Transition of Association Control - Part II, Homeowners Associations

TRANSITION OF ASSOCIATION CONTROL

PART II, HOMEOWNERS’ ASSOCIATIONS

    This is the second part of a three part series concerning the transition of control of community associations to the non-developer owners. In the first part, we addressed the technical requirements for the transition of a condominium association. In this part, we will address the technical requirements for the transition of a Homeowners’ Association (HOAs).

TRANSITION -- WHAT IS IT:

    As we addressed in Part I of this series, 'Transition' is really nothing more than the point in time when the non-developer owners elect a majority of the Board of Directors and take control of the operation of the association.

    That being said, Chapter 720, Florida Statutes, contains specific requirements which address when and how the transition must occur, which makes the event more formal and regimented. The following is a summary of those requirements.

1. What Law Applies:

    Section 720.307, Florida Statutes (FS), contains all of the requirements for when and how transitions of HOAs must occur. As of the date of this article, there are no Florida Administrative Code Rules which address this issue.

2. Not All HOAs Are Subject to Section 720.307:

    Section 720.307(4), FS, does not apply to the following HOAs:

a. HOAs which are not subject to the terms of Chapter 720 (e.g. no mandatory assessments);

b. HOAs which were in existence on the date that this law became effective, which was June 14, 1995; and

c. HOAs, no matter when created, if they are located in a community which is part of an effective development-of-regional impact (DRI) development order which was in existence on June 14, 1995.

    For these limited number of HOAs, transition will be regulated, if at all, by the individual governing documents. However, as the years have continued to pass, there are very few HOAs which are not now subject to Section 720.307.

3. When Is Transition Required:

    For those HOAs which are subject to the law, Section 720.307(1)(a), FS, provides that the members are entitled to elect at least a majority of the board within three (3) months after 90 percent of all lots which will ultimately be operated by the HOA have been conveyed to the members. Alternatively, the same section provides that the transition will occur at such other times established by governmentally chartered entities that are involved in mortgage financing (i.e. HUD, VA). While this alternative technically exists, we have not yet seen any instance where any governmentally chartered entity has imposed transition requirements other than those provided for above.

4. Who Votes At The Transition Election:

    A strict reading of Section 720.307(1)(a), FS, reveals the following:

a. The transition is triggered by the conveyance of at least 90% of the lots to anyone, including builders or contractors; however,

b. Only the lot owners who are not the developer, builders or contractors, are entitled to elect the board members at the transition meeting.

5. Can the Non-Developer Members Refuse to Take Control of the Association:

    Even though members occasionally attempt to do so, the law simply does not permit them to refuse to take control of an association. In fact, if the members refuse to participate in the transition process, the association will ultimately find itself without any board members.

6. Transition Committees:

    Unlike condominiums, there is no law or rule which addresses or discusses transition committees. That being said, there is nothing which would prohibit such committees from being formed.

7. When Do The Elections Occur:

    Section 720.307, FS, only requires that the election occur within three (3) months after 90 percent of the lots have been conveyed. This means that the developer must start the election process early enough to permit the actual election to occur on or before the end of that three (3) month period.

8. What Election Process Must be Used:

    Section 720.307 does not address this issue, therefore, the election should be accomplished in the manner outlined in the governing documents.

9. Transfer of Property and Assets:

    Section 720.307(3), FS, requires that developers, at their expense, deliver to the association a great number of documents. While the list is too long to reproduce in this article, it includes most of the documents which are necessary for the operation of the association.

    Interesting, while the election must occur within three (3) months after 90 percent of the lots have been conveyed, the delivery of the documents is required within 90 days after 90 percent of the lots have been conveyed. By using different time periods for the election and the delivery of documents, it is possible that the developers will be required to deliver the documents prior to the date of the election.

10. Financial Reporting:

    Unlike condominiums, developers of HOAs are not yet required to provide a transition audit. Instead, they are only required to deliver the financial records of the association from the date of incorporation through the date of transition.

11. Receipt for Property and Assets:

    Unlike condominiums, there is no requirement that the developer obtain a receipt from the non-developer owners at the time of transition for all items delivered to the association.

12. Right to Compel Transitions:

    Unlike condominiums, there is no specific statute which allows owners to sue a developer if they fail or refuse to comply with any of the transition requirements. That being said, a general injunctive lawsuit can be filed to obtain compliance.

13. Developer’s Rights After Transition:

    Even though a developer must allow the members to elect board members using the above outlined schedule, the developer retains the following rights after transition occurs:

Right to Have One Board Member:

    According to Section 720.307(2), If the developer continues to sell units, it has the absolute right to elect one member to the Board, so long as it owns at least 5 percent of the Lots in all phases of the community.

Limited Right to Vote:

    According to Section 720.307(2), FS, developers retain the right to vote for their Lots in the same manner as any other unit owner except that they may not use their votes to either:

i. Re-acquire control of the association; or

ii. Select the majority of the Board of Directors.

    The next edition of e-Lawyer will address the practical aspects of the transition process for both condominiums and HOAs.

The firm of Taylor & Carls, P.A., with offices located in Maitland, Melbourne, Tampa and Palm Coast, Florida, was founded in 1981 and has practiced in the area of community association law since that date. This edition was prepared by Robert L. Taylor, Esq. of Taylor & Carls, P.A. The information contained in The Association e-Lawyer should not be acted upon without professional legal advice. The opinions expressed herein are as of the date hereof, and this law firm undertakes no obligation to advise the Association of subsequent changes in the law.

©2007 Taylor & Carls, P.A. All Rights Reserved.
The firm can be reached Toll Free at 1-800-395-6235 or locally at 407-660-1040.
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