{"id":202,"date":"2017-05-20T20:05:25","date_gmt":"2017-05-20T20:05:25","guid":{"rendered":"http:\/\/marylandcondominiumattorneys.com\/?page_id=202"},"modified":"2026-08-05T19:36:15","modified_gmt":"2026-08-05T19:36:15","slug":"declarant-transition-homeowners-associations","status":"publish","type":"page","link":"https:\/\/marylandcondominiumattorneys.com\/index.php\/declarant-transition-homeowners-associations\/","title":{"rendered":"DECLARANT TRANSITION – MARYLAND HOMEOWNERS ASSOCIATIONS"},"content":{"rendered":"

<\/h2>\n

\"Declarant<\/h2>\n

<\/h2>\n

DECLARANT TRANSITION <\/strong><\/h2>\n

\u00a0<\/strong>MARYLAND HOMEOWNERS ASSOCIATIONS<\/strong><\/h3>\n

Transition of Association Governance from Declarant to Lot\u00a0Owner Control <\/em><\/strong><\/h4>\n

Legal Requirements and Transition Checklist\u00a0<\/em><\/strong><\/h4>\n

Declarant Transition Maryland Homeowners Associations<\/p>\n

INTRODUCTION<\/h3>\n

\u201cDeclarant transition\u201d is the process by which the governance of a homeowners association (a\/k\/a “HOA”) is transferred from declarant to lot owner control. This article contains and overview of legal requirements governing the transition process followed by a \u201ctransition checklist\u201d for transitioning lot owner-controlled HOA boards of directors.<\/p>\n

PERIOD OF DECLARANT CONTROL<\/h3>\n

A declarant initially controls a homeowners association (HOA) because it owns all unsold lots in the newly created community. As such, the declarant has the controlling votes associated with majority ownership and can appoint its own employees as the initial members of the governing board of directors and thereby control how the homeowners association (HOA) conducts its affairs. This is referred to as the \u201cperiod of declarant control,\u201d during which the declarant makes all decisions on behalf of the homeowners association (HOA).<\/p>\n

The declarant also creates an association\u2019s (HOA’s) governing documents, allowing it to dictate, subject to applicable Maryland law, the procedures and time periods under which control will eventually be transferred to the lot owners. Declarant transition for Maryland homeowners associations is the point at which control is transferred to the lot owners.<\/p>\n

TRANSITION MEETING<\/span><\/h3>\n

The period of declarant control continues until a \u201ctransition meeting\u201d is held to elect members of the board of directors from amongst the association\u2019s membership (i.e., the lot owners). A declarant -controlled homeowners association must hold the transition meeting within 60 days from the date that at least 75% of the total number of lots are sold to the public for residential purposes. Maryland Homeowners Association Act (\u201cHOA Act\u201d) \u00a711B-106.1 (a)(1).\u00a0Declarant transition of of control over Maryland\u00a0homeowners associations begins with the transition meeting.<\/p>\n

The transition meeting can be held earlier if the declarant specifies a lesser percentage of conveyances or sales in the governing documents as a trigger for the 60 day period to commence. HOA Act \u00a711B-106.1(a)(2).<\/p>\n

OVERLAPPING TERMS OF DECLARANT-APPOINTED BOARD MEMBERS<\/h3>\n

The terms of board members appointed by the declarant during the period of declarant control must end 10 days after a replacement board member is elected at the transition meeting. HOA Act \u00a711B-106.1(c). This law is designed to prevent overlapping terms of declarant-appointed and lot owner-elected board members. So long as lot owner members of the homeowners association (HOA) are willing to run for the positions on the board of directors and sufficient purchasing lot owners vote, declarant transition of control over a Maryland homeowners associations should result in a lot owner-elected board of directors.<\/p>\n

DOCUMENT\/ASSET TURNOVER<\/h3>\n

Within 30 days following the transition meeting, a declarant is required to turn over specified documents and assets to the newly elected board of directors. HOA Act \u00a711B-106.1(d). This includes financial records, contracts, architectural plans, condominium funds, unit owner records, etc. A complete list of these items is set forth as an Appendix to this article. Declarant\u00a0transition for Maryland homeowners\u00a0associations\u00a0is a time to inventory and collect\u00a0condominium documents and assets.<\/p>\n

TERMINATION OF CONTRACTS<\/h3>\n

Following the transition meeting, the newly-elected, owner-controlled board of directors has a right, without liability, and upon 30 days prior notice, to terminate any association contracts entered into during the period of declarant control to handle financial matters, maintenance, or other services for the community. HOA Act \u00a711B-106.1(f). Therefore, declarant transition for Maryland homeowners associations provides an opportunity to review and terminate association contracts. However, this right to terminate does not apply to contracts for the \u201cthe provision of utility services or communications systems.\u201d HOA Act \u00a711B-106.1(f)(2)(ii).<\/p>\n

