What’s the easiest way for an independent condo board to take control away from a developer?
Herrick partners Bruce A. Cholst and Philip Tucker spoke to Brick Underground about how condominium unit owners can gain independent control of the board from its developer. The article explained, "For a period of time after construction, the developer of a new condo building will control the board and although a few owners will be allowed to serve, they will be in the minority."
Of getting independent control of the board, Bruce said, "It’s the Gordian knot, it’s what unties everything[.]"
He asserted this importance, stating, "I’m not saying all sponsors are abusive but the potential for abuse is there and it does happen." He added that can include controlling funds they shouldn't, using of building staff to service their apartments, or ignoring faulty construction, which is especially important if the construction defects are not immediately visible or "latent."
The article stated that Phil explained that there is "a six-year statute of limitations for breach of contract so consulting with an attorney is important."
Bruce suggested residents form a committee on the topic, warning, "Procrastination is a resident's worst enemy[.]" He noted that you want the sponsor out "before the three-year window and you need time to investigate and amass the facts[.]" He also suggested hiring an attorney to help facilitate the process and interpret the bylaws "concealed behind very thick legalese" that state when unit owners can gain control (this depends on how many units have been sold, which might not be volunteered by the sponsor according to Bruce).
Bruce elaborated, "The attorney will be able to ask the questions and read the plan and know when it is feasible to get control. If the sponsor refuses to hand over the reign of powers, it’s the attorney who can threaten suit in order to make it happen or go to the attorney general and ask him to get involved[.]"
Once condominium unit owners gain control of the board, Bruce advised the board hire an engineer to give a detailed assessment, joking, "The sponsor in his engineer's report is going to describe [the building] as the Taj Mahal and the tenants are going to assume it is a tenement. The truth lies in between[.]" Because engineers err on the conservative side, Bruce said to expect "a gloomy picture, no matter what."
The newly-minted board can then put together a capital plan with the help of architects and engineers. The article stated that Phil advised "residents should be looking to leverage the knowledge of the sponsor" and "the contractors and subcontractors may be more responsive to a developer who will give them more work in future than to residents who won’t." He added, "There is value that the sponsor can bring to that relationship[.]" Bruce agreed, stating "They know the building’s particular idiosyncrasies[.]"
Bruce recalled how some of his clients find out about construction defects too late, leaving little liability on the sponsor. He joked, "The sponsor isn’t going to be Santa Claus and voluntarily fix it 99 times out of 100[.]" He explained, "It is in the sponsor’s interests to remain in control and deny the residents access to all the building records and all the knowledge about building operations as long as possible because once they’ve ridden out the statutes of limitation, then they are immune to liability on that."
Bruce reminded readers of the time commitment of being a condominium board member, stating "You have to be prepared to make that commitment otherwise you will not be an effective board member[.]"