New Jersey Lawyer & Attorney : Stark & Stark Law Firm : New Jersey Law Blog

Business owners are always looking to increase profits and space. As most savvy business owners know, the option of buying rather than renting is a better investment because it will save them money down the road. However, finding affordable property can be problematic at times. 


These two issues have spawned the popularity of commercial condominiums, which are similar to residential condominiums except that people own units of a building reserved for commercial ventures.  Commercial condominiums offer generally what business owners desire: space, substantial savings and control over their property and monthly expenditures.  The ability to control the building operations and expenses is also an attractive value to a business owners.  No longer does the business owner have to worry about increased rent and fees from a landlord. 


The owners of the commercial condominium association can set their own budget and fees and manage their own amenities as they see fit.  This is especially attractive to small business owners who do not have the funds to purchase an entire building.  Moreover, the owners of commercial condominium units enjoy tax advantages over commercial tenants who are generally unable to claim deductions for property taxes, repairs and depreciation.  Owners of the condominium may also negotiate a change in the allotted space to each unit owner if the units and/or master deed are flexible in nature.  Although owning over renting has its disadvantages such as a down real estate market, and repair/upgrade expenses, the benefits generally outweigh the detriments.  


Legally, commercial or business condominiums are generally governed under the same rules as residential condominiums.  The New Jersey Condominium Act applies to all condominium units in New Jersey, including those created for commercial or mixed purposes.  However, disclosure laws, such as the Planned Real Estate Development Full Disclosure Act, are not applicable to commercial condominiums.  There are also many practical difference that are specific to commercial condominiums. 


As such, it is imperative that the commercial condo's counsel, Board and managing agent be familiar with the particular differences between residential and commercial condominiums to be able to provide appropriate representation and/or operation the Association.

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Times are tough all over and those who live in community associations are no exception.  When money is tight, some association members make paying their maintenance fees a low priority.  This can be a big mistake because, if ignored, a small amount of delinquent maintenance fees can expand into an unexpectedly large debt.  

   
Each member of a community association is responsible for paying his or her share of the common expenses.  Common expenses are things like snow removal, swimming pool maintenance, and lawn care.  When a member does not pay his share, the other members must pay more to subsidize the delinquent member.  In the same way, when the association must pay its legal counsel to collect those delinquent maintenance fees, the other members must pay more to subsidize that cost, as well.  Fortunately, the governing documents of most condominium associations, as well as New Jersey law, permit the association to pass on those costs to the person responsible: the delinquent member.  

   
An association member will be given many opportunities to address his delinquent maintenance fees before significant legal costs begin to accrue.  The association will first send out reminder letters to the member.  After a certain point, if the debt is not paid, the account will be referred to the association’s legal counsel.  The attorney will typically send out a collection letter.  The amount due in the collection letter will include the total debt plus a small amount of legal fees to review the file, calculate the amounts due, and prepare the letter.  If, after 30 days, the member has not paid the account or made arrangements to pay it, further action must be taken such as recording a lien against the unit and filing collection litigation.  Each time the association’s legal counsel must perform work to collect the delinquent maintenance fees, the association will charge these fees to the member’s account.  Legal fees will continue to accrue against the member’s account until the matter is resolved and all amounts due are paid.  Thus, while a member may believe his maintenance fees total only a couple thousand dollars, the legal fees may eventually equal or exceed that amount.  The association’s board of directors has an obligation to the association and all of the members who pay their fees each month to see that as much of this amount is recouped as possible.

   
Accordingly, it is extremely important for an association member to ensure his maintenance fees are paid when due and that if he becomes delinquent that he makes repayment a priority.

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The Appellate Division recently decided in favor of an association as it pertains to the amount of attorneys fees awarded in the matter of Summerhill Condominium v. Venner. What is most germane to associations is the fact the lower Court found, and was upheld by the Appellate division, the attorneys fees and costs to be reasonable, despite the attorneys fees being more than 50% of the amount of maintenance fees due.


While the Appellate Court stated that the work needed to complete this matter was not "novel or complex", the Court did recognized the amount of work needed to complete the matter, and agreed that the fees in this matter were similar to fees that are regularly charged for this type of work.


It is important that Courts have an understanding of the legal work needed to collect maintenance fees. Regardless of the amount owed to an association, the attorneys fees and costs needed are similar no matter the amount owed.

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In the recent case of Ruggiero v. Valleybrook Homeowner’s Association (Valleybrook), the plaintiff, Ruggiero, claimed that the method Valleybrook used to collect maintenance fees was not consistent with all sub-associations, and therefore invalid under the law.


The Appellate Division affirmed a lower Court’s decision stating that Valleybrook’s methodology of collecting maintenance fees was proper, and distinguished this case form the Brandon Farms Property owners Association v. Brandon Farms Condominium Association case ("Brandon Farms").


In Brandon Farms, the governing documents had language requiring the sub-association (the condo) to be responsible for collecting the fees due to the master association (the property owners association).  That was invalidated in 2004 by the New Jersey Supreme Court.  


However, what distinguished this matter from the Brandon Farms case is that the sub-association voluntarily collects the master association fees from its members, and then forwards those sums to the master association.  The Appellate Division decided that this method of collection did not violate any law.

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Mary W. Barrett, member of Stark & Stark's Community Associations group, authored the article The New Predatory Towing Act for the June 23, 2008 edition of the New Jersey Lawyer.

 

The article discusses the Predatory Towing Prevention Act, signed into law in October of 2007 by Governor Corzine, which primarily increases oversight of tow companies. Ms. Barrett discusses the impact The Act will have on a community associations abilities to tow vehicles from private property areas.

 

You can read the full article here (PDF).

