Representing HOAs and Condominiums in Transition During A Challenging and Difficult Time

Transition is a word that carries with it great significance. It describes the process by which control, together with responsibility for that communities’ common elements and/or facilities, is transferred from a developer to owners. There are considered two parts of transition: (a) transition of control; and, (b) transition of responsibility. Transition of control involves the gradual process by which owners of lots, homes, interests, etc., assume control over the association’s governance. Once owners assume control, the owners have the power to make all decisions that up to that point had been made by the association, albeit controlled by the developer. This ‘transfer’ is governed by both New Jersey’s Condominium Act, N.J.S.A. 46:8B-1 et seq. (the “Act”), and New Jersey’s Planned Real Estate Development Full Disclosure Act, N.J.S.A. 45:22A-21 et seq. (“PREDFDA”), together with the contents of the particular association’s declaration, master deed and/or bylaws. The act applies only to condominiums, while PREDFDA applies to almost all residential community associations, including condominiums.

Transition of responsibility involves the process by which the association assumes maintenance, repair and/or other responsibilities over the common elements and/or property, and by which it is determined whether the developer paid assessments and other funds to that association with respect to unsold units, in development, in accordance with PREDFDA. The goal here is to ensure, before the owners assume these obligations into perpetuity, that the developer improved and/or constructed the project correctly, and contributed funds in accordance with New Jersey law. The association engages independent consultants, including architects, engineers and accountants to aid it in these determinations. The transition process is complex, involved and time consuming, but is perhaps the most important time in the history of a community association. Aside from the act and PREDFDA, it may involve New Jersey’s Municipal Land Use Law and New Jersey’s New Home Warranty and Builders’ Registration Act, N.J.S.A. 46:3B-1 et seq. (“HOW”). The onset of a troubled real estate market and challenging economy has forced associations and their counsel to be focused on a developer’s financial duties, as well as on divided loyalties and the value of early transitions.

Developer’s Financial Obligations