Can Board Members Vote By Proxy?

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As busy volunteers, often with full-time jobs, families, and other commitments, community association board members may not be able to attend all meetings of the board. When this happens, particularly when an important vote is pending and the trustees are divided on the issue, a board member may wonder if they can authorize another board member to act as their proxy at the meeting. Such a practice is impermissible and/or inadvisable under the law and most governing documents.

The confusion arises because unit owners are often entitled to vote by proxy at meetings of the members. There is no statutory authority allowing trustees to vote by proxy at a board meeting. Trustees may only vote or otherwise participate in a board meeting when they are present in person or by conference telephone or other means of communication by which all persons participating in the meeting are able to hear each other. Trustee voting by proxy may also be inconsistent with the open meetings requirement of New Jersey law which requires that all meetings of the board except conference or working sessions at which no binding votes are to be taken, shall be open to attendance by all unit owners. This open meetings requirement intends that unit owners be entitled to observe the decision making of the board. Giving a proxy to another trustee would thwart these requirements.

More importantly, board members owe a fiduciary duty to the association. By giving their vote to another, a trustee may be breaching that duty. Similarly, a trustee who is not present at a meeting at which a matter is discussed has no opportunity to change their vote based on information learned during the discussion and this may also result in a breach of their fiduciary duty. Since the standard for board actions should be ensuring board policy is in the best interests of the Association, allowing trustees to vote by proxy may fall short of that standard.

If you would like to learn more about community association boards or if we can assist your community association, please contact Stark & Stark’s Community Associations group.

Claims Under Municipal Services Act are Limited to 6 Years Statute of Limitations

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While it was widely assumed to be so, a recent Ocean County trial court decision has held that claims under the Municipal Services Act are governed by the 6 year statute of limitations for contract claims.  This means that a community association seeking past municipal services reimbursements may only be entitled to those which have accrued within the last 6 years.  If your community association has not been receiving municipal services reimbursements or if you believe it has not been receiving all of the reimbursements for which it is entitled, you may have a limited time in which to formally pursue them. 

If you have any questions about the Municipal Services Act, please Stark & Stark's Community Associations group. 

Are In-Home Businesses a Private Residential Use?

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As technology permits more individuals to work at home, the issue of in-home businesses in community associations continues to be debated.  Most community association master deeds and declarations include a restrictive covenant that prohibits a residential unit from being used for anything other than a residential purpose.  There is no question that business uses such as a doctor's office or retail store are prohibited by such a use restriction.  The debate gets interesting when businesses are run out of an in-home office and are otherwise undetectable.  Are such in-home businesses considered a private residential use or are they a violation of the use restriction?  As strong advocates for community associations we support broad enforcement powers for associations and their boards but understand that policing certain uses is impractical.   

New Jersey case law requires that community association use restrictions be strictly construed. Despite this requirement, the obvious purpose of the restriction must be maintained.  Thus, when interpreting a use restriction it must be given a rational meaning that is consistent with its express general purpose.

A restrictive covenant prohibiting a residential unit to be used for any purpose other than a private residence certainly exists to ensure that the community maintains its private residential nature.  Any use which is inconsistent with this general purpose should not be permitted.  Incidental in-home business uses that are limited to the interior of the residence, do not produce additional traffic or noise, and are otherwise undetectable may have no impact on the private residential nature of the community. It could be reasonably argued that if a use is undetectable and does not impact the residential nature of the community that it is in keeping with the general purpose of the use restriction. 

If you want to know more about this issue and how it applies to your community, please contact us. 

Third Tier Roadways within Community Associations are Entitled to Reimbursement Under Municipal Services Act

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A recent trial court decision in Ocean County held that all roadways within a qualified private community - such as a homeowners association or condominium association - which provide access to units and function as roadways are eligible for reimbursement under the Municipal Services Act.  This includes third tier roadways which municipalities have previously classified as “driveways”.  

The Municipal Services Act ("MSA”), also known as The Kelly Bill, requires a New Jersey municipality to reimburse a qualified private community for the removal of snow, ice and other obstructions from roads, street lighting and removal of solid waste that the community does on its public roads.  If a municipality does not want to pay reimbursements, the MSA permits the municipality to provide these services in the same way it does on its own roads.  The MSA was intended to relieve private community residents of the burden of paying double for municipal services: once in their taxes and then again as part of the community association assessments. 

In this case, a gated community association in Lakewood ("Association") had about 16 miles of paved roads, all of which were private and divided into three tiers.  The municipality reimbursed for the first and second tiers but not for the third tier roads which it labeled as "driveways" and ineligible for reimbursement under the MSA.  The third tier roads were unnamed roads, about 28 to 30 feet wide, that accessed most units in the development.  The Association asserted that these third tier roads looked like roads, functioned like roads, and should be reimbursed like roads under the MSA. 

