Academy/Developer / Declarant Transition
Developer subsidies
What the developer owes the association for units it still owns, and how to check whether yours is being paid.
A developer subsidy is the developer's obligation to pay the association's common expenses, and sometimes reserve contributions, on units or lots it still owns and hasn't sold. Assessments are usually charged per unit, so unsold inventory pays nothing unless the developer covers it. Whether your state requires this, and how long it lasts, depends on your statute and declaration.
Why unsold units create a funding gap
A community's budget assumes every lot or unit pays its share. Before the developer sells out, though, it may still own dozens of lots that generate zero assessment income, while the roads, landscaping, and amenities cost the same to maintain either way. Someone has to cover that gap: either the remaining owners pay more, or the developer pays on the lots it hasn't sold yet.
This is what boards mean by a "developer subsidy" or "declarant subsidy": not a favor the developer offers, but an obligation some states attach to owning unsold inventory inside a community it created.
One state's rule, as an example
Oregon's planned community statute is the clearest verified example of how this works in practice.
"The declarant of a planned community shall pay all common expenses of the planned community until the individual lots subject to assessment are assessed for common expenses."
Source: Oregon Revised Statutes 94.704, Oregon State Legislature
The same statute lets the declarant defer, rather than skip, reserve account contributions on unsold lots, and only until the turnover meeting described in the bylaws, or until owners assume administrative control if no turnover meeting is held. Deferral is not a waiver: once that point passes, the obligation catches up.
Whether your state imposes this same obligation, and on what schedule, is not established beyond Oregon here. Check your own state's condominium or common interest community act, and your declaration's assessment section, for the equivalent rule.
What to check in your own books
Three questions get you most of the way there:
Does the declaration or public offering statement mention a subsidy, a guaranteed budget, or a cap on assessments while the developer controls unsold units? Is that subsidy actually showing up as a line item in the association's financials, not just promised in a document? And when is it scheduled to end: at a stated date, at turnover, or when the last lot sells?
The financials you'd check this against are the same ones covered in financial turnover and transition audits. If the subsidy specifically covers reserves rather than operating costs, see reserve funding at turnover for how that piece gets verified.
Check yourself
Answer before you read the explanation, recalling it is what makes it stick.
The developer still owns 40 of 100 lots and pays no assessments on them. Under a rule like Oregon's, what should be happening instead?
Under Oregon's statute, a declarant can defer reserve contributions on unsold lots until when?
A board in a state with no verified subsidy statute notices the developer isn't paying assessments on its unsold units. What should the board check first?
Sources
- Oregon Revised Statutes, section 94.704, "Assessment and payment of common expenses", Oregon State Legislature
Developer / Declarant Transition
Pull up your budget and offering statement before the next board meeting and look for a subsidy line. If you can't find one, that's the question to bring to your transition attorney.
Whether a developer subsidy is legally required, how it is calculated, and when it ends vary by state and by what your declaration and public offering statement actually promise.