Striving for a Successful Transition Process

By Edward I. Guttenplan, CPA, CGMA, MBA

I have been intimately involved in advising in the transition process – shifting control and responsibilities from the developer to the property owners – for over 30 years. I’ve advocated for Community Associations and defended developers, providing the truly unique perspective of knowing all sides of almost every issue or computational strategy. I have been involved in some of the largest awards to Community Associations, as well as successfully defended developers against factless and overreaching claims. Unfortunately, many times, not all parties involved in the transition process focus on what is fair or act in the spirit of the legal framework guiding these situations. The transition process, though multi-layered and complex, doesn’t have to be arduous, if everyone involved works together to ensure all parties are treated fairly and equitably.

Given this unique background and perspective, here are my top ten recommendations for a successful and smooth transition process:

1. Be informed.

Learn about the transition process through CAI publications and the NAHB Transition Best Practices publications.

2. Create a transition team of professionals to work with the Board in developing a strategy.

The team should communicate and determine the strategy or strategies for the transition, relying on the benefit of their experiences and expertise in various aspects of transition. The Board’s transition committee should be part of this discussion as well.

3. Identify the issues and set realistic expectations.

It is important to identify the issues that are to be pursued and how best to pursue them. We often get requests to do “transition audits” with little or no guidance on what the issues are. We are asked simply for a fee estimate for the work. Our first response is “What are the issues and claims of concern? What is legal counsel suggesting? What can the engineer support?” It is irresponsible to act otherwise - unless, of course, the goal is to spend unnecessary professional fees to conjure up unsuccessful, unsustainable claims. It is not hard to imagine the amount of ancillary fees that can be incurred by an Association to pursue a claim of $25,000 - it can run as high as 3 times that amount. That also does not consider the time, emotional energy, and distraction from managing the community that is a byproduct. Forgive my pragmatism and reluctance to bring out all the artillery. When necessary, that may come later, but only when it is the most viable approach. Before a transition audit can begin, we always go through a phased approach as follows:

a. Look at and analyze financial statements since inception.
b. Talk to the Board and understand the potential issues, claims, or damages.
c. Talk to management and understand the potential issues, claims, or damages.
d. Talk to legal counsel and understand the potential issues, claims, or damages.
e. Talk to the engineer and understand the potential issues, claims, or damages.

4. Determine a viable strategy or steps to reach outcomes.

The whole transition team should meet and together determine a viable strategy, or steps in a strategy, based on the analysis discussed above. These next steps should manage time, professional fees, and the other intangibles of the transition process. This will tell you what is possible, and together with the transition team, the Board can evaluate the risks and rewards of each approach.

5. Understand the cost/benefit relationship.

Understanding the cost/benefit relationship of these strategies is key. This is a fiduciary responsibility of the Board. Creating extreme positions to simply conjure up a big number will, more often than not, result in more money spent pursuing the claims than is worth it. In addition, knowledgeable adversaries will see through such claims, diminishing credibility of the position and further reducing the possibility of a positive and timely outcome.

6. Keep emotions at bay.

As a fiduciary, the Board is entrusted to resolve disputes with economics in mind.

7. Create and maintain positive relationships.

Maintaining positive relationships and treating the transition as a process usually results in a better outcome in the end. It also leads to more favorable ongoing processes and concessional during buildout that benefit all parties involved.

8. Establish a communication plan for the process.

Agree on the communication channel for discussions and ensure there is corresponding communication back to the community. Also, carefully explain that during litigation or negotiations, public communication must be carefully managed so as not to compromise the negotiation process, or any litigation that the negotiation may lead to.

9. Continually manage expectations during the process.

Be careful not to have actions escalate into unrealistic expectations of the transition outcome. As new facts and circumstances come to light, the parties must work hard to manage changing expectations.

10. Look positively to life after transition.

Lastly, look positively to life after transition to what could be a wonderful life in a well-run and cohesive community.

We have seen many successful and cost effective transition processes that leave all parties satisfied and positioned to move forward. We believe following the above guidelines will help your community achieve the same.

For further information, please consult your Wilkin & Guttenplan advisor or email us at This email address is being protected from spambots. You need JavaScript enabled to view it..

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