46
Texas Association of Builders
September/October 2015
Legal Opinion
S
ome of the most commonly asked
questions we answer in regard to
a builder’s or developer’s role in
developing residential, mixed-use and
commercial planned community and
condominium
projects
involve
the
transitioning of the board of the nonprofit
corporation created to administer the
terms and conditions of the covenants,
conditions and restrictions for the project
(the “Association”).
1
So, what exactly is transition? Transition
may occur all at once or in stages. Partial
transition occurs when a certain percentage
but less than a majority of board members
are elected by owners other than declarant/
developer. Although non-declarant owners
have a voice on the board, the declarant/
developer maintains majority vote and
control of all Association-related issues.
Final transition occurs upon the expiration
or early termination of the Declarant
Control Period. At that time, all of the
board members are elected by owners other
than declarant/developer, and therefore, the
developer/declarant no longer has control
over any decisions of the Association. After
final transition, the non-developer board
administers and operates the Association.
With condominium projects, whether
mixed-use, residential or commercial, timing
of transition of the Association is determined
by statute. Chapter 82 of the Texas Uniform
Condominium Act, otherwise known as
Chapter 82 of the Texas Property Code,
provides that partial transition must occur no
later than 120 days after 50% of the units that
may be created in the project are conveyed, at
which point at least 1/3 of the board must be
elected by non-developer owners. Thereafter,
final transition must occur no later than
120 days after 75% of the units that may be
created are conveyed, at which point the
entire board must be elected by the owners
which results in the termination of the
Declarant Control Period.
With other covenant-controlled projects
which are not subject to the condominium
form of ownership, only residential
subdivisions have any statutory guidance as
to transition, and even then, it is limited to
requirements governing partial transition.
In 2011, the Texas legislature amended
portions of Chapter 209 of the Texas
Property Code to require that regardless
of any contrary provision in a residential
subdivision declaration, at least 1/3 of the
board must be elected by owners other
than declarant either: (1) on or before the
120
th
day after the date that 75% of the lots
that may be created; or (2) if the number
of lots are not identified in declaration,
then not later than the 10
th
anniversary of
recordation of declaration. Final transition
then, for all covenant-controlled projects
which are not condominiums, including
mixed-use, commercial and residential, is
set forth in either the controlling terms of
the declaration or the bylaws.
For all types of projects, it is very important
to properly draft as well as read your
documents! Partial and final transition may
vary from project to project based on the
terms and provisions of the declaration. For
example, although transition is prescribed
by statute with a condominium project, the
transition point must be calculated, which
may be affected both by the phasing of the
project as well as the maximum number of
units which may be created in the project as
set forth in the declaration.
Likewise for partial transition with a
residential subdivision, whether the
declaration states the maximum number of
lots determines the proper transition time
frame. Furthermore, development rights
should not be tied to transition of the
Association. Transition should only relate
to control over the board in operating
and administering the Association. These
functions would include such items as
approving a budget, levying assessments,
causing maintenance to be performed
for common properties and enforcing
covenants and rules. Transition should not
be tied in to development rights related
to overall decision-making for the project
including those rights of the developer to:
(1) facilitate development, construction
and marketing of project; and (2) direct
size, shape and composition of project.
Careful drafting should make a distinction
between these two concepts.
In sum, transition of the Association is an
often misunderstood concept which, if not
approached properly both in practice and
through proper document drafting, could
result in a developer's loss of decision-
making over the project instead of simply
control over the board and decisions by the
Association. However, when thoroughly
planned and executed, transition can be
a useful risk mitigation tool to assist in
the build-out of and exit strategy for a
successful project.
Carey Gunn Venditti is a Shareholder with
Winstead PC in the Real Estate Development
and Investments and Planned Community,
Mixed-Use and Condominium Practice
Groups, where she represents national,
regional and local developers and builders
in legal matters related to the development
of master planned community, mixed-use,
commercial, residential, condominium and
other various covenant controlled projects.
Transition from Developer
Control: The Basics
1
For purposes of this article, we will refer to the time period during which the declarant/developer or its designees have control over all of the decisions of the
Association through the appointment and removal of all or a majority of the members of the board as the “Declarant Control Period.”
By Carey Gunn Venditti
