Moving from Developer to HOA Control: How a Great Transition Team Can Ensure Success

Transitioning a community from control by the property developer to control by a homeowners association (HOA) can be a scary time for residents and a challenging process for HOA board members. Nevada law (NRS 116.31032) requires such a transition to occur under any of the following circumstances:

• The developer has chosen to relinquish control.
• Five years have passed since the developer has stopped offering units for sale in the ordinary course of business.
• Sixty days have passed since the conveyance of 75 percent of the units (under 1,000 units).
• Sixty days have passed since the conveyance of 90 percent of the units (1,000 units or more).
• Five years have passed since the developer last exercised the right to add more units.

Beyond having the transition be as seamless as possible, many elements need to be in place so that the community will continue to thrive after the HOA takes over. If your community will soon be transitioning to full HOA control and does not currently have a partnership with a professional HOA management company, it may be wise to select an experienced company to help you with the process. Make sure the company is able to provide you with a team of associates who are experienced with transitions from developer to homeowner control.
 
So how can an experienced team help? Here we describe 10 things that a great transition team can offer to help ensure that your transition is a successful one.

1. Provides the right people for the right jobs. 
A great transition team consists of a team lead, as well as specialists who are well-versed in specific areas of the transition process. The team lead acts as both a project manager and a liaison between the developer and your HOA. Having the right specialists working on your behalf lets you know that each aspect of your transition will be handled correctly.
 
2. Reviews the reserve study and possibly recommends a new one. 
Nevada requires that the property developer provide your HOA with a reserve study conducted by a reserve study specialist. The specialist evaluates anticipated capital repairs, replacements and other long-term projects and estimates the amount of money you will need in your HOA’s reserve fund to do the work.
 
A team that includes someone knowledgeable in reserve studies will be able to tell you whether the one provided by your developer adequately accounts for factors such as timely maintenance and excessive use. Most reserve studies are developed without input from anyone with engineering knowledge, and this can result, for example in unrealistic useful life projections. The transition team will notice such inadequacies and recommend that you obtain a new one.

3. Offers board training.
Most HOA board members do not have very much experience handling the kinds of issues and responsibilities they face. A good transition team can steer you toward training resources provided by your community management company. These might include seminars and online classes covering such topics as board basics, leadership, budgeting and legislation updates.

4. Gathers needed documents. 
The developer needs to give your HOA vital papers, including financial statements, a reserve study and governing documents. (The full list of documents required by Nevada law is specified in NRS 116.31038.)
The transition team makes this process easier for your board by maintaining a list of these documents and ensuring that you receive everything on the list.

5. Handles communications.
As your HOA undergoes the transition, the team lead will act as the primary point of contact for your board. This means communicating regularly with your board about the status of tasks that the team is managing, especially during the final weeks of the transition. The team proactively communicates with residents to inform them of the transition and to introduce them to the new community management company (if applicable) via welcome letters, posted notices and website information.
 
Communicating with existing staff and onboarding them appropriately (if applicable) is also handled by the transition team. In addition, with the assistance of an information technology (IT) specialist, the team will provide online communication tools (along with training) that can make it easier for the board and residents to communicate with each other and with the management company.

6. Retains a list of trusted professionals. 
Whether your HOA needs legal counsel, investment advice or a dependable plumber, the transition team can provide recommendations of people or companies that the community management company has already vetted. In some cases, the company may even have affiliate companies that can perform a needed service, which can simplify the selection process.
 
7. Arranges an engineering inspection.
A transition team will schedule an inspection of the property by an engineer and make sure that you receive a summary report of the inspection. This would include a description of the property, recommended schedule for maintenance and a comparison of building plans with actual construction.

8. Ensures ongoing maintenance.
As required by law, the developer will provide your HOA with any warranties, and the transition team will include this on its list of documents to obtain. Further, the transition team will help the HOA develop a schedule for maintaining equipment, systems, amenities and common areas based on the engineer’s recommendations.

9. Transfers all financial records and accounts.
A transition team will help your board treasurer take over the financial management of the HOA and will also open new bank accounts in the HOA’s name. A great team will understand the need for your HOA to balance liquidity, safety and rate of return. They will also ensure that HOA and developer funds are clearly differentiated and arrange for annual audits.

10. Purchases insurance.
Before your HOA takes control of the community, it will need to have all the appropriate insurance policies. A good transition team will be able to connect you with a highly-qualified insurance broker or agent who knows what kind of coverage you need.  Working with a team that is part of a community management company with national buying power will also enable you to get the best price for the most coverage.
 
How well you handle your transition from developer control to HOA control can impact your community for many years to come. Working with a great transition team is an important first step that can position your community for success. 
 
To find out more about how a transition team can help your community, contact FirstService Residential, Nevada’s leading HOA management company.