It is believed that the Maryland General Assembly intended for there to be no expiration date on an HOA’s right to terminate contracts following the transition meeting. The legislation creating this right was intended to address problems experienced by HOA’s following transition from developer control, including how to deal with contracts entered into by a developer-controlled HOA deemed not to be in the HOA’s best interest. However, the language used in the statute is confusing as to when the right of termination starts or ends. See<\/em>, HOA Act \u00a711B-106.1(f)(3). By way of comparison, the Maryland Condominium Act gives an association 3 years following the date when unit owners other than the developer have a majority of votes (generally occurring within a few months of a transition meeting) to terminate contracts without liability, by a majority vote of the unit owners, but there is no such time period in the HOA Act.\u00a0 Compare<\/em>, MD Condo Act \u00a7\u00a7 11-133(a) and<\/em> 11-109(c)(16)(vi) to HOA Act \u00a711B-106.1(f)(3).<\/p>\n

TRANSITION CHECKLIST<\/h2>\n

The following is a transition checklist that should be addressed by the initial, lot owner-controlled HOA board once it assumes control over the association from the declarant<\/p>\n

1. Document\/Asset Inventory & Request<\/u><\/em><\/h3>\n

Conduct an inventory of association documents and assets. Make a formal written request of the declarant to turn over all documents, funds and assets listed in Appendix A to the extent not already done so. These must be turned over within 30 days of the transition meeting.<\/p>\n

2. Contract Review<\/u><\/em><\/h3>\n

Review all contracts entered into during the period of declarant control to handle the homeowners association\u2019s financial matters, maintenance, or other services. If there are any concerns, obtain competitive vendor proposals for comparison purposes. Contracts that do not appear to be in the best interest of the association can be terminated, without liability, upon 30 days in notice. The association\u2019s right to terminate does not apply to contracts for the provision of utility services or communications systems.<\/p>\n

3. Audit Financial Records<\/u><\/em><\/h3>\n

Have an independent auditor examine and audit the association\u2019s financial records during the period of declarant control to ensure that all monies were properly collected and accounted for. For example, an auditor can determine whether the correct amount of assessments were collected, whether the association\u2019s reserve accounts were properly funded, or whether there was any inappropriate use of association funds to pay declarant obligations. In some cases, an auditor may determine that the declarant owes the homeowners association a substantial amount of money.<\/p>\n

4. Transition and Reserve Studies <\/u><\/em><\/h3>\n

Obtain transition and reserve studies in order to identify construction defects and determine whether the declarant-created budget and reserve account are adequate to maintain, repair and replace the common areas of the community over time. For example, if a common area clubhouse roof is found to be in need of immediate replacement because of construction deficiencies, then a declarant-created reserve budget based on a projected roof replacement in 30 years is grossly insufficient.<\/p>\n

a.The Transition Study<\/em><\/strong>: <\/em> the purpose of a transition study (also referred to as a \u201cdeficiency report\u201d or \u201cwarranty analysis\u201d) is to evaluate construction of the common areas to identify construction defects while warranties are still enforceable so they can be submitted to the declarant for warranty repair.Timely transition studies are essential because defects in newly constructed communities may not be apparent when owners first take control of the association. Defects in the original construction can remain hidden for years until they manifest themselves in the form of property damage. Left undiscovered and unrepaired, even minor construction deficiencies can result in extensive property damage requiring associations to borrow money and assess unit owners. Moreover, when defects are not identified in a timely manner, warranty rights may be barred by expiration of warranty periods or statute of limitations. Architectural and engineering firms can identify construction defects early on and investigate suspicious conditions before warranty rights expire so timely notice can be given to the declarant. Once defects have been identified and then corrected by the declarant, the association can establish an accurate reserve budget. See article “Importance of Obtaining Timely Transition Study to Identify Construction Defects<\/em><\/a>.”<\/p>\n

b. The Reserve Study<\/em><\/strong>:<\/em> A reserve study does not seek to evaluate construction. Rather, its purpose is to determine the amount of annual assessments that should be placed into a reserve account to pay for future repair or replacement of the major community components for which the association is responsible, such as clubhouses swimming pool, sidewalks, roadways, storm water management ponds, streetlights, etc. A normal useful life, or \u201clife expectancy,\u201d is assigned to each of these components (e.g., a 30-year clubhouse roof), as well as an estimated cost to repair or replace those components at the end of their useful life. Based on these projections, a reserve analyst estimates the amount of money that the association should allocate to its reserve account each year so that the necessary funds will be available for future repairs and replacement. This type of planning avoids a one-time huge assessment for major repair\/replacement projects. New Maryland laws, effective October 1, 2022, require most Maryland homeowners associations (HOAs) to obtain reserve studies and fund reserves. Click here for details on the Reserve Studies and Reserve Account Funding Requirements in Maryland<\/a>.<\/p>\n

