State Committee at work; legislation pending
Real Estate Alert
April 28, 2016
The South Carolina 2015-2016 Appropriation Act established the "South Carolina Committee on Homeowners Associations." Thirteen individuals, consisting of lawmakers, developers, homeowner association managers and property owners were appointed to debate various issues affecting the level of authority that developers have over their own development projects in South Carolina. Three meetings consisting of several hours of debate resulted in a twenty-six page report.
The ability for developers to have oversight over their projects was a recurring theme throughout the study committee's discussions. Currently, developers in South Carolina may choose to maintain control over a homeowner association as long as is desired or is necessary for the economic viability of the project. This largely protects a developer's ability to have oversight over the completion of the investment and minimizes the risk that an association may reduce fees to lower costs of maintenance, thus reducing the marketability of unsold lots. However, some study committee recommendations urged lawmakers to make changes to this philosophy.
The study committee report recognized the recommendations of Carri Grube Lybarker, the Administrator for the Department of Consumer Affairs, who submitted that a phased transition should be established for when control of a homeowners association is transferred to the association. The Administrator recommended that the phases of transition should be based on the number of remaining unsold units or lots.
The report also documented several recommendations submitted by Ken Skelly, a property owner appointed to the committee by Senator Larry Martin of Pickens County.
"Real control must begin to be assumed by homeowners as soon as at least half of the units are sold. At least three homeowners should be elected [to the governing homeowners association] at that time. Upon the sale of 75% of the units, [a] developer may retain no more than one seat on the board… and shall have no right to veto any action by the board."
These recommendations were met with opposition.
Options for Lawmakers
Residential Builders Commissioner and developer William Harry Dill encouraged support for pending legislation, Senate Bill S.860, which would adopt comprehensive laws governing developer rights, and would allow developers to provide their own period of control. Dill is not opposed to requiring sellers to disclose such controls to potential purchasers, but suggested that government regulations requiring developers to relinquish control of their investments prior to completion would effectively shut down development in South Carolina. S.860 is widely viewed by developers as an alternative to enacting a uniform planned community act mirroring regulations found in other states.
The study committee also reviewed pending legislation in the South Carolina general assembly which would require developers to relinquish control to property owners on a phased basis, as recommended by the Department of Consumer Affairs.
House Bill H.3217 would require developers to transfer control of a homeowner's association such that:
- After selling one-third of the total lots, at least one-quarter of the board must be elected by property owners;
- After selling half of the total lots, at least one-third of the board must be elected by property owners; and
- After selling two-thirds of the total lots, over half of the board must be elected by property owners.
Senate Bill S.1176 is considered to be the primary legislation that resulted from the Study Committee's findings. It looks to require a similar phased transition of control as used in H.3217 above.
S.1176 was recently debated by the South Carolina Senate Judiciary Committee and is sponsored by Senator Luke Rankin of Horry County. Senator Greg Hembree of Horry County considered serious problems with this approach to phased control. He reasoned that development projects are varied throughout the State of South Carolina, and that it may not be wise for the State to create a standardized approach to mandatory transitions of control. Senator Lee Bright of Spartanburg County voted against the bill, citing concerns voiced to him by the developer community.
S.1176 was given a favorable report by the Senate Judiciary Committee on April 19 and appears headed to the Senate floor for further debate.