Transferring Ownership Of Condo From Developer to Residents
Ask the Real Estate Lawyer: Real Estate Law Q&A
REM #LAW 652
By Ilyce R. Glink and Samuel J. Tamkin
Summary: A reader is on the board of their
newly constructed condominium. They are trying to figure out where the developer's
expenses end and the residence's obligations begin. Sam and Ilyce give the reader
tips on managing this transition.
Q: I enjoy reading your articles on condominium issues in our local newspaper
(article continues below useful links)
I have a couple of questions relating to the obligations of the developer and
condominium owners before the association is turned over to the unit owners
by the developer.
I am currently a board member of our condominium board as well as the treasurer.
Construction of the building began about June 2002 and the building was almost
finished by the end of 2003.
The County issued its certificate of occupancy for the building in November
2003. While the building wasn’t fully completed, a few owners closed on
The new board of directors of the condominium association was elected In April
2004 and the developer turned over the building to the Association at that time.
However, our budget sheet indicates that we started to pay all expenses related
to the operation of our condominium in January 2004.
The association’s records indicate that we started paying on the building’s
insurance starting in November 2003. Why should the association pay the insurance
on the building during the period when we did not even own it? When does our
obligation to start paying for the insurance begin?
Also, a decorative fountain for our front entrance (which was on the plans
for the building, but was never installed) was scrapped because "the owner
requested" this change. In this case, who was the owner at that point?
Was the "owner" the Association or the developer?
A: Once a condominium building is substantially complete, the developer of
this condominium building usually starts to run the building as an ongoing building
that has maintenance and insurance expenses. The developer must obtain and purchase
an insurance policy to cover the condominium association and the building. In
some parts of the country, the developer buys and pays for the policy and is
thereafter reimbursed by each owner as each one closes on his or her condominium
unit. In other parts of the country, the association buys the policy up front
with money paid for by the developer and the developer reimburses itself for
The real question you face is not whether the association should have paid
for this expense. The real issue was whether the developer started paying assessments
on the unsold units.
For an association to run a condominium building, the association must collect
assessments to pay its bills. If the developer was paying bills with its own
funds and did not pay assessments to the association, the end result is that
the associate was financially in the same place and not on the short end of
If, however, the developer used association funds to pay association expenses
but was not paying assessments on the unsold units, the association was at a
When the developer turned over the association to the unit owners, the developer
should have delivered an accounting of all funds received by the developer and
all expenses paid by the developer. You should be able to determine whether
the developer paid its fair share of the expenses for the building.
If the developer paid expenses just like all other unit owners, you shouldn’t
have a problem with the timing of the insurance payment. In effect, the developer,
through its assessment payments, paid its fair share of the insurance costs.
If you find out otherwise, you may have an action to recover funds that were
not properly paid by the developer.
If you view it objectively, before the developer closed on the sale of the
first unit the developer was paying for all expenses for the building -- whether
directly or through the association. The key to the puzzle is what happened
after the developer sold and closed on the first condominium unit. If the developer
collected monthly assessments from that unit and subsequent units, you must
try to figure out how those funds were spent.
If you can’t figure out these money issues, there are accounting firms
and law firms that specialize in condominium developments and in the turnover
process from the developer to the condominium association.
Finally, with respect to the fountain issue, the “owner” is the
developer. While the condominium association may have been in existence, the
condominium development was still under the developer’s control and all
plans and construction issues. The developer likely decided not to install the
Frequently, developers change plans, but they usually don’t remove promised
amenities without giving something else to the association in return. If the
development got the short end of the stick from the developer, the owners or
the association may have a legal action against the developer, unless the city
in which you live required its removal.
When considering your legal options, keep in mind that any legal action against
the developer can be extremely expensive and may not be worth the time or effort.
To find out more, you may wish to consult with an attorney that specializes
in condominium law and condominium turnovers.
Samuel J. Tamkin is a Chicago-based real estate attorney. Ilyce
R. Glink’s latest book is 50 Simple Steps You Can Take To Sell Your
Home Faster and For More Money In Any Market. If you have questions for
them, write: Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022
or contact them through Ilyce’s website www.thinkglink.com