The second little secret (find the first here) is a developer can effectively control an HOA indefinitely even after the end of the "Declarant's Control Period" (NRS 116.31032). 

 

Summary- It is generally accepted that "H[h]ow long a developer should be permitted to retain control an HOA should not extend beyond that needed to build out and market the [community] project as originally planned (or as may be amended with approval of the owners). One of the primary justification for permitting the creation of servitudes that subject property owner to the often extensive powers of a common-interest-community association to affect their property values and quality of life is that the members have the power through political processes to control the actions of the association. (From Restatement (Third) of Property & Servitudes, §6.18). But this is not what Nevada statutes mandate. 

 

The UCIOA (Uniform Common Interest Ownership Act that served as the basis for Nevada HOA law) established a “Developer Duty to Create an Association and Turn Over Control” (sec 6.19). “After the time reasonably necessary to protect its interests in completing and marketing the project the developer has a duty to transfer the common property to the association, or the members, and to turn over control of the association to the members other than the developer.” (6.19(2))

 

The “control” held by a declarant rest in the contracted provisions of the governing documents (CC&Rs) that are authored by the declarant, lack strong regulatory oversight, and are not negotiable.  In Nevada declarants establish at will special declarant rights, often in excess of those intended by NRS. For example, requiring a declarant’s approval before owners can amend the governing documents.

 

I disagree with allowing prohibitions to a majority of owners amending their CC&Rs at any time, i.e. even during the declarant control period provided no additional obligations and/or liabilities result. A weak argument can be made for allowing these provisions, despite being contrary to democratic governance, during the control period. However, I see no justification for permitting these provision post-control. Yet, they are not prohibited under current Nevada law. My HOA's CC&Rs contain them - as do other HOAs. Collectively, they provide significant control over the association even after declarant’s control ends. A list of control provisions contained in my CC&Rs titled "Declarant Rights Period" can be found here.

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"The developer and the purchasers of property in a common-interest community have interests in controlling the common property and the association that may come into conflict. The developer's primary interest [should be] completing and selling the project, while that of the purchasers is in maintaining their property values and establishing the quality of life they expected when buying the property. Both the developer and the purchasers have substantial investment interests that are affected by the amount of assessments, the level of maintenance and capital improvements, and the establishment of reserves for future maintenance and replacement of common property. The developer needs to retain control of the association long enough to avoid changes that will jeopardize its ability to sell the remainder, while the purchasers need to stabilize assessments and take charge of the rules governing operation of the community. The longer the developer retains control, the greater the likelihood of conflict. Accordingly, modern common-interest-community statutes specify timetables within which the developer must turn over control to the members." (From the Restatement (Third) of Property (Servitudes) § 6.19 (2000))

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In determining when control of a community reasonably must be turned over to the members, the percentage of lots or units that have been sold, the interval since the first unit was sold, and the level of the developer's construction and marketing activities are relevant. The Uniform Common Interest Ownership Act provides a timetable for turnover of control based on these factors. But loopholes in Nevada statutes defeat control termination requirements. In the absence of a controlling statute, a court may look for guidance to such a timetable in determining when the developer is required to cede control. But this can result in protracted and very expensive litigation for owners/HOA post-control termination.

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Also, whether and how long the developer needs to retain control of the association to protect its interests can depend on the extent of the other rights it enjoys by virtue of the governing documents or applicable statutes. At end, if a developer is protected against interference with its ability to build out and market the project as planned, control of the association may not be necessary, or may be necessary for a shorter period of time, than if those protections are absent.

 

Nevada law permits upon declarant control termination owners end contracts for maintenance and management services, along with leases the developer entered into and/or is a party- but not special development rights. Bottom line- the law should mandate an end of development rights that are not necessary for the developer to complete its project. 

 

 

*In my opinion as a non-lawyer.

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