North Carolina G.S. 47F-3-105: Ending a Declarant's Contracts and Leases With the HOA

Quick Answer

G.S. 47F-3-105 lets a planned community association terminate, "without penalty" and on at least 90 days' notice, a contract or lease affecting the community that was entered into before the owner-elected board took office and that was not bona fide or was unconscionable to the lot owners when entered into.

The one thing a board most needs to know: the section protects owners against sweetheart deals made during developer control, but it requires a finding that the contract was not bona fide or was unconscionable, and the statute sets no deadline to act.

At a Glance

What the Law Says

The full operative text: "If entered into before the executive board elected by the lot owners pursuant to G.S. 47F-3-103(e) takes office, any contract or lease affecting or related to the planned community that is not bona fide or was unconscionable to the lot owners at the time entered into under the circumstances then prevailing, may be terminated without penalty by the association at any time after the executive board elected by the lot owners pursuant to G.S. 47F-3-103(e) takes office upon not less than 90 days' notice to the other party."

• Which contracts: any contract or lease "affecting or related to the planned community." The text does not limit it to contracts with the declarant, although the section title refers to the declarant's contracts and leases.
• Timing of the contract: entered into before the owner-elected board under G.S. 47F-3-103(e) takes office.
• Standard: the contract or lease "is not bona fide or was unconscionable to the lot owners at the time entered into under the circumstances then prevailing."
• Timing of termination: "at any time after" the owner-elected board takes office, on "not less than 90 days' notice to the other party."
• Cost: "without penalty."

What This Means in Practice

For boards

At turnover, collect every contract and lease made during declarant control: management, landscaping, utilities, equipment leases, amenity operations and any lease of common areas. For each, ask whether it was bona fide and whether it was unconscionable to the owners when signed, judged by the circumstances then. The standard looks backward to signing, not to how the contract has performed since.

Because the statute says "at any time after" the owner-elected board takes office, it sets no deadline. Our reading: delay can still raise practical problems, such as arguments about waiver or about continued performance, so this is a question for counsel before the board lets a contract run for years.

For the other party

The notice period is at least 90 days. The statute does not say what the notice must contain or how it must be delivered. Use a written, dated notice with proof of delivery, reviewed by counsel.

What the law does not say

• It does not define "bona fide" or "unconscionable." Those are fact questions, and a dispute could end up in court.
• It does not say who decides the question if the other party disagrees, or whether the association must go to court first. Open question.
• It does not address other remedies for a bad declarant contract, such as breach of fiduciary duty claims against declarant-appointed directors.
• It is not listed among the sections that apply to pre-1999 communities in G.S. 47F-1-102(c) (our reading).
• We did not read the condominium counterpart.

Timeline

Related North Carolina Law

• G.S. 47F-3-103: board, declarant control and owner-elected board
• G.S. 47F-3-104: transfer of special declarant rights
• G.S. 47F-3-111: tort liability and declarant torts
• G.S. 47F-3-102: association powers
• G.S. 47F-1-102: applicability and pre-1999 communities
• North Carolina HOA laws complete guide

Board Checklist

• Build a list of every contract and lease signed before the owner-elected board took office.
• Flag any with the declarant or its affiliates, long terms, automatic renewals or above-market pricing.
• Gather facts on the circumstances when each was signed (comparison bids, who signed for the association).
• Have counsel evaluate whether each was bona fide or unconscionable.
• If terminating, give written notice of at least 90 days with proof of delivery.
• Plan replacement services before the termination date.

Frequently Asked Questions

Can a new HOA board cancel a contract the developer signed?

G.S. 47F-3-105 allows termination of a pre-turnover contract or lease that was not bona fide or was unconscionable to the lot owners when entered into, without penalty, on at least 90 days' notice.

How much notice is required?

Not less than 90 days' notice to the other party.

Is there a deadline to terminate?

The statute says the association may terminate "at any time after" the owner-elected board takes office. It sets no end date.

Does every developer contract qualify?

No. The contract or lease must be not bona fide or unconscionable to the lot owners at the time it was entered into.

Can the association be charged a termination fee?

The statute says termination is "without penalty."

Does this apply to condominiums?

We did not read the condominium counterpart. Confirm with counsel.

Where We Stand

Our position: we support this law, with a caveat. It gives owners a real remedy against self-dealing contracts made while the developer controlled the board. The caveat is that "bona fide" and "unconscionable" are fact-heavy standards, so an aggressive termination can lead to a dispute. Tip: review declarant-era contracts within the first months after turnover, document the facts and get counsel's view before sending a termination notice. This is Association Property Managers' operating view as a management company, separate from the legal summary above, and it is not legal advice.

Where This Comes From

This page is based on the full text of G.S. 47F-3-105 and the pre-1999 list in G.S. 47F-1-102(c), read on the North Carolina General Assembly site (Chapter 47F on ncleg.gov). We did not read cases interpreting the section.

How APM Helps

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Legal disclaimer: This article is general information, not legal advice. Laws change and associations differ. Confirm the current statute text and how it applies to your governing documents with a licensed North Carolina attorney before acting.