Condo Media - February 2014 - 56

FEATURE
pose entities," she explains. "Once the
last unit is sold, the developer won't
have any assets" and the association
may not have any means of forcing the
developer to pay for defects, even if a
court agrees that he should.
Any defects boards identify should be
noted and conveyed to the developer in
writing to prevent the developer from

hands," Barnett notes, possibly preventing the board from pursuing legal
action against the developer or weakening the association's case if it decides to
proceed.
Like the engineering study and
related efforts to identify structural
problems, an early review of the association's financial records is essential to

Getting up to speed as quickly as possible is the most
important thing new board members can do, both for
themselves and for the association they are governing.
claiming later that he had no notice
of the problems, she says. Boards are
responsible only for common areas
and should focus only on problems
affecting them. Unit owners will have
to purse the developer individually
for problems within their units, unless
unit-specific defects are causing problems in common areas.
Boards should try to negotiate
defect claims with the developer to
avoid litigation if they can, Barnett
agrees. But she cautions boards to
consult an attorney before signing a release, which developers will
sometimes demand as a condition
for correcting structural or other
problems. "Sure, I can fix that," the
developer might tell the board. "Just
sign here." Barnett says she has seen
situations where boards signed those
documents and "unknowingly waived
all of their rights," including the right
to sue the developer for problems
that might be identified in the future
or for failing to properly correct the
ones he agreed to fix.
Another legal caution for boards
related to structural problems that
Barnett emphasizes: "Don't share the
results of the transition-phase engineering study with owners." Doing so, she
explains, will erase the "privileged"
status of the information, entitling the
developer to see conclusions that may
be preliminary and not comprehensive. "This could tie the association's
56

Condo Media * February 2014

identify any improprieties or shortfalls
the developer should correct, she says.
For example, developers are required
to pay common area expenses for
unsold units "from the date they are
first phased in," but many fail to do so
- a deficiency the board will want the
developer to address while he still has
assets the association could claim if he
fails to do so.
Also on Barnett's list of first steps
for a new board - and something an
advisory committee can do before the
transition: Review the association's
governing documents. Boards should
watch particularly for "poison pill"
provisions requiring the developer's
consent to amend the documents or to
file suit against him and take steps to
"eliminate them right away."
A comprehensive document review is essential, not just to identify
objectionable requirements, but also
so board members and owners "will
know exactly what they are getting
into," Barnett says. How many phases
are permitted in a phased development
and how many units will be added in
each phase are among the details owners need to know, because the answers
will affect percentage ownership calculations. The time limits on further development are also important, Barnett
says, because "development rights are
valuable." If the rights are about to
expire, "boards want to know that and
they want to get something from the

developer" in exchange for approving
an extension.
The transition event is crucial for
the association, but it also occurs
when the new board is least experienced and most vulnerable as a result.
"Board members don't know what to
expect," Barnett says, and they may
not fully understand their responsibilities or the fiduciary obligations
related to them. But understand those
obligations or not, board members
incur them as soon as the developer
relinquishes control, a point Barnett
tries to drive home with new boards.
Getting up to speed as quickly as
possible is the most important thing
new board members can do, both for
themselves and for the association they
are governing.
Robert Linney, CMCA, AMS,
Senior Property Manager
Great North Property
Management Inc., AMO
Linney emphasizes -
among other issues -
the value of a transition
committee, the importance of creating
a professional transition team, and the
need to identify structural and financial
problems as quickly as possible.
Boards looking at newly constructed
buildings often assume there aren't any
problems, and in rare instances, that
may be the case, Linney says. But it is
important to have professionals make
those judgments.
"You want an engineer to [review]
the condition of the buildings and tell
you if there are any problems the developer should correct, and you want an
accountant to tell you if the association
has all the funds it should have, and if
you are financially where you need to
be," he says.
Even if those reviews find that all is
well, they will provide the board with
"peace of mind" and valuable information about the condominium, Linney
says. "You don't have to wonder if the
finances are in order and you don't have
to worry about whether there are building code violations or [problems] that

Condo Media - February 2014

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