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Page 20 — Multifamily Properties Quarterly — November 2017
Development
A s we begin to see the devel-
opment of condominium
units once again in Colo-
rado, developers should be
aware that the sale of units
is not the only involvement in the
project the developer will have.
Specifically, a developer will need to
form and run, for a period of time, a
homeowner’s association to enforce
the covenants within the condo-
minium community, collect assess-
ments for the community’s com-
mon elements, and maintain the
community’s common elements.
Initially, the HOA will be con-
trolled by the developer as the
owner of all the units. However, as
the condominium units are con-
veyed to homeowners, the develop-
er will gradually turn over the con-
trol and responsibility of the HOA
to the homeowners. This turnover
of control is subject to certain legal
requirements and practical consid-
erations.
Developer control of the HOA for
new condominium construction is
governed by the Colorado Common
Interest Ownership Act, set forth
in Article 33.3 of Title 38, Colorado
Revised Statutes. When the mile-
stone is reached under Section 303
of CCIOA that requires the devel-
oper to transition control to the
homeowners (or at an earlier time
if the developer so desires), an elec-
tion must be held where homeown-
ers elect at least a majority of the
executive board. From that point,
control of the financial operation of
the HOA effectively transitions from
the developer to the homeowners.
Within 60 days after the transition
election, the devel-
oper must comply
with the property
delivery require-
ments of Section
303(9) of CCIOA,
which require
a developer to
deliver to the HOA
all property of the
homeowners and
the HOA held or
controlled by the
developer.
Below is a devel-
oper checklist to
use for the HOA
property delivery requirements:
1. All entity documents of the
HOA, including the original or a cer-
tified copy of the recorded declara-
tion as amended; the HOA’s articles
of incorporation, if the HOA is
incorporated; bylaws; minute books;
other books and records; and any
rules and regulations that may have
been promulgated.
2. Audited financial statements
of the HOA. The accounting period
for the audited financials must be
from the date the HOA first received
funds and ending on the date the
developer completes transition of
the control of the HOA to the home-
owners. The financial statements
must be audited by an indepen-
dent certified public accountant
and must be accompanied by the
accountant’s letter, containing a
generally accepted accounting
principles compliance statement.
The expense of the audit cannot
be paid for or charged to the HOA,
and instead will be paid for by the
developer in most
circumstances.
3. All HOA funds.
4. All HOA per-
sonal property,
such as property
maintenance
equipment, com-
puters, software,
etc.
5. A copy of all
plans and specifi-
cations used in the
construction of the
improvements in
the community.
6. All insurance policies then in
force, in which the homeowners,
the HOA, or its directors and offi-
cers are named as insured persons.
7. Copies of any certificates of
occupancy that may have been
issued with respect to any common
element improvements.
8. Any other permits issued by
governmental bodies applicable to
the common elements and which
are currently in force or which were
issued within one year prior to the
date on which the homeowners
other than the developer took con-
trol of the HOA.
9. Written warranties of the con-
tractor, subcontractors, suppliers
and manufacturers that are still
effective.
10. A roster of homeowners and
mortgagees, and their addresses
and telephone numbers, if known,
as shown on the developer’s
records.
11. All HOA employment contracts
and service contracts.
12. For large planned communi-
ties, as defined
within CCIOA, cop-
ies of all recorded
deeds and all
recorded and
unrecorded leases
evidencing owner-
ship or leasehold
rights of the large
planned commu-
nity HOA in all
common elements
within the large
planned commu-
nity, according to
C.R.S. §38-33.3-
303(9).
Due to the lead time associated
with some of the above-referenced
requirements, the developer should
plan for, collect and prepare the
required transition documents
well before the transition election.
Failure to do so could result in the
developer scrambling to prepare
the transition documents in a short
time frame.
Developers also may consider
some practical exit strategies to
encourage a favorable relationship
with homeowners on a go-forward
basis. For example, developers may
consider a homeowner warranty
program that includes an on-site
warranty representative that can
quickly resolve warranty claims.
Further, developers may consider a
maintenance manual as part of the
warranty program to educate home-
owners on the maintenance obliga-
tions for their individual units and
establish parameters for the HOA’s
maintenance of the community’s
common elements.▲
Catherine A.
Hildreth
Associate,
Brownstein Hyatt
Farber Schreck,
Denver
Bryce Beecher
Counsel,
Brownstein Hyatt
Farber Schreck,
Denver
Jonathan Pray
Shareholder,
Brownstein Hyatt
Farber Schreck,
Denver