There exists no uniform assessment calculation formula, as these formulas vary from declaration to declaration. Generally, a developer’s assessment obligation arises when 1) platted lots are annexed into the development, regardless of when actual construction occurs or 2) when an entity other than the developer purchases the first unit or building. The undeniable need for the revenue raised by assessments during construction for insurance, property taxes, management services, and common area maintenance provides sound support for the imposition of an early accrual date. Unfortunately, these assessments often go unpaid as the developer may be too preoccupied with construction to pay assessments timely or may simply encounter unexpected cash flow problems.

Orten & Hindman has handled several cases in which the association did not realize until after transition that the developer’s assessments had not been properly paid. Financial audit conducted by the board as a part of the transition process often was what uncovered the developer’s outstanding obligations to the association. Therefore, Orten & Hindman strongly recommends that associations conduct these financial audits to fulfill its fiduciary duties to its homeowners, which include prudent fiscal management. An association is advised to contact legal counsel immediately if it is discovered that the developer failed to timely or completely pay its assessments. Generally, an association must commit to detailed bookkeeping and accounting work to determine the accrual of assessments, the amount of assessments, late charges and interest, etc.

How are developers reacting to the associations’ requests for its assessments? Orten & Hindman found that some developers have responded favorably to informal correspondence supported by an accompanying audit. Unfortunately, in other instances, associations have had to pursue recovery of the unpaid assessments by filing suit against the developer and related entities.

With so many new communities being built in Colorado, unpaid developer assessments proves to be a growing problem. In this manner, it is important for associations to include an analysis of a developer’s obligations as a part of their responsible governance responsibilities and the transition process.