The court agreed with the Association and held that the third tier roads were entitled to reimbursement under the MSA.  In making this determination, the court stated that the MSA requires that the terms "roads" and "streets" be given their normal meanings. The roads entitled to reimbursement under the MSA are those which provide basic means of ingress and egress to units.  The Association's third tier roads functionally serve as roads and allow access to units; thus, common sense demands that they are roads and not driveways. 

If you would like more information about the Municipal Services Act or would like to discuss how your community association can increase its reimbursements under the Municipal Services Act based on this decision, please contact us.

Is Your Condo Ready for Some Football?

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The Super Bowl is fast approaching and most football fans are looking forward to a great game.  For many condominium associations located near MetLife Stadium, where the Super Bowl will be held on February 2, 2014, it won't be over soon enough.  Why so?  There have been reports of unit owners renting (and tenants subleasing) their units on a short-term basis during Super Bowl, some for thousands of dollars a day.  The majority of these short term tenants will not be any trouble and will fly under the association's radar.  However, a short term tenant that has no ties to the building or the unit owner may not be interested in association rules; combining that with football, drinking, and winning (or losing) fans has the potential for disturbances and property damage.

If your condo permits short term rentals, allows the provision of hotel services, or does not care about security, property damage, and loud parties, read no further.  But if these are not permitted and you do care what happens to your building during Super Bowl, it's time to make a plan.

First, read the use restrictions and leasing restrictions in the association's master deed and any rules and regulations adopted by the association.  Usually rentals of less than 180 days and the provision of hotel services are prohibited.  Unit owners who lease their units may be required to submit a written lease that references the governing documents in some way.  There may be fees required for leasing. 

Most importantly, you will need to tell unit owners that these restrictions and policies exist and will be enforced during Super Bowl.  Tell them in many different ways (email blast, phone blast, sign by the mailboxes, etc.) and tell them often.  If the association is permitted to fine, make sure unit owners know about the fine.  Some associations have a fixed fine amount but if yours can be any amount, set the fine amount so that it fits the violation. 

Consider establishing new rules and regulations that will address potential concerns with these short term rentals.  It may be worthwhile to hire additional staff during this time period to check access cards at the gym, parking lot, and other facilities.  You may want a security guard on site to handle noise complaints and any complicated situations. 

There is still time to hold a special meeting of the board at which new policies are adopted and to give notice to unit owners of these policies.  If your condominium association needs help in interpreting the leasing requirements or in adopting rules to get ready for Super Bowl, please contact us.

Unenforced Deed Restrictions Are Not Abandoned!

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Community associations with unenforced deed restrictions can enforce them - even after 82 years!  So says a Morris County Superior Court Judge after a recent trial in a case entitled Unfair Share Lake Arrowhead 2010, Inc. v. Lake Arrowhead Club, Inc.

While the association in this case was a precursor to the modern community association and did not have a declaration of covenants, conditions, and restrictions, the deed to each of its 242 homes included an easement granting "the rights to use Lake Arrowhead and roads" subject to rules and regulations created by Lake Arrowhead Club, Inc. ("Association"). The Association, which was created in 1927, was obligated to maintain roads, parks, a clubhouse, tennis courts, and other property.  For 82 years, membership and payment of assessments was treated as voluntary which resulted in homeowners separating into two groups: club members (who paid annual assessments and used the lake, recreational facilities, and roadways) and non-club members (who did not pay annual assessments, did not use the lake or recreational facilities but still used the roadways).  These voluntary assessments were the Association's only revenue until 2009.  In 2009, the Association imposed an assessment of $324 per year on all 242 homes; those homeowners who chose to join the club to use the recreational facilities were required to pay an additional fee as well.  The 2009 assessment led 73 community members, who paid an assessment, to file litigation seeking to have the deed restriction terminated because it had never been enforced against them. 

First, the court determined that the plaintiff made two key procedural errors: (1) the plaintiff, a corporation formed by the 73 homeowners had no standing and (2) the case should have been brought as a declaratory judgment action, not a quiet title action.  Notwithstanding this, the court went beyond these issues to make a determination on the merits of the case.

