CAI-NJ June 2021

TRANSITION CONSIDERATIONS for Smaller Condominium/

“Transition is often the most important event in the life of a condominium or homeowners association.”

HOA Communities By Andrew J. Podolski, Esq., Stark & Stark

T ransition is the process in which control of a condominium or homeowners associ- ation, and in particular its board of trustees, shifts from the sponsor/developer to unit owners. Pursuant to the New Jersey Condominium Act (the “Condo Act”) and the Planned Real Estate Development Full Disclosure Act (“ PREDFDA ”), transition begins as the sponsor/developer sells off certain threshold numbers of units in the com- munity. During and upon initial completion of construction, the sponsor/ developer fully controls the association and populates the entire

board with its own representatives. Pursuant to the Condo Act and PREDFDA , once the sponsor/developer sells 25% of the available units, it must relinquish one of its five seats on the board to a unit owner, who is elected by other unit owners at an open meeting. Once 50% of the units sell, a second board seat opens to unit owners at an election. Once 75% of the units sell (or a set number of years pass), the sponsor/developer must relinquish majority control of the board to unit owners, typically retaining only one seat until the remainder of its units sell. As additional unit own- ers populate the board, the sponsor/developer turns over more and more of its day-to-day man-

agement of the association to unit owners. Unit owners obtaining majority control of the board is generally the milestone when transition is deemed to have occurred. Overview of Transition Process and Purpose Transition is often the most important event in the life of a condominium or homeowners association. During tran- sition, a community association has CONT I NU E S ON PAGE 40

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