A Sponsor-Placed Bylaw Veto Clause Invalidated by Superior Court Judge
A condominium client represented by Stark & Stark's Community Associations Group successfully challenged, and secured the invalidation of, a clause placed in the bylaws by that condominium's sponsor by which that sponsor reserved to itself the right to veto any decision of the condominium's board. When creating the bylaws to impose upon that condominium's owners, this sponsor of a condominium in Jersey City included a provision by which it could veto "any action" that that sponsor "in its absolute and sole discretion" felt impaired or "adversely" affected the sponsor's rights, or caused the sponsor to "suffer any financial, legal or other detriment", or which "may have any direct or indirect detrimental impact upon" that sponsor.
Fortunately for this condominium, and for any similarly situated condominium, New Jersey's Condominium Act (the "Act") allows for a sponsor veto of a much, much limited nature. The Act invalidates only the following condominium actions, if not approved in writing by a sponsor: (1) assessment of the sponsor for capital improvements; or, (2) any action detrimental to the sale of units (although an increase in maintenance fees, without discrimination against that sponsor, is not "detrimental" to the sale of units).
In voiding and invalidating this sponsor's overreach, and improper veto clause, the court relied upon both the clear language of the Act, but also upon the New Jersey Supreme Court's important decisions of the past 6 years: Fox v. Kings Grant Maint. Ass'n. and Brandon Farms Property Owners Ass'n, Inc. v. Brandon Farms Condo. Ass'n,, Inc. Both of those cases forcefully stand for the proposition that when owners assume control of a condominium that control is to be absolute. The Supreme Court in Fox wrote that the "unit owners' interests take precedence over any outside interest, whether that interest is a developer ... or any other outside party." In Brandon Farms, the Supreme Court invalidated a developer-created governance scheme because it violated "the public policy set forth in the Act by putting the developer's interest in selling ... homes ahead of the Condominium Association's interests".
In our case, the sponsor, by creating this veto clause, and then attempting to utilize it, was attempting to exert lingering control over the condominium's owners. This sponsor was also seeking to ensure its interests, and not the owners' interest, were the key focus of that condominium. Neither would be permitted by this court and thus Stark & Stark's client was freed from this "veto" clause and the sponsor's conduct.