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As a follow up to a recent post the Pennsylvania House of Representatives, on a concurring vote, approved House Bill 2295 yesterday (199-0).  The House originally passed HB 2295 on June 11, 2008. After the House originally approved the Bill in June, it was then sent to the Senate. The Senate approved the Bill, but also added additional language to the Bill in conjunction with Senate Bill 963.


SB 963 amends the Uniform Condominium Act by furthering the abilities of older communities to amend their declaration of covenants in order to better serve and provide for the members of their communities. The amended HB 2295 passed the senate on Monday June 30, 2008, and after having passed for the second time in the House yesterday, will now move to Governor Rendell for final approval.


The Community Associations Institute of Pennsylvania’s Legislative Action Committee (link to position papers) has long supported HB 2295, as well as SB 963. HB 2295 is a very important and positive piece of legislation which will enable associations to provide the highest level of service to unit owners.

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David J. Byrne, Shareholder and Co-Chair of Stark & Stark's Community Associations group, authored the article New Jersey's Municipal Services Act Becomes an Adult: Only act in the union that requires municipalities to provide services to private communities for the June 23, 2008 edition of the New Jersey Law Journal.

 

The article discusses New Jersey’s Municipal Services Act as it turned 18 earlier this year. The Act states that a municipality must either provide certain services to a private community or reimburse that particular private community the cost of those services, including snow removal, collection of trash or recyclables, and the lighting of roads. Currently, New Jersey remains the only state in the union with such a statute. Mr. Byrne discusses the history of The Act, the effects The Act has had on community associations in New Jersey and how The Act relates to the New Jersey’s Planned Real Estate Development Full Disclosure Act.

 

You can read the full article here (PDF).

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On June 11, 2008 the Pennsylvania House of Representatives passed House Bill 2295, which would amend Section 3315 of Pennsylvania’s Uniform Condominium Act (The Act). HB 2295 will restore original language, which had been removed from The Act in 2004. In 2004 the amendment to The Act reduced the rights of an association to collect unpaid assessments after a judicial sale of unit, to only being able to collect unpaid assessments in cases ending in foreclosure.

HB 2295 will provide a condominium association with a “super-priority” lien for assessments payable by unit owners. This means that an association will be able to collect up to six months of unpaid assessments from unit owners in the event of a judicial sale, and/or foreclosure of a unit. The money collected from the assessments enable an association to provide unit owners with maintenance services required in accordance with the association’s contracts and statutory responsibilities.

Takingaway the right of an association to collect unpaid assessments after the judicial sale of a unit will only negatively affect the association and it’s unit owners. Reinstating the original language used prior to the amendment of The Act in 2004 will enable community associations to continually provide the level of service unit owners have come to expect.

If you would like additional information regarding HB 2295 and how this legislation can impact your association, please contact Christopher Florio at 609.895.7335, or by email at cflorio@stark-stark.com.

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In Cottelli v. Leisure Village East Association, plaintiff slipped and fell on snow and ice outside of the condominium association. After the plaintiff filed suit, and before the deposition of the association could occur, the association filed a summary judgment motion stating that tort immunity language within their governing documents absolved them from liability in this case.


The association’s governing documents states, “Except for willful or gross negligence, Association not label for bodily injury." The Appellate Division granted summary judgment, but also stated that additional facts relating to the case need to be found in order to determine whether or not negligence or willful misconduct existed on the part of the association. 


This case follows logically what should occur with the tort immunity statute.  While an association may eventually win the case, in order to make certain there is no appeal that can be won, all discovery should be completed so there are no facts in controversy, and the trier of fact (in this case, the judge) can make a determination if tort immunity statute can be utilized in the instant case.

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Condominiums and HOAs often proceed in transition with the concern that it may not get defects fixed, damages paid and/or funds contributed by developers because a developer may be insolvent, bankrupt, an inactive "shell" company or otherwise asset-less. While it is always good to enter a transition with some trepidation, any board that enters into a transition with any developer - whether solvent or insolvent - without considering the existence and provisions of its developer's commercial general liability policy ("CGL") is doing its members a disservice. It is very often the case that a carrier via its CGL will have to pay developer - and then an association - for damages that resulted from faulty work done by that developer's subcontractor.


In just the past 12 months courts throughout the country have held carriers, via CGL, liable for construction-related damages. Most recently, the Florida Supreme Court unanimously ruled that a carrier must pay damages resulting from a subcontractor's defective work. In this case, the court considered whether a CGL, issued after 1986, and to a general contractor, provided coverage when a claim is made against the contractor for damage to the completed project caused by a subcontractor's defective work. In this case, after the sale of homes, damage to foundations, drywall and other interior portions was discovered. There as no dispute that the cause of this damage was a subcontractor's use of poor soil and improper soil compaction and testing. Pursuant to the CGL, the carrier agreed that there was coverage for owner personal property, but not for the cost of repairing the structural damage to the homes (i.e., foundation and wall damage).


The Florida Supreme Court ruled against the insurance carrier, concluding that defective work performed by a subcontractor that cause damage to the developer's completed project, and is neither expected nor intended from the standpoint of the developer can constitute 'property damage' caused by an 'occurrence' as those terms are defined in a standard form CGL. In turn, a claim mad against the developer for damage to the completed project cause by a subcontractor's defective work is covered under a post-1986 CGL. Since the CGL included a subcontractor-related exception to the CGL's main exclusion, coverage existed.


It is imperative that every board consider the CGL of its developer, when faced with construction defects - especially since a developer's work is almost always performed by a subcontractor. Considering, and being mindful of, this during transition can increase a community's leverage, and options, and lead to a more successful transition.

For more information please contact David J. Byrne, Co-Chair of the Community Associations Practice Group at: dbyrne@stark-stark.com, or review the Florida case,  United States Fire Insurance Co., etc. v. J.S.U.B., Inc., et al (no. SC05-1295).

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