The court held that the Association did not abandon, relinquish, waive or give up its rights under the easement.  The easement allowed homeowners to use the lake and roads subject to the Association rules and regulations.  While the Association made it a rule from the outset that only club members would pay assessments to maintain the lake, roads and other property, the Association had the right to change that rule to impose assessments on all homes in the community.   In other words, the Association "did not abandon its right [to impose assessments], but chose to exercise that right in a different fashion."  The court cited the settled principle of easement law that "mere non-use of an easement will not suffice to destroy the right."  In order to constitute an abandonment of an easement, the facts must clearly establish an intention to abandon by clear and convincing proof.  The court found none in this case.

This case was a positive outcome for community associations but reinforces the need for diligence in knowing about and enforcing easements and other deed restrictions.  While restrictions that are clearly set forth in a declaration or master deed will be more easily enforced than the easement in this case, all community association managers and board members must still be mindful of them.  If your community association has any concerns about its deed restrictions, we would be happy to assist you in evaluating your obligations.  

Towing Vehicles for Persistent Delinquency and Continuing Rule Violations

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Many community associations are struggling with their highest delinquency rates ever and, with foreclosures stalled and housing values still recovering, there are limited ways to address persistent debtors. At the same time, it is discouraging to association members that delinquent unit owners continue to enjoy common services such as snow removal, street lighting, roadways maintenance, etc., while not contributing toward the cost of providing them. Unit owners and their tenants who continually defy association rules are similarly frustrating to members. Towing the vehicles of these delinquent and noncomplying unit owners - and their tenants - may provide a strong incentive to pay and/or conform. 

In order to tow vehicles, an association must first ensure that it has the authority to do so. Many governing documents permit the association to suspend a unit owner's right to use the common property for delinquency and rule violations. While an association may already be withholding pool passes or disabling clubhouse access fobs, suspending the right to park in common property parking areas may also be permissible. Once a unit owner's privileges are properly suspended, an association may then tow the owner's vehicles parked on the common property. Do not confuse common property with limited common property; for this purpose, there may be an important distinction. 

Associations towing vehicles from their private property must also comply with the Predatory Towing Prevention Act. Among other requirements, the Act mandates warning signs; these signs must be at least 36" x 36" and be conspicuously posted at all vehicle entrances. (No sign is required for an association to tow a vehicle blocking access to a driveway or a garage.) The signs must also state the purpose for which and time during which parking is permitted, that unauthorized parking is prohibited, that unauthorized vehicles will be towed at owner's expense, and information on the towing company. Another requirement of the Act is that the association must have a written contract with the towing company.  

Towing vehicles can be an important enforcement tool for associations. But towing should only be done after thorough planning by the board of directors and consultation with legal counsel. If you want to know if towing is right for your community and learn how to implement a towing program, we would be happy to assist.    

The Importance of the Declaration of Covenants and Restrictions for Community Associations Filing Liens

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Community associations should always record their respective Governing Documents and this becomes of particular importance if the documents provide for the creation of a lien upon failure to pay assessments.  This is never more true than as reflected in a recent Bankruptcy Court opinion in In re Nacinovich, Adv. Case No. 13-1074, decided by the Honorable Michael B. Kaplan, U.S.B.J., May 31, 2013, in which the Court considered allegations that a homeowners association remittance of a statement to a debtor which included sums due beyond the amounts due in its pre-petition lien claim was a violation of the automatic stay.  The Bankruptcy Court postured that if the association's lien claim is limited to only the amount included in the recorded lien, then the additional fees included in the billing statement are unsecured and efforts to collection them constitutes a violation of the automatic stay.  However, if the association holds a lien against the property for the full amount included in the billing statement, then the full amount remains a valid in rem claim and therefore the billing statement in not a violation of the automatic stay because the property was abandoned by the Chapter 7 Trustee. The Court ultimately concluded that the associations' billing statement that reflected an amount greater than in the recorded lien was not an improper attempt to collect a debt in violation of the automatic stay.

Judge Kaplan reasoned that the language in the associations recorded Declaration of Covenants and Restrictions which provides that non-payment of assessments, together with interest and cost of collection, constitutes a continuing lien on the property.  The Court stressed the importance of the Declaration having been recorded and that by virtue of that it established a fully enforceable lien against the property for the full amount of unpaid assessments and fees.  The Court also noted that certain community associations that are not subject to the Condominium Act (such as HOAs) are not required to record liens so long as the declaration of covenants governing the property has been properly recorded.

While there are many other reasons a community association should record their Governing Documents, protection from discharge violations while pursuing lien claims is a critical reason and a highly worthwhile benefit of recording. 

Notice Requirements for Open Board Meetings

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The board of directors of a community association may have multiple meetings throughout the year.  When these board meetings are "open" the members of the association are entitled to attend and observe.  Having the right to attend a meeting is meaningless unless a member knows when and where the meeting will be held. Therefore, in accordance with N.J.A.C. 5:20-1.1, et seq., a board must ensure that proper notice requirements are followed.

