Stark & Stark’s Construction Litigation Group has a lot of experience dealing with what are known as “transition” issues. This relates to the process by which control over the common elements of a condominium is turned over from the developer to the unit owners. Not all states have the “transition” process and requirements vary among those that do. For example, in New Jersey, the transition process is triggered by the sale of at least 75 percent of the units in the condominium. The transition process is very complex and results in much litigation, because of the divergent interests of the developer on the one hand, and consumers represented by their condominium association on the other. The developer has typically sold out-or is close to selling out-the project and has already gotten its money out of the development. It is looking to wind down, get its bonds released and get out of the project quickly, so it can move on to the next deal. The condominium association has usually just hired its own independent engineers and property manager to do an objective evaluation of the condition of the common elements and finances of the association.
Most of the time, the unit owners who now control the Board of Directors of the association have no experience with construction and are just getting familiar with the construction issues at the same time that the developer is heading for the door. Normally, by the time the association finds out about design and construction deficiencies and defects, the developer is long gone and there are no more units left to be sold. The developer is typically a shell company set up as a corporation or limited liability company that has no assets and no real interest in doing repairs. Sometimes the developer entity is owned by a reputable builder that may have some interest in protecting its name and reputation, and therefore may be willing to at least discuss doing some repairs. Unfortunately, for practical business reasons addressed below, the developer is almost never willing to spend what is required to fix what is wrong to the satisfaction of the association. That means that the association has no choice other than to litigate or special assess the unit owners hundreds of thousands or millions of dollars to effectuate repairs. We counsel associations on how to deal with these issues.
The association is usually in a big hole. It has neither the money nor the experienced leadership to handle the complex process of hiring qualified experts to advise it on the technical construction and financial issues it is confronted with. Counsel therefore has to assist the Board of Directors of the association by recommending competent engineers and/or architects who can give the association reliable, unbiased reports on the condition of the common elements. Counsel also has to recommend to the association accounting experts who can advise the association on various financial issues including, but not limited to, how much money the developer may owe the association for: (a) unpaid monthly maintenance fees that the developer should have paid for developer-owned units prior to their sale; or (b) for benefits derived by the developer-owned units from common elements that the association had to pay to maintain.