Turnover and Beyond

Author:  Ryan D. Harris

After a Declarant creates an Association, he is charged with running the Association until the requisite number of homes or units are sold requiring the Declarant to relinquish control to the owners. This relinquishment of control is referred to as “turnover.” Turnover, although a simple enough process, rarely occurs without a few problems. Oregon law places a number of important responsibilities on Declarants, which they sometimes fail to execute. An Association may be able to enforce some of its turnover related rights months or even years after turnover has occurred.

One right the homeowners have related to turnover is to force turnover of Association control to the owners. An Association’s declaration usually specifies when the Developer should turn over control of the Association. For example, a typical declaration might state that the Declarant must call a turnover meeting within 60 days of selling 75% of the homes or units. If your Association’s documents do not specify when turnover should occur, the Oregon Planned Community Act and Condominium acts provide default turnover provisions.

Owners need not wait for the Declarant to turnover control if the time for turnover has passed. If the Developer fails to call the turnover meeting, the Association’s transitional advisory committee (“TAC”) or even an individual owner can call the turnover meeting and start running the Association.

Another right the Association has related to turnover is the right to control Association assessment accounts. Oregon law requires the Declarant to fund the monthly assessments for all the units it owns from the time the first unit is sold until turnover, and turn those monies over to the association at turnover. While the law allows the Declarant to defer payment of the reserve portion of those assessments, at turnover, the Declarant must provide the association with a fully funded reserve account. If the Declarant fails to fully fund the reserves, the Association has a claim upon the Developer for that unfunded amount.

Associations also have the right to limit or cancel contracts entered into on behalf of the Association before turnover. As mentioned, the Declarant is responsibly for running the day-to-day operations of the pre-turnover Association, and will frequently enter into contracts on behalf of the Association, such as contracts to hire management and vendors. Board members should be aware, however, that Oregon statutes provide that contracts entered into by the pre-turnover Association cannot last longer than three years. Oregon law also gives the post-turnover association 60 days to cancel any pre-turnover contract. The Board can use these provisions to cancel or limit unfavorable pre-turnover contracts.

Finally, Associations charged with a maintenance obligation have rights against the Declarant related to construction defects. The Declarant/developer is responsible for overseeing the construction of the property and ensuring that the construction is completed in a workman-like manner. If the building elements the Association maintains suffer from construction defects, the Association likely has a claim against the Declarant. Unfortunately, Associations frequently overlook these claims because they do not know that their property suffers from latent, concealed construction defects. For this reason, we recommend that Associations hire an independent building envelope consultant to do a thorough building envelope inspection shortly after turnover.

Once the Association discovers it has a problem, it needs to act promptly to protect its rights. On one hand, without knowledge of the construction defects, the Association may have a valid claim against the Declarant for up to ten years. On the other hand, as soon as the Association knows that its property suffers from construction defects, the Association is limited to a much shorter timeframe. Thus, the Association should diligently inspect the property it maintains and should promptly enforce its legal rights arising from the defects.