Very often, a real estate developer is only active in a project until the subdivision plan is approved. At that point, the developer often sells some or all of the development rights to the builders who actually construct and sell the homes. The developer may not realize that it usually retains liability for the completion of the community, even though the developer and builder planned to pass that responsibility onto the builder. Why? Like most legal surprises, the reason is not taking care of the details of the transaction.
In Hillside Villas Condominium Association, Inc. v. Bottaro Development Company, a neighborhood was created using this typical model. The developer created a community in nine separate phases. The builder constructed the homes, and paid the developer every time a home was sold. This looks like a typical residential condominium project. Whenever a phase of the community was added, the developer assigned special declarant rights to the builder. This allowed the builder to construct and to legally declare the units. The developer retained all of the declarant rights that were not specifically transferred or assigned to the builder. So long as the builder sold at least four units per year, this relationship would continue until the community was sold out.
In all of these relationships, the problem comes when the builder fails to complete something. Here, the storm water management basins were not completed, and the roads required repairs totaling $900,000.00. The Association sued both the builder and the developer.