DECLARANT TRANSITION - DC CONDOMINIUM LAW - PART I

Declarant Transition - Washington DC Condominium Law - by Nicholas D. Cowie of COWIE LAW GROUP, Washington DC Condominium Law Attorneys

DECLARANT TRANSITION – PART I

WASHINGTON DC CONDOMINIUM LAW

Transition of Association Governance from Declarant to Unit Owner Control

This is a two part article concerning “declarant transition,” the process by which the governance of a condominium association is transferred from the declarant developer to unit owner control. This article also discusses the immediate responsibilities of a newly elected unit owner-controlled board following transition of the condominium association from declarant control. Part I, below, is an overview of the legal requirements under Washington DC condominium law that govern the transition process and provides a general overview of Declarant Transition for Washington DC Condominiums. Part II of this article contains a “transition checklist” for transitioning unit owner-controlled boards of directors.

Under the Washington DC Condominium Act, a condominium developer is referred to as a “declarant,” and that terminology is used throughout this article.

PERIOD OF DECLARANT CONTROL

Declarant transition in Washington DC begins with the declarant developer controlling the condominium association because it owns all or a majority of unsold units in the newly created condominium. As such, the declarant has the controlling votes associated with majority ownership and can appoint its own employees and representatives as the initial members of the executive board and thereby control how the condominium association conducts its affairs. This is referred to as the “period of declarant control,” during which the declarant makes all decisions on behalf of the association through its declarant-appointed board members who make up a majority of the owner association’s executive board.

The declarant also prepares the condominium documents that create the condominium, including the condominium bylaws and declaration that govern the unit owners’ association (the “governing documents”) and establish its executive board which has the authority to act on behalf the unit owners’ association in governing the condominium. This enables the condominium declarant to dictate, subject to Washington DC condominium law, the procedures and time periods under which control of the executive board will ultimately by transitioned to the unit owners.

Under Washington DC condominium law, a declarant is authorized by statute to control the operations of a unit owners’ association by appointing and removing the members of its executive board (“board members”) and its officers during the period of declarant control. District of Columbia Condominium Act (“DC Condo Act”) § 42-1903.02(a) and (c).

Occasionally, a developers of a large condominiums projects will create “transition committees” during the period of developer control. These committees consist of resident unit owners who are tasked with acting on behalf of the condominium association so as to avoid a conflict of interest in negotiations between the developer and the developer-controlled condominium association. However, a transition committee’s authority is limited and subject to the influence and ultimate authority of the developer-controlled condominium board of directors. See article entitled: “Washington DC Condominium Transition Committees.”

THE TRANSITION MEETING

The next step in the declarant transition process for Washington DC condominiums, under the DC Condo Act, is the “transition meeting” at which the non unit owners can participate in democratically electing all members of the executive board. The transition meeting is held following the end of the developer control period. DC Condo Act §42-1903.01(b). The date on which the period of declarant control ends is determined by the the application of a formula set forth in the DC Condo Act. Generally, the declarant control period will end when: (1) units representing 75% of the undivided interests in the common elements have been conveyed by the declarant to purchasing unit owner; or (2) three years from the date the first unit is conveyed by the declarant to a purchasing unit owner (two years for non-expandable condominiums), whichever occurs first. See DC Condo Act §42-1903.02(a).

OVERLAPPING TERMS OF DECLARANT-APPOINTED AND UNIT OWNER-ELECTED BOARD MEMBERS

Washington DC condominium law permits overlapping terms of declarant-appointed and unit owner-elected board members. Two special meetings must be held in order to allow non-declarant unit owners to elect up to 1/3 of the board membership. These elections occur when approximately 25% and 50% of the units at the condominium have been conveyed. See DC Condo Act §42-1903.02(d). These elections can result in overlapping terms of declarant-appointed and unit owner-elected board members during the period of declarant control. Once the period of declarant control ends, the entire executive board membership is elected by the unit owners. DC Condo Act §42-1903.01(b), thereby completing the transition of control under the declarant transition process for a Washington DC condominiums.

TERMINATION OF CONTRACTS

Under Washington DC condominium law, certain contracts entered into by the condominium declarant on behalf of a unit owners’ association during the period of declarant control may be terminated without penalty upon not less than 90 days’ written notice. DC Condo Act §42-1903.02(b)(1). These terminable contracts include association contracts with declarant affiliates, management contracts, employment contracts and agreements to lease parking spaces. DC Condo Act §42-1903.02(b)(1). Reviewing these terminable contracts is one of the first steps that a transitioning unit owner-controlled executive board should engage in as part of the declarant transition process for Washington DC Condominiums.

TRANSITION CHECKLIST

Part II of this article contains a transition checklist of items to be addressed by the first unit owner-elected executive board once it assumes control over the unit owners’ association following the transition meeting.

NOTE ABOUT AUTHOR: Nicholas D. Cowie is a partner in the law firm of Cowie Law Group, P.C. and practices Washington DC condominium law. Mr. Cowie has been representing condominium associations for over 25 years. Mr. Cowie is licensed in Maryland and Washington DC and has extensive experience representing condominiums with declarant transition issues including financial disputes over developer controlled boards, use of association, funds, and collection of assessments, as well as construction defect warranty claims.

NOTE ON TERMINOLOGY Under Washington DC law (DC condominium act), the term “unit owners’ association” means a condominium association; the term “declarant” means a condominium developer; and the term “executive board” means a condominium board of directors. This is the terminology is utilized interchangeably in this article.