Many community associations experience governance problems after decades of operation, but problems can arise even before all the units in the development have been sold. If you are building a community association from the ground up, you should know that the developer is initially responsible for governing the community, and an HOA must adhere to a number of requirements in order to take over governance.
The transfer of power from the developer to the homeowners can take over a year from start to finish and will involve a lot of individual steps that must be completed in order to ensure that an association’s authority is legal. It is a good idea to hire a community association attorney to guide you through this critical process, as he or she can advise you (and potentially save you time and money) if there are any unforeseen complications.
Key Tips for Community Associations Assuming Power From the Developer
Members of a new homeowners’ association can prepare themselves for governance by:
- Starting early. The developer is allowed to choose people to govern the community before an HOA board of directors is appointed. Once enough members have entered into the community, the new homeowners may begin electing members of its board to protect its interests. The HOA board should form a residential advisory committee to act as a liaison to the developer and oversee the transfer of control from developer to residents.
- Obtaining governing documents. Owners on the board of directors should obtain a complete set of any governing documents, including Covenants, Conditions, and Restrictions (CC&R), and clarify in writing the assignment of duties to the developer and the HOA board.
- Compiling documentation. There is a great deal of paperwork that must be created or completed in order to establish a community association as a legal entity. Transition documents may include a memorandum of understanding outlining the terms and conditions of the release of governance to the homeowners, deeds for the common areas, the names and contact information of members of the board of directors (and number of such directors appointed by the developer), and financial disclosure and accountability forms. Homeowners will also need to request documents and records from the property developer's governing board. Under Virginia law, the developer should transfer all association books and records (such as minute books, rules and regulations, and any amendments), statements and receipts for expenditures from the date of the recording of the association documents to the first election of the board of directors by the homeowners, the number of lots currently occupied at transfer and total number of units on-site, a copy of the latest available approved plans and specifications for the project, current association insurance policies, the original construction vendor list (and any unexpired warranties), subcontractors, suppliers, and manufacturers involved in work on the common areas, any contracts in which the association is a contracting party, an inventory and description of stormwater facilities located on the common area, and a list of manufacturers of paints and building materials if specified for use on the association property.
- Consulting third-party entities. Newly-elected HOA board members typically involve a number of third-party professionals to assist in the transfer process. For example, boards may need to meet with the association’s insurance agent to make sure the community is properly covered, hire a building inspector to ensure that structures and common areas are compliant with local building codes, or municipal agents to confirm that public streets have been accepted by the state government. One of the most valuable third parties is an association accountant, who can assist with the financial details of the transition and ensure that the board and developer are compliant in their fiduciary duties to members.
- Considering legal requirements. As so much is required for the transition to be completed in accordance with the law, it is best to involve legal counsel to oversee the process. Our attorneys can ensure that all parties are meeting their duties, identify potential problems, and resolve any conflicts between the developers, members, and contractors.
Attorneys David Mercer and Pia Trigiani represent community associations throughout Virginia. Feel free to browse our library of free information or use our online contact form to learn how we can help with your community association matter.