Many of our clients are wary about turning over control of the project entry to the HOA too early in the project’s sale-out phase. Once an improvement is owned by the HOA, it is their responsibility to maintain it, and the subdivider often prefers to maintain it at a higher level than the HOA would.
More and more often, we see Use and Maintenance Agreements utilized, which allow the subdivider to retain fee ownership and control of the entry area until later in the development. An added bonus to this approach is that the arrangement acts as an assessment reduction program for the HOA. The Agreement creates a win-win situation: the subdivider controls the area, annual plantings and landscape maintenance can be enhanced as desired, and the HOA dues are lower in the early phase(s) because the HOA does not have to maintain those areas.
In markets where the amount of HOA dues are a concern, and in particular for small to medium sized developments, the Use Agreement can be considered as an alternative to subsidizing the HOA dues in the early phases. In this case, the dues structure of the overall project is evaluated based on the timing of common area turn-over and phasing plans are gauged on the assessment levels. The Use Agreement effectively acts as a subsidy and eliminates “front loading” the assessments when the common area is retained by the subdivider.
Depending upon the improvements covered by the Use Agreement, the subdivider may be asked to pay the reserves for the improvements for the period of time that conveyance to the HOA will be delayed. A Reserve Bond is the easiest and most frequently used approach to ensure payment of long-term maintenance and reserves. This is a very minor item in the overall scheme of a project’s successful sales promotion.