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Florida laws and questions for developer turnover

When it is time for a developer turnover of a condominium association, an audit is required of all transactions and activity from the date of incorporation until the date of the turnover. The developer is responsible for paying for the audit. It is their choice if they decide to have the audit cover the entire period the project was under their control. Some developers do this just for continuity.

Rules for condominium associations are not the same as rules for homeowners associations. Community association laws can be found in the Florida Administrative Code 6B-22.0062, chapter 718 of the Florida Statutes.

When does a condominium begin?

It begins when the first unit is sold. Often, for units owned by them, a developer will write in a "declaration to forego assessments" at this initial stage by providing a developer guarantee. The guarantee will state that the developer will be responsible for any expenses that exceed normal assessments that are made against other unit owners in the condominium. Assessments will also be guaranteed not to exceed a specific amount.

What are the reporting requirements for the developer turnover?

Financial statements must be audited and prepared by an independent certified public accountant. The statements should:

  • Be prepared in accordance with generally accepted accounting principles
  • Show separate income and expenses for each fiscal year and interim period up until the date of the turnover
  • Include a separate statement of any cash paid to the association by the developer (including assessments and guarantee payments)
  • Include expenses the developer paid on behalf of the association not included elsewhere

In addition, the developer guarantee documents should include:

  • The time period covered
  • The total of common expenses paid
  • The amount of assessments for units owned by others (non-developers) during the guarantee period
  • Any non-assessment income paid to the association during the guarantee period
  • The amount the developer owes for the guarantee period

Many developer turnovers fall outside of the normal building and selling scenario, and transitions can sometimes be complex. All documents must be reviewed and everything must be in order before the transition. The quality and workmanship of the buildings should also be evaluated at this time. These are usually handled by a legal team retained by the condominium association board.

Source: FCAP, "Developer Turnovers--The Audit Perspective," Brad Schneider, accessed Jan. 05, 2018

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