For a newer community association board that has recently undergone transition from developer to unit owner control, there is significant temptation to accept a quick, lump sum settlement from the developer to “settle” any remaining punch list items. New board members are often in active and frequent communication with the developer, including any developer-appointed (non-unit owner) representatives who are still sitting on the board. In addition, developers are often willing to work with associations up to and during transition to resolve any outstanding construction issues. With a seemingly cooperative developer on the one hand, and the immense costs posed by litigation on the other, boards frequently adopt a “take what we can get” approach to resolving outstanding issues with a developer rather than digging in and using the threat of litigation to leverage a better settlement. At best, this approach will most likely result in the association leaving money on the table; at worst, it will cost unit owners tens of thousands in future special assessments.
When a developer sells 75% of the units in a condominium or home owner association development, majority control of the association board is turned over to unit owners from the developer (who, up until this point, had its own representatives controlling the board). During this process, known as Transition, a developer’s primary concern is to pave the way to selling off the remaining units, obtain releases of its performance bonds and, most importantly, get the association to sign a litigation release that will prevent the association from ever suing the developer in the future. In order to get a litigation release, the developer will often offer a seemingly large sum of money. Often, the amount the developer offers actually exceeds the cost to fix any open punch list items that have yet to be completed. This seemingly generous offer by the developer is designed to tempt the board into quickly releasing the developer from any future claims.