Contract turnover

What the board inherits

Owner-elected directors do not start with a clean slate. The association remains a party to every contract its developer-controlled board signed before turnover: the management company, the landscaper, the insurance broker, cable or bulk internet, sometimes a lease for shared amenities. Those contracts stay in force until they expire, get renegotiated, or get canceled through whatever process your state provides.

Whether the developer is legally required to hand your board copies of every one of those contracts at turnover, and what else must come with them, is set by your state's turnover statute. Florida, for example, requires the developer to deliver "all contracts" the condominium association is party to as part of the turnover package, and a parallel list for homeowner associations. Confirm what your own state requires before assuming a contract you have never seen does not exist.

Canceling a bad deal

A board dominated by developer appointees has an obvious conflict of interest when it signs a management, landscaping, or cable contract, since it can favor the developer's related company over the association's own interest. Some states give owners a statutory way to undo that.

"Any contract made by an association prior to assumption of control of the association by unit owners other than the developer, that provides for operation, maintenance, or management of a condominium association or property serving the unit owners of a condominium shall be fair and reasonable" and such an arrangement "may be canceled by unit owners other than the developer."

Source: Florida Statutes, section 718.302, The Florida Senate

Florida sets its own vote threshold for exercising that cancellation right, and it is not the same in every circumstance. Other states may allow cancellation on different terms, or may give the association no statutory cancellation right at all, leaving ordinary contract law, fraud, unconscionability, breach, as the only route. Ask a transition attorney what your state and your declaration actually allow before assuming any contract is voidable.

Watch for arbitration clauses

Some developers write a clause into the declaration itself that sends disputes with the developer to arbitration instead of court. That clause can cover the exact kind of claim your board is most likely to bring after turnover: a construction defect or a bad developer-era contract.

"It is common practice for real estate attorneys to include arbitration clauses in declarations for common interest communities."

Source: Enforceability of Arbitration Provisions in Disputes with Developers, Tinnelly Law Group

Whether such a clause can be enforced against the association at all, and whether the board can amend it away after turnover, are contested questions that courts in different states, and even within one state, have answered differently. Have counsel read your specific declaration language before you assume you can sue in court, or assume you cannot.

If the developer sells its remaining interest

Sometimes the original developer sells or transfers its remaining rights to a new company partway through a dispute over a contract it signed. That transfer does not automatically wipe the slate clean. Under a widely adopted model statute, a declarant that transfers its rights to a successor is not relieved of obligations or liabilities that arose before the transfer. Do not assume a change of ownership at the top closes out a claim your association already had.

Source: Nevada Revised Statutes 116.3104, Nevada Legislature