[NOTE: This article first appeared in the Spring 2012 Edition of Hyatt & Stubblefield, P.C.'s "Community Developments"]
When there are just a few residents in the community, it is easy to overlook the homeowners or condominium association. Many developers think that, if there is nothing or nothing much for the association to do, the association does not have to hold meetings, enter into contracts, or otherwise be operational. While the developer is still in control of a project and the association, and will be for quite some time, why bother? This approach is a recipe for disaster. While developers may perceive their biggest risk as a weak real estate market, it actually can get worse if the developer, and in some cases, the developer representatives personally, have to face lawsuits for mismanaging the association.
The association is a separate legal entity with its own board of directors and legal requirements and must be treated as such from the date that the first lot is sold. Association operations may be minimal for a period of time (years even), but that does not mean that observing required corporate formalities may be neglected. Among other requirements, the association must hold meetings of its board of directors as frequently as the documents or state law require; must also hold an annual meeting of the members; and, most importantly, must prepare and pass a budget and levy assessments for the subsequent fiscal year.
If you would like more information on the developer's obligation with respect to the operation of the association or need assistance in developing an operational roadmap, please contact us.