RealManage Insight

What is a Developer Controlled Community?

by Katie Vaughan on Mar 9, 2021 9:45:00 AM

The term 'developer-controlled community' can be confusing for homeowners, potential buyers, and even HOA board members. The confusion lies in control rights as bare pieces of land are being transformed into communities with more homes or units. At the beginning of land developments, the developer owns every unsold unit and has exclusive control of the association. As more homes complete and more owners join the association, it can be a while before the developer transitions control to the homeowners as parts of the community may still be under construction.

The developer can also appoint the Board of Directors, which usually includes those in their offices working on the project. In some cases, they will partner with management companies, like RealManage, to help manage the community until it transitioned. These affairs range from physical aspects to financial and administrative issues such as holding annual meetings and enforcing deeds. While some find it challenging to live in a developer-controlled community, where the board is not owners in the community, it's all about communication and understanding. In this article, we'll discuss the issues that pertain to developer-controlled communities and what it means.

What is a Developer Controlled Community?

As long as construction is still occurring and a large part of the community is unsold, the HOA and community itself are still under developer-control. It means that the board of directors for the association has made up of those appointed by the developer and are not elected homeowners as is standard in completed communities. The developer first establishes the Community Association, creating the first governing documents, CC&R's and other establishing documents. They will also create an operating budget with reserve funds, tax filings and may appoint a third-party Management Company to assist in the community's day-to-day management. A developer's powers determine by weighted votes, which determines by lots. In the beginning, homeowners aren't as involved in budgets when the HOA board is developer-controlled. In many cases, homeowners invite to share their ideas or concerns with the developer-controlled board through the management company.

Different states have different laws regarding community associations controlled by developers and how much they must involve homeowners. If you live in a developer-controlled community or think of moving to one, it's probably wise to discuss the essential matters with your real estate agent. You can discuss with the Community Association Manager, who may provide additional clarification on the developer's control and when the community will transition it in many cases.

Owner Controlled Communities

Transitioning from a developer-controlled community to an owner-controlled board depends on governing documents. These documents detail developer tenures and other governing laws. For example, the bylaws may dictate that the developer's control over the board ends when 75% of the homes sell for a higher percentage. Some may dictate that developer control ends after five years. Others may determine tenure periods by time and the percentage of sold homes. Once these requirements meet, homeowners will be in charge of electing their board under the Governing Documents established by the developer. 

The transition from developer-controlled to owner-controlled can be challenging for any community, but significantly larger master-planned communities share luxury common area amenities. Before electing owners to serve as board members, the community's owners must understand and know what the board members will be responsible for to make an informed voting decision.

Guide to Effective Board Elections - Free Download

Reasons That a Community Would Still Be Developer Controlled

Sometimes, communities stay under developer control because of complex subdivision plans and lengthy building periods. It can lengthen developer control from 7 years to a decade or longer. Luxury-style communities, resorts, retirement homes, and other adult communities are often built in phases and can take an extensive amount of time to complete. While certain phases of these large-scale developments give owners control as they complete, they may still be a part of what's called a Master Community Association. This Master HOA controls much of the building plans and architecture while allowing the owners of a specific neighborhood to care for and maintain their community amenities. However, the community retains some developer control as they work to complete all phases and are still the property's majority owners.

Some bylaws and CC&Rs leave room for developers to maintain some representation by allowing developers to keep a seat or two on the board as long as they still own property (Developed or Undeveloped) in the community. Though rare, it can be a way for the board to maintain control and explain why some of the communities under developer control are held there for extended periods. However, unless there is any provision in the Governing Documents and it is not in opposition to state and local laws, all owners (including developers) have the same weight concerning voting. While weighted rights do exist, they are rare and generally only apply if the board member owns more than one home/unit. Similarly, developers who own many lots could have additional votes. Generally, the stipulation is not using in these cases, and there are legal recourse options to owners who feel weighted rights have unfairly impacted them.

As with all advice on our blogs, it's important to note that state and local laws and the communities governing documents, which you must sign before taking possession of the home, can be different. Suppose you have questions or concerns about your community's developer-controlled aspects, we strongly advise that you speak to a licensed Attorney, Realtor®, or Community Association Manager who can give you more insight into that particular community's dynamics.

How to Choose an HOA Management Provider - Free Download


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