5. Retain Legal Counsel<\/u><\/em><\/h3>\n

a. General Counsel<\/em><\/strong>: Retain general counsel to work with the board members and its management company handling a the wide variety of general legal issues that face a homeowners association, such as interpreting governing documents, preparing legal opinions, delinquent assessment collection, contract negotiation, dealing with threatened litigation, amending governing documents, etc.<\/p>\n

b. Warranty\/Construction Defect Legal Counsel<\/em><\/strong>: Request a consultation from an attorney with expertise in homeowner association construction law. Such an attorney can advise the association when applicable warranties and other legal claims expire and how to preserve the association\u2019s legal claims while negotiating proper repairs with the declarant. Armed with such information, a transitioning homeowners association can make informed decisions. This legal consultation should be requested as soon as the newly elected board assumes control of the association to ensure that no warranty and other legal rights are allowed to expire. For more information on HOA implied statutory warranties, see article\u00a0 “The Maryland HOA Common Area Warranty<\/em><\/a>.”<\/p>\n

6. Review Insurance Coverage<\/u><\/em><\/em><\/h3>\n

Review association insurance coverage obtained during the period of declarant control. Make sure coverage complies with governing documents, industry standards, and applicable laws (e.g., master policy, property insurance, comprehensive general liability insurance, fidelity insurance, directors & officers\/errors & omissions policy). In the event of a lawsuit, having proper coverage will not only provide the homeowners association with a legal defense and pay any judgment, but can also provide immunity to directors and officers and cap association liability to the amount of insurance coverage. For an article discussing the types of insurance that can provide statutory immunity to directors and officers of Maryland HOAs, see article “Statutory Immunity From Lawsuits for Condominium and HOA Directors and Officers<\/em><\/a>.”<\/p>\n

7. General Housekeeping Matters<\/u><\/em><\/h3>\n

There are a number of housekeeping matters not covered by this checklist involving homeowner association governance and business that will need to addressed by the first board to transition from declarant control. An association\u2019s property manager and\/or its attorney typically guides the board in these matters. Some examples include: selecting officers (President, Vice President, Secretary and Treasurer); appointing committees (e.g., architectural review committee); scheduling meetings required by the governing documents (e.g., annual and regular meetings of association); defining maintenance obligations and establishing a maintenance schedule; amending declarant-created governing documents and promulgating new rules and regulations based on the needs and concerns of the lot owner-controlled association, etc.<\/p>\n

APPENDIX<\/strong><\/h2>\n

DOCUMENTS & ASSETS TO BE TURNED OVER BY DECLARANT<\/strong><\/h2>\n
    \n
  1. Deeds to the common areas<\/li>\n
  2. Articles of incorporation, declaration, and all recorded covenants, plats, restrictions, and any other records of the primary development and of related developments<\/li>\n
  3. By laws and rules of the primary development and of other related developments as filed in the depository of the county<\/li>\n
  4. The minute books, including all minutes<\/li>\n
  5. All books and records, including financial statements, minutes of any meeting of the governing body, and completed business transactions<\/li>\n
  6. Policies, rules, and regulations<\/li>\n
  7. The financial records from the date of creation to the date of transfer of control, including budget information regarding estimated and actual expenditures by the homeowners association and any report relating to the reserves required for major repairs and replacement of the common areas<\/li>\n
  8. All contracts to which the homeowners association is a party<\/li>\n
  9. The name, address, and telephone number of any contractor or subcontractor employed by the homeowners association<\/li>\n
  10. Any insurance policies in effect;<\/li>\n
  11. Any permit or notice of code violations issued to the homeowners association by the county, local, State, or federal government<\/li>\n
  12. Any warranty in effect and all prior insurance policies<\/li>\n
  13. The homeowners association funds, including operating funds, replacement reserves, investment accounts, and working capital<\/li>\n
  14. The tangible property of the homeowners association<\/li>\n
  15. A roster of current lot owners, including their mailing addresses, telephone numbers, and lot numbers, if known<\/li>\n
  16. Individual member files and records, including assessment account records, correspondence, and notices of any violations<\/li>\n
  17. Drawings, architectural plans, or other suitable documents setting forth the necessary information for location, maintenance, and repairs of all common areas<\/li>\n<\/ol>\n

