What is a transition? According to attorney David J. Byrne, there are two types of transitions. The first, he said, is transition of control. The transition of control is when a community’s control is transferred from the sponsor to the developer during the sales process.
The second, Byrne said, is the transition to responsibility, connected with the common property, or common elements. “During that period of time, the association should evaluate the nature of the construction, the propriety of the sponsor board’s management and a variety of other things,” he explained, “for the purpose of determining whether the sponsor complied with all the applicable standards, rules and plans before the association takes on full responsibility for the common elements.”
What should an association do if any construction defects or problems are found prior to the transition? “In New Jersey, for the most part, you present the nature of the defects to the developer, assuming the developer is still in business, which is not always the case, and see what that developer says,” said Byrne.
“In the event the developer is not in business, or the defects are of such a substantial nature that providing reports to the developer would be futile, the association should probably file a lawsuit,” he noted.
Byrne added that oftentimes when an association facing construction defects is not working with one of the larger development companies, its recourse may not necessarily come from the developer itself or the contractors the developer used. “Instead, it may come from insurance carriers through insurance policies that were taken out and maintained by the developer and the contractors during the course of construction,” he explained. Byrne said this is important for associations to be aware of, especially if they are dealing with particularly bad defects.
Can anything be done by the board before the actual transition date? “Not legally,” said Byrne. “Legally, until such time as a majority of the board consists of owners, the enforceability of anything that board does regarding defects is questionable.”
Is there ever a situation where a developer will pay expenses out of its own pocket to keep assessments artificially low? “That’s pretty much what a developer will always do,” said Byrne. “New Jersey law provides, though, that developers fund an association’s operations in a specific way during the course of development and make certain disclosures regarding.”
Do homeowners have the right to inspect a developer’s financial records? According to Byrne, the answer is no. However, he added, “Developers are required to file certain things with the state in connection with approvals to build and sell condominiums. Those records are presumably available to the public.”
If the developer enters into a contract on behalf of the association, what happens after the transition? Is the association responsible in this case? “It depends with whom the contract is made and on the relationship that entity may have with the sponsor. It would really have to be addressed on a case-by-case basis,” Byrne noted.