One of the most crucial periods in the life of a HOA community is the transition of the control from the developer to the association. This is the time when the Board of Directors must determine not only the physical and financial strengths of the development, but also set the procedures in place for future maintenance and financial stability. For new associations, it is extremely beneficial to have both a reserve study and transition study completed.
Transition studies are one of the most underused and perhaps misunderstood planning tools at an association’s disposal. Historically, transition studies in Maine have stemmed from the association feeling frustrated with broken promises on the part of the developer, who may have one foot out the door already. Once the association has reached the necessary capacity for turnover to the association (this percentage of purchased homes is often found in the bylaws, but can also be left up to the developer’s wishes), the residents may find themselves with excessive construction defects, due to shoddy materials or construction practices, or in a dubious financial state. The transition period is a time when the homeowners have the chance to uncover potential deficiencies before they become completely the responsibility of the association and resolve them in a timely manner.
Another contributing factor to the somewhat low number of transition studies performed is lack of knowledge on the part of the association. Most condominiums and homeowner properties in transition don’t know their rights and warranties. They haven’t talked to a lawyer or are aware that they need one or are even able to hire one on their behalf. Many Boards are under the impression that they have very little recourse against a developer that has turned over the assessment funds and board control to the association, when in fact this is not necessarily the case. The association can do more than just “hope for the best” when it’s wiser to assure themselves and future owners of a well-constructed home in a financially healthy community.
However, a trend is emerging where high-end project developers initiate the transition study themselves to assist in marketing the final unit. Responsible developers are also utilizing these studies to ease their way out of the project with minimum call-backs and future liabilities. As understanding of transition studies and their value grows, so does the number of developers who rely on transition studies to satisfy their associations’ concerns over the quality of the property. On the part of the developer, it is an assurance to him and to the Board he has formed that the community is being handed over in good physical and financial condition. This also has the added benefit of involving the association and the Board earlier rather than later! The detailed review of operating, reserve, and/or maintenance budgets serves as a reality check for the board and gives them a clear picture of the community’s starting point.
A transition study should always be performed by a professional engineering firm, and is intended to review the as-built development for general compliance with the design drawings and association documents (provided by the builder or developer). A thorough review of the construction documents, municipal approvals, and the buildings themselves is also necessary. A transition study should include the following scope of work:
- A review of all provided engineering drawings, architectural drawings and Public Offering Statement.
- One visit to the appropriate municipal offices to review the public documents and resolutions concerning the development.
- On-site visual observations performed to determine any areas which have not been built in general conformance with the design documents or acceptable workmanship.
- The inspection of a pre-determined percentage of the unit interiors.
- A Narrative Report of Transition observations includes details of each observed deficiency; possible cause(s) of the problems; recommendations for corrective action and a reference to any performance standard (i.e.: deviation from design drawings, workmanship, etc.), where applicable.
- A Punchlist Summary, which includes a description of each deficiency along with the specific locations where each deficiency was noted and the appropriate, recommended correction.
- The optional preparation of a questionnaire for distribution to all residents. Thus, any concerns with regards to the unit interiors, as they relate to the common elements can be identified.
Once the transition study is complete and a report issued, it is then up to the association to determine the next step, based on the engineer’s findings. The transition and the actions taken thereafter mark the Board’s first major decision on the future of the community. If the study was completed prior to the full transfer to the association, the Board has three options: accept the community; accept with conditions; or decline to accept until necessary repairs or adjustments have been made.
Developers and Boards have a common goal: the continued well-being of the brand-new community. By using the transition report as a bridge between the two (or three, if a property manager is involved!), each party can act in the best interest of the association. With a transition study in hand, the association has a strong footing from which to evaluate the condition of the property and subsequently decide on any negotiations with the developer to assure a smooth transition.