    NOTE ABOUT MASTER ASSOCIATIONS<\/strong>: <\/em>In some cases an HOA is referred to as a “master association,” meaning that it owns an oversees common areas that are shared by a larger residential community including one or more sub-associations. For example, a master association HOA might consist of single family lots, one or more sub-condominium associations, and\/or one or more sub-HOAs. The membership of a master association HOA often consists of owners of single family lots and condominium units who share in the right to use, and the expense of maintaining, the shared master association HOA common areas, such as a clubhouse and swimming pool. For purposes of a master association HOA governing documents, all members are typically referred to jointly as “lot owners.” Following developer control, a lot owner-controlled board is elected by the residential lot owners who are often required to include board members from each of the different sub-associations.<\/p>\n

    NOTE ABOUT ARTICLE<\/strong>: <\/em>An earlier version of this article appeared as a two-part series in the Community Associations Institute, Chesapeake Region Chapter, publication\u00a0 \u201cThe Beacon.\u201d Part I appeared in the Summer 2017 issue at pages 16-17 and Part II appeared in the Fall\/Winter 2017 issue at pages 20-21. Unlike this blog post, which deals solely with Declarant\u00a0 Transition for Maryland Homeowners Associations,\u00a0 the referenced Beacon articles combined Developer Transition for Condominium Associations and Declarant Transition for Homeowners Associations into a single two-part article discussing the laws applicable to transition under the Maryland Condominium Act and the Maryland Homeowners Association Act. This online version has been updated and includes links to relevant articles for more detailed explanations.<\/p>\n

    NOTE ABOUT AUTHOR<\/strong>: Nicholas D. Cowie is a partner in the law firm of Cowie Law Group, P.C. and has been representing community associations for over 29 years. Mr. Cowie is licensed in Maryland and Washington DC and has extensive experience representing homeowners association with transition issues including developer assessment disputes and construction deficiency claims. Mr. Cowie participated in the drafting and efforts to obtain passage of Maryland laws that benefit transitioning homeowners associations by requiring developers to turnover specified documents and extending warranty periods. Specifically, <\/em>Mr. Cowie contributed to the drafting and worked to obtain passage of House Bill 667, enacted on October 1, 2009, which created the laws discussed above that strengthen the rights of Maryland homeowners associations in the transition process.<\/em>Contact Mr. Cowie regarding\u00a0Declarant Transition Maryland Homeowners Associations Legal Matters.<\/em><\/p>\n

    Declarant Transition Maryland Homeowners Associations<\/p>\n

    \"COWIE<\/a><\/p>\n

    Maryland HOA Law Attorneys<\/p>\n

    410-327-3800 | 202-670-6289 | 301-830-8315<\/p>\n

    MD\/DC Condo & HOA Facebook\u00a0Group<\/a><\/p>\n

    cowielawgroup.com<\/a><\/p>\n

    Bing Places<\/a>\u00a0\u00a0\u2022 \u00a0Google Maps<\/a>\u00a0 \u2022 \u00a0Facebook\u00a0<\/a><\/strong><\/p>\n

    Cowie Law Group on Google<\/a><\/p>\n

    NOTE ON LEGAL ADVICE: These\u00a0 developer transition articles should not be relied upon as a legal advice applicable to any specific case concerning a the transition of a Maryland or Washington DC condominium association or HOA. Rather, the articles contain general statements of legal principles that may or may not apply to your condominium association or HOA. The individual facts of each case need to be analyzed to determine the application of law. Speak with a Maryland or DC condominium law attorney at Cowie Law Group, P.C. for a consultation relative to your specific situation.<\/p>\n","protected":false},"excerpt":{"rendered":"

    DECLARANT TRANSITION \u00a0MARYLAND HOMEOWNERS ASSOCIATIONS Transition of Association Governance from Declarant to Lot\u00a0Owner Control Legal Requirements and Transition Checklist\u00a0 Declarant Transition Maryland Homeowners Associations INTRODUCTION \u201cDeclarant transition\u201d is the process by which the governance of a homeowners association (a\/k\/a “HOA”) is transferred from declarant to lot owner control. This article contains and overview of legal […]<\/p>\n","protected":false},"author":1,"featured_media":465,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"footnotes":""},"class_list":["post-202","page","type-page","status-publish","has-post-thumbnail","czr-hentry"],"yoast_head":"\nMaryland Declarant Transition for Law Homeowners Associations<\/title>\n<meta name=\"description\" content=\"COWIE LAW GROUP - Declarant Transition for Maryland Homeowners Associations by Maryland HOA Law Attorneys. 410-327-3800 | 301-830-8315\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/marylandcondominiumattorneys.com\/index.php\/declarant-transition-homeowners-associations\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Maryland Declarant Transition for Law Homeowners Associations\" \/>\n<meta property=\"og:description\" content=\"COWIE LAW GROUP - 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