In the beginning, the land was void and lacking development. And the developer said, "I shall fill the land with many dwellings and they shall be called condominiums and planned communities. I shall populate the dwellings with numerous homeowners and I will reap great profit from so doing. When my work is complete, they shall govern themselves in an honorable and forthright manner. And it will be good."
With current lifestyles, it's clear that homeowner associations will be an ever present and ever growing segment of the housing market. While the objective of homeowner association developers is to fill projects with happy owners, this does not always happen. The primary reason is not always the quality of the construction, but the quality of the homeowner association governing system.
Governance under the best of circumstances is complex and made even more so when it involves neighbors governing neighbors. If the developer pays little attention to the details of the governing system described in the HOA governing documents, transitioning to a board of homeowners will often harvest unhappy or frustrated people looking for a financial piece of the developer. Fortunately, there is a better way.
Homeowner association developments go through three phases: the interim phase, the transfer phase and the ongoing governance phase. The most critical of these is the interim phase as it sets the tone for the future.
The interim phase covers the time when owners occupy a development while still under control of the developer. There is a board of directors, however, made up of the developer's representatives,so owners have little power. There can be clashes because the developer, whose interests are short term, makes decisions that impact the owners, whose interests are long term.
Developers have a variety of control styles. One may be an autocrat, calling all the shots and failing to organize the owners. Another, where sales are brisk, exercises minimal authority and turns control over to the owners prematurely, leaving inexperienced owners to fend for themselves.
Transition Committee: The wise developer integrates interested owners early on. Forming a transition committee long before actual turnover provides several advantages to a developer. The developer has total control over the members of the committee and can select those that are reasonable, less contentious and self-serving.
Being part of a Transition Committee is a good training ground for future board members. The Committee can also make valuable budgetary, construction, landscaping and policy recommendations to the developer that will be in both parties' best interests. The Committee can also serve as a buffer between the developer and owners answering homeowner association operation related questions.
Proper Budgeting: One developer versus owner issue that is particularly sensitive involves budget and reserve funding. The developer's short term interests to minimize personal costs and keep homeowner fees low to promote sales may set up the future HOA for budgetary shortfalls and special assessments. This stumbling block often comes back to haunt the developer.
If structures are not adequately maintained due to inadequate funding, the deterioration may be construed to be a construction defect ... and a developer's responsibility. If the developer initially establishes reasonable budgets and reserves, the new homeowner association will (or should) be more proactive in maintaining the property.
This is obviously in the developer's best interest. To achieve realistic budgets, it's best to use outside consultants experienced in HOA operations. This puts the developer arms length from the outcome.
Value Engineering: One concept that directly affects homeowner fees involves "value engineering." Since the HOA must maintain common elements and those elements may be extensive and expensive to maintain, careful selection of design and materials can often reduce those costs by 20-50 percent. These decisions, obviously, must be made in the concept stage. When they are made, they often also reduce actual construction costs so both developer and homeowners win.
Turnover/Transition Meeting: This event marks the formal change in authority from the developer to the homeowners. It is an event that should be carefully choreographed. Besides thoughtful scheduling, site selection and adequate notice, the event itself should be the basis for long term trust between the developer and homeowners. Several things take place at the meeting.
The developer should physically turn over all HOA records, which includes a clear and auditable accounting of HOA monies.
HOA related questions posed by homeowners should receive clear and informed answers. Since the developer is rarely experienced in HOA governance, it's best to have a professional HOA manager, consultant or attorney present to handle this part of the meeting.
The tone of the Turnover Meeting should be cordial, respectful, informative and short. The whole process, including the election of directors to the board, should take no more than an hour. At meeting closing, the developer should express sincere willingness to work with the board for some months afterwards on related issues. That willingness should be real.
In the beginning, take the time to build a firm and lasting foundation by uniting the developer and new homeowners as allies. The wise homeowner association developer knows that the governing structure should be as sound as the building structure. This is a firm foundation that will stand.