Developers have several obligations post-registration of a condominium, such as appointing a board of directors and the auditor, collecting fees, obtaining insurance, and registering the proposed by-laws. There are other tasks, such as arranging for a reserve fund study, performance audit, or repairs/maintenance, that might arise depending upon how long the developer controls the first board.
The developer must also call a meeting of owners on the later of the 30th day after 20% of the units have been transferred and the 90th day after the developer has first transferred title to a unit. At the meeting, the owners (other than the developer) may elect two new directors. The meeting is not required if a majority of the units have been transferred and a meeting has been called to relinquish control to the owners (called the “turn-over meeting”). The turn-over meeting must be called within 21 days of the developer transferring a majority of the units and held within 21 days after it is called.
At the turn-over meeting, the existing directors are replaced with a new set of directors elected by the unit owners. The developer must also provide the following to the newly elected board at the meeting:
- minute book
- copies of all agreements, policies of insurance, and related documents
- bills of sale
- list of owners, mortgagees and tenants, and their addresses for service
- records related to units or employees
Within 30 days of the meeting, the developer must deliver a long list of documents:
- existing warranties and guarantees
- as-built plans & specifications
- proof of enrollment with Tarion and copies of reports on inspections
- maintenance and repair chart
- financial records
- reserve fund study (if applicable) and
- most recent disclosure statement provided to a purchaser
Within 60 days of the meeting, the developer must deliver audited financial statements prepared by the auditor as of the last day of the month in which the turn-over meeting is held. The costs of the audit are common expenses.
No Turn-over Meeting?
Unfortunately, sometimes developers do not turn control over to the owners when they have transferred a majority of the units. If the developer does not call the turn-over meeting, any owner or mortgagee may call the meeting. This can be tricky without a list of owners, their addresses, and other important documents. If the developer refuses to acknowledge the results of the meeting, or refuses to provide the documents to the condominium when required, the condominium make an application to the Superior Court of Justice.
On an application by a condominium, if the judge is satisfied that the developer has, without reasonable excuse, failed to comply with its turn-over obligations, the court shall order that the developer pay damages to the condominium for the losses incurred as a result of the developer’s non-compliance and that they pay the condominium’s costs of the application. The court may order that the declarant pay the condominium an additional amount not to exceed $10,000.00 and order the declarant to comply with the obligations.
Before pursuing court it is wise to speak with a lawyer about the process, estimated costs, and the likelihood of recovering the missing documents. It is one thing if a developer has the documents and refuses to provide them to the condominium, but it is another if the documents do not exist.
Sometimes when the documents are turned over to the newly elected board of directors other issues come to light. For example, has the developer paid all of the monthly fees for the units that it still owns? If not, the condominium should seek legal advice about the registration of liens on the unsold units. Are there deficiencies or performance audit issues that have not been addressed? Have the warranty claims been filed? Was there a first year budget deficit on the budget prepared by the developer?
The transfer of control from the developer to the owners is one of the most important milestones in the life of the condominium. In most cases, the transfer is seamless and the new board gets up and running quickly. In rare cases, the developer resists the process and precious time is wasted getting control, keeping it, and dealing with problems caused by the developer.