Developer Transition

The general process by which control and the responsibilities of the homeowners association are transferred from the developer to the governing board is termed a “transition”. Transition is a process rather than an event and evolves gradually, beginning right from the initial formation of the association. It basically includes the transfer of governance, the acceptance of the common property, and the accounting of funds.

Colorado State law now requires the developer, as the declarant, to gradually turn over his control of the association as units are sold or time expires. The elements of a transition are complex but may be summarized as follows:

  • Creation of a governance structure that empowers and involves owners by establishing the initial board as well as various committees.
  • Continual owner education and communication about the governing documents and functions of homeowner association administration and management.
  • Engagement of appropriate professionals to service the association – attorneys, accountants, professional management.
  • Preparation of initial financial structure to include banking elements, budgets and reserve fund. A transition audit will be required by an independent CPA.
  • Appropriate hazard and liability insurance agreements for the common property as required by the governing documents. Other insurance needs will be identified, such as fidelity insurance and insurance for the directors and officers.
  • Turnover of documents pertaining to the original construction and operation of the association.
  • Phased transfer of control to the association to include board review of all association documents, records, financial statements, insurance, and established contracts.
  • Successful transition is a cooperative effort between the developer and the owners, benefiting both parties through systematic planning, preparation, communication, and education. A poorly executed transition can result in angry owners, distrust of developer, potential lawsuits, compromised developer reputation, and an ineffective association.

The assistance of a homeowner association consultant can greatly facilitate the transition process by guiding the developer, educating the owners, establishing procedures, creating the financial framework, selecting appropriate management, identifying timelines and ensuring observance, ensuring continuity, removing the guesswork and uncertainty, and, most importantly, ensuring a successful transition that helps reduce liability exposure for both the developer and the board. To assist you, as the Declarant, in this process, please review this transition checklist and contact Summit HOA Services with any questions.