CREJ - Multifamily Properties Quarterly - November 2017
As we begin to see the development of condominium units once again in Colorado, 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 condominium community, collect assessments for the community’s common elements, and maintain the community’s common elements. Initially, the HOA will be controlled by the developer as the owner of all the units. However, as the condominium units are conveyed to homeowners, the developer will gradually turn over the control and responsibility of the HOA to the homeowners. This turnover of control is subject to certain legal requirements and practical considerations. 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 milestone is reached under Section 303 of CCIOA that requires the developer to transition control to the homeowners (or at an earlier time if the developer so desires), an election must be held where homeowners 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 developer must comply with the property delivery requirements 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 developer checklist to use for the HOA property delivery requirements: 1. All entity documents of the HOA, including the original or a certified copy of the recorded declaration 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 homeowners. The financial statements must be audited by an independent 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 personal property, such as property maintenance equipment, computers, software, etc. 5. A copy of all plans and specifications 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 officers 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 control of the HOA. 9. Written warranties of the contractor, 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 communities, as defined within CCIOA, copies of all recorded deeds and all recorded and unrecorded leases evidencing ownership or leasehold rights of the large planned community HOA in all common elements within the large planned community, 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 homeowners on the maintenance obligations for their individual units and establish parameters for the HOA’s maintenance of the community’s common elements.