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When something's wrongLesson 28 of 28

Academy/Developer / Declarant Transition

Incomplete amenities

The pool is a hole in the ground, the clubhouse was never built, and the developer is gone. Here is what your board can actually do about it.

When a developer sells units before finishing promised amenities, some states require a completion guarantee, a bond, letter of credit, or escrow, set before sales close. Where one exists, the association or state regulator can draw on it without waiting on the developer. Where none exists, check your public offering statement for any completion commitment.

01

Why this happens

Developers often start selling units before every promised common-area improvement is finished: a pool still under construction, a clubhouse not yet built, trails not yet graded. That is not automatically a problem. Construction and sales rarely finish on the same day.

The problem shows up when the developer sells out, exits control, and the amenity still is not there, and the board is told to simply wait for it. That is not necessarily true. In some states, a developer cannot legally sell units with unfinished common facilities unless it has already put up a completion guarantee, so the association, or the regulator holding that guarantee, has a way to force the issue that does not depend on the developer's willingness.

02

The completion guarantee, where one exists

California's real estate regulator requires that if common facilities are not finished before the developer's final subdivision public report is issued, the developer must set a completion date and back it with an approved mechanism, most often a lien and completion bond, a letter of credit, or a cash escrow sized to cover the remaining construction cost. If the developer does not finish, the association or the regulator can make a claim against that security, and the developer stays obligated to reimburse whatever gets paid out.

Whether your state requires anything like this, and which agency holds it, varies. Ask your state's real estate or subdivision regulator, and check the public offering statement, the pre-sale disclosure document the developer filed describing the project, before assuming none exists.

03

What to check before you assume you're stuck

Before the board treats an unfinished amenity as a dead end:

  • Pull the public offering statement or disclosure document filed before the first sale. It should list the amenities promised and, in some states, a completion date.
  • Check the declaration for any completion covenant the developer bound itself to.
  • Ask your state's real estate or subdivision regulator whether a bond, letter of credit, or escrow was required for this project, and if so, how to request a claim against it.
  • If nothing turns up, an unfinished amenity becomes a contract or fiduciary question, not just a construction one. That is a conversation for the association's transition attorney.

For a broader step-by-step framework beyond a single amenity, the Foundation for Community Association Research and Community Associations Institute publish a Best Practices Report on transition from developer control, worth reading directly for detailed guidance.

Check yourself

Answer before you read the explanation, recalling it is what makes it stick.

Your board discovers the promised clubhouse is unfinished and the developer has sold the last unit. What should the board do first?

The board finds no completion bond on file for its project. What does that most likely mean?

The board confirms a completion bond exists, but the developer refuses to finish the clubhouse. What can the association do?

Sources

Developer / Declarant Transition

Next: if the developer is still around but dragging its feet, see negotiating with developers for how boards approach that conversation.

Whether a completion bond, letter of credit, or escrow is required at all, which agency holds it, and how the association makes a claim vary by state and by what your public offering statement actually promised.