If you have bought a new home in a metropolitan area in the last 10 years, chances are good that you automatically became a member of a North Carolina non-profit corporation called a homeowners association. Membership is mandatory – which includes dues and compliance with certain rules attached to your deed called “restrictive covenants.” You may also share an interest in common areas, such as swimming pools, playgrounds and open spaces with other members of the association.

For the homeowner and the real estate developer, a new neighborhood is a business as well as a community. It is in the best interest of all for the promised facilities to be built on time, common areas to be maintained and home sales to go well. After all, a house is usually the largest single investment many people make – and one which they would like a reasonable return if, and when, they decide to sell.

So, what is “developer transition?” Our answer: “Developer transition is a change of government from a benevolent dictatorship to a democracy.”

In order to better understand how a community makes this change, one must understand the life cycle of a typical homeowners association.

The developer has a vision for the type of neighborhood that he or she wants to build. This vision determines the roles and responsibilities of the association. If condominiums are being sold, the responsibilities of the association are greater than with a single-family association. Since the common area in a condominium association is actually the exterior of each building, the association is responsible for such things as exterior maintenance and insurance. Thus, the dues are higher for a condominium association.

The developer will prepare the initial budget, or have it prepared by outside professionals such as CPAs or association management companies. This budget determines the dues paid by the individual owners.

The developer’s attorney then incorporates the association and records the Declaration of Covenants, Conditions and Restrictions. This makes the owners of the property mandatory members of the association and obligates them to abide by the association’s rules and protective covenants – and to pay assessments or dues.

A board of directors governs the homeowners association. During the early stages, the developer usually has the right to appoint members who are often employees of the developer – and usually has the power to appoint members until 75 percent of the development is sold. It is during this period that homeowners often raise the issue of conflict of interest since the best interests of the developer and the association may not always be the same.

The developer and the association are two separate legal entities. The developer’s representatives sit on the board as individuals with no protection from the developer’s corporate entity. By North Carolina law, these individuals must exercise good business judgment in conducting the affairs of the association. The issue of conflict of interest does not go away when homeowners are elected to the board, as the best interest of the association may not always agree with the individual best interest.

Homeowners must realize that without the ability to control the interest of the association until the development is well under way, developers would not take the financial risk to start a community. The point at which the homeowners are able to elect their own representatives to the board of directors is specified in the Declaration of Covenants.

The transition from developer control to homeowner control is a mathematical calculation of percentage of private ownership, which determines when the board is no longer appointed by the developer – but rather elected by all homeowner members of the association.