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A Development Plan for Your Utopia: Developers and the Associations They Create
By: Lloyd L. Rabb III & Michael L. Rabb
09/30/2009
A DEVELOPMENT PLAN FOR YOUR UTOPIA
Utopia! As Sir Thomas More described in his writings in the year 1516, it is the ideal community, perfect in its socio-politico-legal system where everyone gets along. What is missing, however, is the struggle which was encountered before utopia was achieved.
Utopia is exactly what every purchaser in the planned neighborhoods and communities of today is looking for. They want a place for their children to safely play, go to school and grow; a place to develop friends and lasting relationships; a place that is comfortable and which they call Ahome. If, however, the Aplanned community is still controlled by the developer, then, the Autopia they are seeking is still being developed and is far from in their control.
As with all things which are being developed, or which are in a state of flux, there are competing interests which ultimately must be resolved. In a new planned community the interests of the developer are not necessarily aligned with those of a home purchaser looking for utopia. The developer, of course, is trying to maximize its return on investment. The new homeowner, on the other hand, is trying to receive the maximum benefit from the developer. It is during this confluence of competing interest in the development of a planned community which creates the struggle between the developer and the new homeowners of the community.
Of course, the key to keeping the potential struggle between the developer and homeowners from escalating out of control requires each to respect the interests and objectives of the other. To do this, each must know their respective rights and obligations pursuant to the laws of our state.
It is well established that a developer, who retains control over the association, maintains a fiduciary relationship with the association in its management. However, outside the management of the association by the developer, conflicts may arise in interactions between the association and the developers development activities. These conflicts clearly raise questions about the developers duties which are not clearly resolved at this time by our courts. In the absence, however, of any court decisions to establish the law, Arizona judges look to a treatise called The Restatement of Law of Property for guidance.
The Restatement of Law of Property spells out many duties of a developer. One such duty requires the developer to use reasonable care and prudence in managing and maintaining the common areas of the association. What constitutes reasonable care depends on the circumstances, including the financial resources available to the association.
The developer is, further, required to be financially transparent with regard to its management of the association. Specifically, the developer is required to maintain financial records and account for the financial affairs of the association from its inception. It is required to disclose the amount by which it provides or subsidizes services that the association is, or will be, obligated to pay. The developer is, also, required to disclose its interests, and the interests of its affiliates, in any contract, lease, or other agreement entered into on behalf of the association.
An issue that is often a point of contention, between the developer and the members of the association, is the question of when developer is required to transfer control of the association to the homeowners. The process of this transfer of power is typically dictated by the governing documents of the association, such as, the Declarations or By Laws. The developer, however, must transfer control and the common areas to the homeowners after a time that is Areasonably necessary to protect its interest in completing and marketing the project has passed. Once this time has passed, the developer can be compelled to relinquish its power over the association, and the homeowners may cancel certain contracts that the developer had entered into on behalf of the association.
The relationship between associations and developers are created and governed by statute and the decisions of our courts. Unfortunately, this area of the law is, more often than not, as clear as mud. Because of this, any developer, association or homeowner should seek competent legal advice early in any potential conflict to better ensure the rights and duties of the parties are understood and protected.
Authors:
Lloyd L. Rabb, III, Esq.
Michael L. Rabb, Esq.
The RABB/PENNY Law Firm, pllc
Lloyd Rabb is AV rated by Martindale-Hubble and listed in Law & Politics, ASuper Lawyers of the Southwest, and in Best Lawyers in America.
Michael L. Rabb, Esq., focuses his practice in Real Estate Law and is a licensed real estate agent in Arizona.
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