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Should the new unit owner-controlled association review the developer’s control?

Answer:

Absolutely. First, it is crucially important for trustees of the new association, as well as all the owners, to determine whether all income and expenses were properly accounted for while the developer was in control. To this end it is recommended that an association hire an accounting professional to audit the financials during the developer’s control. A certified public accountant or building engineer can also perform a reserve study, which helps the association understand how much money should be allocated to the reserve fund annually in light of the expected life and cost of replacement for major capital items, including as roofs, furnaces, and driveways.

Second, the association should determine if there are any construction defects for which the developer might be responsible. As with the financial audit, it is recommended that the association hire a licensed inspector or engineer to examine the property and determine the state of its condition. A professional engineer’s study will also produce a punch-list of steps that need to be taken, from more involved structural work to the build-out of amenities and landscaping. It is important to have a transition study performed as soon as possible so as to avoid potential claims being barred by a statute of limitations or statute of repose or specific warranties.

If the association feels that the developer might be liable, either for mishandling of condominium finances or construction defects, and the developer is unwilling to cooperate in resolving the problems out of court, the association should consider whether it is worth litigating the issues. This decision will turn on a balance of several factors, including the monetary value of the damages, whether the developer has assets and/or insurance, the costs of litigation, and the likelihood of proving liability at trial. Consultation with an attorney will help clarify these considerations, particularly the likelihood of success.