Adequate Notice.  Members of an association must be given adequate notice of open board meetings.  In New Jersey adequate notice is defined as "written notice, at least 48 hours in advance, giving the time, date, location and, to the extent known, the agenda of any regular, special or rescheduled meeting, other than a conference or working session at which no binding votes are to be taken. . .."  This written notice must be:

  • posted prominently in at least one place on the property that is accessible at all times to all unit owners, such as a clubhouse bulletin board;
  • mailed, telephoned, telegrammed, or hand delivered to at least two newspapers designated by the board or association to receive such notices because they have the greatest likelihood of informing the greatest number of unit owners; and
  • filed with the business office of the association. 

Annual Notice Requirement.  There is also an annual notice requirement.  At least once each year, within 7 days following the annual meeting, the board must notify the association members of a schedule of the regular meetings of the board to be held during the year.  That schedule shall include the location, if known, and the time and date of each meeting.  This notice to the members is satisfied by posting on the property, delivering to newspapers and filing a copy with the association's business office (see above for more information on each of these methods).  For example, if the board determines it will meet on the first Monday of each month, it must post (and maintain) this schedule on the clubhouse bulletin board, deliver it to two newspapers and file it with the management office.  If the annual schedule is later revised, within 7 days following the revision, the new schedule must be posted, delivered and filed again.

If the annual notice schedule is posted, delivered and filed as required, and the location, time and date of the meetings are in the notice, the additional 48 hours advance notice is not required.  Homeowner involvement is important to a community association, however, and boards should act transparently in conducting association business so giving the additional notice is advisable.  

In fact, these are the minimum requirements for giving notice; a board that wants to give extra notice by an email blast to members or by posting a sign on the clubhouse lawn the day of the meeting may certainly do.

Emergency Meetings.  On occasion a board must call an emergency meeting and does not have time to give 48 hours notice.  If waiting 48 hours for the purpose of providing notice would likely result in substantial harm to the interests of the association, notice is adequate if it is provided as soon as possible following the calling of the meeting by posting, delivering, and filing the notice.  In this case, the meeting must be limited to the emergent matter.

Other Types of Meetings.  For meetings other than open board meetings, these notice requirements may not apply.  Members of the association are not entitled to attend executive session or working session meetings of the board and, therefore, no notice is required to be given to them for such meetings.  Meetings of the members, such as an annual meeting, are not the same as open board meetings and these notice provisions do not apply.  The notice requirements for the annual meeting and other meetings of the members can usually be found in the association's by-laws.

Giving proper notice for an open board meeting is important and associations are well advised to strictly follow these requirements as well as additional requirements set forth in its governing documents. 

Board Meetings and Member Meetings: What's the Difference?

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Many homeowners and board members - and even managers and attorneys - confuse the different types of meetings that are held throughout the year for community associations.  There are two types of community association meetings and there are important differences between the two.

Member Meetings.  The members of a community association (the homeowners) conduct their business at an annual meeting and any number of special meetings. 

  • Annual Meeting.  The annual meeting of the members is the time when members elect new trustees, vote on issues, and are informed of certain association business.  The association budget may be presented, officers may report on the state of the association, and committee chairs may give updates on their activities.
  • Special Meetings.  A special meeting of the members would be any other meeting at which the members take some action, usually by voting.  For example, a special meeting of the members might be held to vote on a special assessment or to vote on amendments to the by-laws. 

It should be no surprise that member meetings are for conducting member business.  The board of trustees does not conduct its business at a meeting of the members. While the president of the board may chair the member meeting and the other officers may assist by taking minutes or presenting reports, this is not the time for the board to approve vendor contracts, adopt resolutions, or conduct other board business. 

Board Meetings. The association board conducts its business at board meetings which may be public or private.

  • Open Board Meetings.  An open board meeting is one in which the members of the association are entitled to be present and observe the board conducting its business.  All binding votes of an association board - with limited exceptions - must be made at an open board meeting. 
  • Executive Board Meetings.  An executive board meeting is one in which the board members meet without the members of the association present to discuss and vote on confidential matters.  The board may also discuss general association matters at a working session board meeting, providing no binding votes are made.       

Concurrent Meetings.  Boards may find it convenient to meet on the same day as a member meeting or to conduct an executive board meeting on the same day as an open board meeting and there is no reason they cannot do so. While different types of meetings should not be combined into one meeting, it is acceptable to have separate meetings held concurrently on the same date as long as adequate notice and all other requirements for each meeting are met.  Additionally, separate agendas should be used and separate minutes should be taken for each meeting.

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