Utah law provides developers certain authority to initially manage a homeowners’ association during a period of “administrative control.” This period exists for a good reason — someone must manage and care for a new community while the community is being built and until enough owners exist to manage it themselves. Under Utah law, a developer may generally reserve the following powers to itself during this period:
· Appoint and remove members of the board and its committees;
· Set the budget and amount of assessments;
· Enter contracts on the association’s behalf, including management agreements, vendor contracts, and leases in the association’s name;
· Adopt and amend rules and design criteria governing the use of lots, units, and common areas; and
· Exercise certain other powers generally assigned to the association, its officers, or its board.
Each of these powers is a power to administer and is not absolute. On the contrary, a developer (also called a declarant) owes significant duties to the owners to properly administer the association’s affairs. These duties come from contracts governing the developer’s relationship with the owners, the covenant of good faith and fair dealing, and fiduciary duties arising under Utah’s statutes and prevailing court decisions. To protect the community—and itself—it is critical that a developer regularly assess whether it and its appointed members of the board are complying with their duties by asking the following questions:
Fairness and Transparency
☐ Are you following the same rules you enforce against other owners? Example: Do you exempt the developer from some design or architectural requirements?
☐ Are you fairly enforcing the rules against owners? Example: Are you granting members of the board exceptions not given to other owners?
☐ Do you pay assessments like any other owner? Example: Do your governing documents illegally provide that the developer is not required to make the same payments that other owners are required to make?
☐ Are you maintaining the association’s records, including governing documents, board minutes, budgets, financial statements, and other appropriate accounting records? Are
you making these records available to owners, as is their statutory right in order to protect their ownership interests? Example: Do you provide agreements and other documentation that support financial statements and records?
☐ Have you disclosed all conflicts of interest? Example: Do you disclose the developer’s subsidies to the association even before they are requested?
☐ Have you established and follow procedures to ensure there are no private dealings between the board, the developer, property managers, and other interests? Example: Are members of the board paying themselves as members of the board, members of committees, or both? Are these contracts and payments disclosed to the owners?
☐ Have you disclosed defects and deferred maintenance? Example: Have you hidden defects from the owners because the developer does not want to pay for the costs of repair?
☐ Are you following required notice and disapproval procedures in exercising your rulemaking authority? Example: Have you properly published the rules to the owners?
Responsible Operation
☐ Are you prudently managing and maintaining common areas and facilities? Example: Are you maintaining all the common areas and facilities fairly or favoring those that impact the developer’s lots or units?
☐ Do your regulations extend beyond what is permitted by law? Example: Do your design or architectural guidelines prohibit backyard amenities, flags, solar panels, political signage, water-wise landscaping, or accessory dwelling units?
Governance
☐ Are you following state governance requirements? Example: Have you timely registered the association as an entity and as a homeowners’ association with the State of Utah?
☐ Are you following the association’s governance policies? Example: Are official acts by directors or committee members taken in meetings with a quorum? Are votes being taken and recorded? Is there one director or committee member that exercises an undue or unequal influence on the decisions of the board or committee?
☐ Are you holding required annual meetings of the members and open board meetings? Are you providing owners with an opportunity to make comments? Example: Are you holding meetings but only leaving a few minutes for comments despite having a large community?
☐ Do you regularly ensure that board members and officers follow the association’s declaration, bylaws, and rules? Example: Do you have checks in place to ensure that officials are holding properly noticed meetings and voting on properly noticed actions?
☐ Do you regularly ensure that board members and officers operate only within their authority? Example: Is a principal of the developer dictating what will occur within the association despite not being on the board?
Compliance with State and Federal Laws
☐ Are you in compliance with federal laws, including the Americans with Disabilities Act, the Fair Housing Act, the Freedom to Display the American Flag Act, and the Fair Debt Collection Practices Act, etc.? Example: Do you have sufficient handicapped parking?
☐ Are you providing buyers with the statutorily required disclosures — e.g., a copy of the association’s governing documents, most recent financial statement, reserve fund analysis, etc.? Example: Are you providing the documents or simply stating that they can be found at the county recorder’s office?
☐ Do you know the exact date or conveyance threshold that ends your period of administrative control for this specific project? Example: Are your CC&Rs based on the correct law?
Financial Management
☐ Do the reinvestment fees directly benefit the association? Example: Are you using reinvestment fees to illegaly pay for amenities owned by you, the developer?
☐ Have you established a sound fiscal basis and levied assessments that adequately—but not excessively—fund operations and reserves? Example: Have you forgone a reserve study because you are in the period of administrative control?
☐ Are your design review fees proper? Example: Do you impose design review fees based on square footage rather than actual costs of review? Are you reimbursing owners for costs that exceed the actual cost of review?
The period of administrative control is a temporary custodianship defined by contractual, fiduciary, and statutory duties. Treating the control period as “absolute” will prove a costly legal mistake. Regularly reviewing compliance builds a successful, legally compliant community, and protects you—the developer—from avoidable litigation.
Aaron Pacini is a Partner at Maxwell & Morgan, Inc.—a regional leader in community association law that provides an array of legal services, including litigation, insurance defense, covenant enforcement, assessment collection, and recovery.
Aaron Pacini | apacini@hoalaw.biz | 801-618-4103 | 1802 W South Jordan Pkwy, Suite 130, South Jordan, UT 84095
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