Production of Documents by Declarants Following Transition to Owner Control
In the past few weeks, I have received several questions relating to the responsibility of a declarant to transition an association it developed to owner control and the responsibility to produce records and other items following transition. Both of these questions are controlled by the Colorado Common Interest Ownership Act (“CCIOA”).
Termination of Declarant Control
While a declaration of covenants, conditions and restrictions or a condominium declaration for a new community will normally have specific provisions regarding declarant rights and the period of declarant control over the community, C.R.S. 38-33.3-303(5)(a)(I) addresses the outside limits on declarant control for most new communities (with the exception of large planned communities). In particular, that provision of CCIOA provides that regardless of the period of declarant control outlined in a declaration, declarant control will terminate within 60 days following the earliest of one of these events:
- The conveyance of 75% of the units that may have been created have actually been conveyed to unit owners other than the declarant;
- Two years after the conveyance of a unit by the declarant in the ordinary course of business; or
- Two years after the right to add new units was last exercised.
Given the challenges that builders have faced the last few years as a result of the mortgage meltdown and tough economic conditions, it has not been unusual for declarants to be forced to transition sooner than they had anticipated under the terms of their governing documents.
Production of Documents and Items Following Transition
Once the trigger for transition has occurred and owners in an association have elected a majority of the members to the board of directors of their association, within 60 days the declarant is required to deliver to the association all property of the unit owners and of the association which is held or controlled by the declarant. In addition, within the 60 day time period, pursuant to C.R.S. 38-33.303(9), the declarant must produce the following items to the association:
● The original or a certified copy of the recorded declaration as amended, the association’s articles of incorporation (if the association has been incorporated), bylaws, minute books, other books and records, and any rules and regulations which may have been adopted by the declarant;
● An accounting for association funds and financial statements, from the date the association received funds and ending on the date the period of declarant control ends. The financial statements shall be audited by an independent certified public accountant and shall be accompanied by the accountant’s letter, expressing either the opinion that the financial statements present fairly the financial position of the association in conformity with generally accepted accounting principles or a disclaimer of the accountant’s ability to attest to the fairness of the presentation of the financial information in conformity with generally accepting accounting principles and the reasons therefor. The expense of the audit shall not be paid for or charged to the association;
● The association funds or control thereof;
● All of the declarant’s tangible personal property that has been represented by the declarant to be the property of the association or all of the declarant’s tangible personal property that is necessary for, and has been exclusively used in , the operation and enjoyment of the common elements, and inventories of these properties;
● A copy, for the nonexclusive use by the association, of any plans and specifications used in the construction of the improvements in the common interest community;
● All insurance policies then in force, in which the unit owners, the association, or its directors and officers are named as insured persons;
● Copies of any certificates of occupancy that may have been issued with respect to any improvements comprising the common interest community;
● Any other permits issued by governmental bodies applicable to the common interest community and which are currently in force or which were issued within one year prior to the date on which unit owners other than the declarant took control of the association;
● Written warranties of the contractor, subcontractors, suppliers, and manufacturers that are still effective;
● A roster of unit owners and mortgagees and their addresses and telephone numbers, if known, as shown on the declarant’s records;
● Employment contracts in which the association is a contracting party;
● Any service contract in which the association is a contracting party or in which the association or the unit owner have any obligation to pay a fee to the persons performing the services; and
● For large planned communities, copies of all recorded deeds and all recorded and unrecorded leases evidencing ownership or leasehold rights of the large planned community unit owners’ association in all common elements within the large planned community.
Keep your eye on this blog for future postings on other issues relating to transition of communities from declarant to owner control.