documents will depend on the year in which the community was created and any self-imposed requirements in the governing documents. It is important that your legal counsel is familiar with the appropriate and applicable requirements relevant to your specific community.
How do the owners confirm at turnover that the association’s finances are in good order?
At the date of turnover every financial record generated by the association since its Incorporation is required to be audited by an independent CPA. The accountant determines if expenditures were made for association purposes and whether the developer paid the proper amounts of assessments, including reserves. Many of our clients also engage their own CPA to review the findings of the developer-engaged CPA.
Is the Developer required to fix construction issues or punch list items?
There are different warranties and construction requirements depending on whether your community is a condominium or homeowners association. The short answer, however, is that the developer is responsible to cure defective construction. The Florida Statutes provide some specific guidance on how to pursue these claims, but each community poses a unique set of circumstances because of the different building codes, engineers, architects, contractors and governmental oversight applicable to each construction project. It is critical that the Association engage the right experts to provide you with a detailed analysis on the health and condition of what is being “turned over” to you and the developer may be responsible to cure any deficiencies. It is also critical to make sure you have a strong partnership with your legal team to advocate for you in this process.