Below is a list of considerations and recommended best practices to assist unit owner-elected Boards during the transition phase of the Association (i.e., first year immediately following turnover):
1. Confirm the Warranty and Warranty Period. Initial purchase contracts for units from the developer will often include a limited warranty period for units and common elements, with specific time periods to assert any warranty claims. It is important that the newly elected Board promptly review such purchase contract to confirm (a) that there is in fact a warranty; (b) if so, the period for asserting such warranty (usually one year from the commencement date of the warranty as defined in the purchase contract); and (c) the scope of coverage contained in the warranty.
2. Document Construction Issues. Once the warranty period has been confirmed, the next step is to identify and document any construction issues that may be covered under the warranty. It is recommended that the Board engage an architect or engineer to perform a formal examination of the building to determine whether the developer properly constructed the building in accordance with the plans and specifications and enlist unit owners to help identify any construction issues of which they have become aware.
Tip: In a development project where an existing structure is converted to residential use, the architect or engineer should also confirm that the Property Report (also sometimes called a Disclosure Statement) correctly represents the condition of the property.
3. Assert Warranty Claims. Once the warranty and/or construction issues are documented, the Board must timely submit the claims to the developer within the warranty time period as defined in the purchase contract. Warranty claims submitted after the warranty period has expired will be time barred, so it is important that the Board promptly confirm the deadline.
4. Audit Association Funds. An audit of the Association’s funds is needed to confirm that the developer-controlled Board did not use Association funds for developer expenses, and that the developer transferred the correct amount of funds to the Association’s account. For example, the developer is responsible for payment of assessments on unsold units per Section 9(a) of the Act and an audit is needed to confirm that the developer properly remitted payment for these items.
Tip: It is a recommended best practice that the Association engage a professional auditor to review the Association’s accounting records (receipts and expenditures related to management, maintenance and operation of the property and bank statements identifying Association funds, etc.) to confirm that all is in order and that no funds are owing from the developer to the Association.
5. Negotiate with the Developer. If the Board determines there are construction or financial claims against the developer, the Board will initiate negotiations with the developer to attempt to reach an amicable resolution of such claims without the need for litigation. If a settlement cannot be reached, the Association may be forced to file a lawsuit to achieve its business objectives. Any settlement must be formalized in writing prepared (or reviewed, if prepared by the developer or developer’s counsel) by the Association’s legal counsel before signing.
6. Review Existing Contracts. It is likely that the new Board will “inherit” existing contracts entered into by the developer, on behalf of the Association, to provide goods and services to the Association. The new Board should familiarize themselves with all contracts to which the Association is a party so to get an understanding of the Association’s rights and obligations, including any contract termination rights and automatic renewals.
Per Section 18.2(e) of the Act, if the term of an existing contract to which the Association is bound runs for more than two (2) years from the date of the turnover election meeting, the unit owners (other than the developer, if the developer still owns units) may cancel the contract by a majority vote at a meeting held within one hundred and eighty (180) days of the turnover election meeting.
38 | COMMON INTEREST® • Fall 2022 • A Publication of CAI-Illinois Chapter
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56
