Transferring the Condominium Association from the Developer to the Homeowners

This week’s post is an amalgamation of two ideas – a client’s suggestion about a possible blog topic, and an idea I had after speaking with another client who is concerned about the transfer of management at her new association. If there is a topic you are interested in hearing about, please do not hesitate to let me know!

The Illinois Condominium Property Act requires developers to turn over control to condominium owners within sixty days after 75% of the condominium project is sold, or in the alternative, three years after the condominium declaration was recorded. When all parties are working together and the developer has kept proper documentation, turning over control to the homeowners is a clear-cut process.

First of all, upon at least three weeks’ notice to all homeowners, the developer has to call a meeting to start the election process for the first Homeowners’ Board. If the developer fails to do so, so long as at least twenty percent of the homeowners are in agreement and they provide notice to the developer, the homeowners can call the first meeting. Regardless of how the meeting is called, the developer may only continue to manage the association for a maximum of another thirty days after the first meeting. During that time, the homeowners should elect the first Board.

In the meantime, the developer should assemble all of the documents he will need to transfer to the new Homeowner’s Board. The developer should provide original copies (or certified copies, if originals are lost or unavailable) of the recorded Condominium Declaration and Bylaws, incorporation documents from the Secretary of State, Rules and Regulations (if any), Annual Reports, and contracts and leases affecting the condominium association. The developer should also prepare a list of all personal property owned by the association, if any, and describe where that personal property is located. If the association is involved in any litigation, governmental proceedings, or disputes with homeowners, full disclosure should be made to the new board. A copy of the association’s insurance policy should be included, as well as a copy of all tax bills available. And of course, the developer must provide a complete and thorough accounting of the association’s income and expenses during the time the developer or his agent was managing the condominium association. All of these documents must be provided to the new Board within sixty days of the new Board’s election.

In order to manage the association, the developer may have contracted with a management company, scavenger service, snow plow service, landscapers, handymen, or other contractors. In fact, developers often hire their own affiliates to complete many of these jobs during the time the association is under developer control. Based on the rates and/or the quality of these services, the new Board may wish to cancel some of these services and hire its own contractors. Under Illinois law, the Board can cancel any of these contracts within six months of its election, so long as the contracts extend for at least two years after the date of election.

Once the new Board takes over, it has a fiduciary duty to the other homeowners at the association. Because operating a homeowners’ association is a significant and time-consuming responsibility, and because it sometimes causes discord between neighbors, many boards relinquish these duties to a management company. Other associations choose to avoid the expense of a management company and self-manage the property. Regardless of the method of management, good bookkeeping and thorough accounting is needed for all associations.

Lastly, when a developer turns over control to the Homeowner’s Board, he is not absolved of his contractual and warranty obligations. Homeowners who have outstanding punchlist items or are still within the warranty period should continue to contact the developer for these repairs.