Making the Switch Transitioning from Sponsor to Owner Control

The goal of any property developer is to sell units, but until that objective is reached, the developer assumes all the day-to-day responsibilities to ensure smooth operations and continued sales. This requires wearing many hats—manager, board member and ombudsman. As a result, it is often a relief when control of the property is handed over to actual members of the association. Having said that, the transfer isn’t always the smoothest of processes.

Florida’s Condominium Act provides guidance and oversight for these transitions. Peter Sachs, an attorney and partner with the Boca Raton law firm of Sachs, Sax and Caplan says special attention should be paid to Part II and Part III of the act, which explains “Rights and Obligations of Developers” and “Rights and Obligations of the Association,” respectively. Contained in these provisions are sections governing turnover of buildings, including regulations that specify the time-frame for turnover based on different triggering events.

For example, Sachs explains that a transition can occur three years after 50 percent of the units that will ultimately be governed by the association have been conveyed to purchasers, or three months after 90 percent of units have been conveyed. In doing so, developers must provide a statutory warranty of fitness and merchantability, provide guidelines for treating contracts entered into by the developer on behalf of the association and specify the procedure for functionally turning over control to the unit owners. “Of course, there are also a myriad of judicial decisions interpreting these laws,” notes Sachs.

A Managed Transition

“Developers should encourage owner involvement in the developer-controlled association to facilitate a smooth transition to owner control,” says Attorney Howard Perl, a partner with the Margate, Florida-based law firm of Katzman Garfinkel & Berger. “This exposes the owners who will hopefully comprise the new board to the day-to-day operation of the association. Developers must also insure that they have properly funded reserves, that the maintenance guarantee (if any) is secured for all contractor warranties that may be in effect.”

While it’s commonplace for developers to hire management companies to oversee the building or property prior to transition, there are often related issues that can impact the unit owners and board members once the baton is passed.

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