It’s a typical story of a new condo development and a developer’s old tricks. The developer sells you a condo unit on the 80/20 rule; “80% of building is complete and the rest is almost done”. The developer then transitions the condo association to the new owners and slides into the shadows, with 20% of work to still be completed, plus one or two other little pieces of work the developer forgot to mention. Six months forward; the developer is still dragging their feet or even worse, no where to be found. Litigation is not a good answer, because the new condo association has minimal funds.
I certainly don’t believe this characterizes all condo developers, but if you think its characteristic of yours, here are some things to look for when “going condo”.
Has the developer met all the zoning requirements?
Sounds like a simple question, but you’ll sometimes be surprised at the answer; especially when converting an older building. In the case of our building, the developer promised to complete a second level of egress to the roof deck – which has not been completed, three years since the building went condo – something our condo association is still trying to get the developer to finish. I recommend the soon-to-be condo trustees get a final building inspection before transitioning the association from the developer. It’s much better to catch items unfinished items now rather than later, while there’s still some leverage left with the owners.
Do the condo reserves match the work needed to be completed?
If your condo association is concerned about the developer completing that outstanding 20% of work to the property, you may want to ask the developer to put the estimated funds needed (or a percentage of it) into the condo reserves, before transitioning new trustees to run the condo association. Once the condo association takes over the financials, the reserve can be treated like an escrow; in that developer can draw down on funds to complete the work. If the work is not completed, the condo association has all or part of the funds needed to hire a contractor or specialist to get the job done.
Is the developer using new condo fees to pay old bills?
This can happen. The developer is still managing the condo association as new condo units are being sold off. As condo owners start paying monthly condo fees, the developer uses the revenue to pay aging bills on things like maintenance, electricity that occurred before occupancy started. A financial due diligence by a third party is a good investment to catch these potential discrepancies.
Transitioning condo associations from developers to owners can sometimes a touchy subject. New condo owners should make sure to do their diligence of the property and financials before transitioning from the developer. As I said before – I am not characterizing all developers, but take it from my experience; new condo owners should go in with their eyes wide open.
What have been your experiences? Have they been good or bad?
