Fortunately, for the good of all members of this condominium, the court agreed with us, ruling that these owners are forbidden from withholding payment of assessments, and entering a judgment against the owners. The court also awarded late fees to the condominium. While the owners are still permitted to continue their suit against the Association, they have a judgment against them for all unpaid assessments and late fees. The condominium can execute on that judgment and, also, base a foreclosure action on this decision.

In the end, this case is another decision in a long line of decisions that reiterate the following basic principle under New Jersey law: a condominium owner is absolutely forbidden from withholding, or refusing to pay, assessments, for any reason. Condominiums should continue to hold the line against owners that try to hold their neighbors hostage by withholding the payment of assessments. While condominiums can always try to negotiate or otherwise discuss the dispute with owners, and reach an agreement or not, they should enter such a process from a position of strength, as they can always get the court to force the offending owner to pay his assessments, despite whatever else may be happening.

In addition, there has been some interest and action to enforce a “25 foot rule”, which would prohibit smokers from coming within 25 feet of an establishment before lighting up. This proposal, however, was not made part of the April 15, 2006 smoking ban and will be left up to local businesses and entities to place such rules and restrictions in their establishments.

Since New Jersey enacted its limited ban on smoking, there has been a nationwide trend toward banning smoking in associations altogether. However, this trend is being met with some resistance. Many condominium boards and managers are hesitant to get tough on smoking homeowners for fear of trying to dictate how people live in their own homes. Some attorneys have argued that association boards have a fiduciary duty to enact and enforce rules to prohibit smoking in their communities to protect the health and well being of non-smokers.

In Golden, Colorado, a judge ordered that an association can prohibit smoking in its four unit building after a suit was filed against one set of smoking homeowners. The judge ruled that the smell of smoke constitutes a “nuisance”, which violates the association’s declaration. The statewide trend in California to ban smoking in many establishments is slowly trickling down to condominium and homeowners associations. We may soon see litigation in New Jersey supporting this idea.

This leads us to the question of whether an association can ban smoking in all areas of the community. The answer and law are unclear at this point. Regardless of your position on smoking however, you may be faced with a smoking dispute in your association, which may require board intervention. To stay ahead of this threat, the first step may be to thoroughly review your governing documents and consider polling residents to assess interest on amending the governing documents, if necessary. In your review of governing documents, look for language such as “noxious and/or offensive conduct”, which may provide legal justification to withstand a court challenge.

We will continue to monitor this law and provide updates as necessary.

Evidence shows that the states hardest hit by foreclosures are Nevada, Florida, Michigan and California.  In 2007, New Jersey saw 53,652 foreclosure filings, up 34% from 2006.  New Jersey's foreclosure rate for 2007 was 0.9% (or, less than one property in foreclosure for every 100 properties in New Jersey).  In contrast, the foreclosure rate in 2007 for Nevada was 3.4% and for Florida it was approximately 2%.  Historically, and fairly obviously, the number of defaults in association and cooperative fees increase as well during times of increased mortgage defaults. 

In turn, it is even more imperative that associations and cooperatives act aggressively to ensure payments, early in any deficiency.  For associations, it is essential that liens be recorded early to ensure protection in the event of an owner's bankruptcy and to secure a better position in the face of any mortgage foreclosure.

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.

If you would like to learn more about this, issues related to developer and/or sponsor control of condominiums, or about the Fox and/or Brandon Farms case, please contact David J. Byrne at 609.895.7365 or dbyrne@stark-stark.com.

This week's New Jersey Legal Update podcast is presented by Dave Byrne, Co-Chair and Shareholder of Stark & Stark's Community Associations Group.

You can download the New Jersey Legal Update Podcast # 68 here. (5.86 MB)

Condominiums and HOAs are governed in this regard by New Jersey's Planned Real Estate Development Full Disclosure Act ("PREDFDA"), which provides in relevant part, that "all meetings of the executive board, except conference or working sessions at which no binding votes are to be taken, shall be open to attendance by all unit owners".  N.J.S.A. 45:22A-46a.  In turn, in accordance with the most conservative interpretation of these laws, every decision of a condominium or homeowners association must be made at a meeting open to attendance of owners.

Condominiums in New Jersey must comply with very technical requirements associated with giving notice of those meetings open to attendance by owners.  The Condo. Act provides that "adequate notice" of these "open meetings" must be given to "all unit owners in such manner as the bylaws shall prescribe".  In turn, a condominium's managing agent and governing body must review the particular condominium's bylaws and/or governing documents regarding whether, and in what form, notice from that condominium to the owners and members is required.  While such review is absolutely correct and appropriate, New Jersey law imposes strict obligations, regardless of what one's governing documents may say, on condominiums when it comes to providing notice of open meetings.

New Jersey's current administrative code, N.J.A.C. 5:20-1.2, requires that a condominium provide "adequate notice" of each board meeting at which binding decisions of that board are to be made.  This code provision provides that "adequate notice" is:

"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 ... which notice shall be:

1. Posted prominently in at least one place on the condominium property that is accessible at all times to all unit owners;

2. Mailed, telephone, telegrammed, or hand delivered to at least two newspapers that have been designated by the governing board or by the association to receive such notices because they have the greatest likelihood of informing the greatest number of unit owners; and

3. Filed with the person responsible for administering the business office of the association."

Additionally, this provision provides that at "least once each year, within seven days following the annual meeting of the association", that association "shall post, and maintain posted throughout the year at the place or places at which notices are posted" as above, a "schedule of the regular meetings" of the board to be held that following year.  That schedule must contain the meeting's location (if known) and its time and date.  If that schedule is revised, the board must within 7 days after the change, post, mail and submit to the newspapers (as above), that revision.

There are several things of interest here.  First, if the condominium posts the schedule as noted above, containing the whole year's worth of meetings, with location, then none of the 3 things listed above are necessary.  Obviously then, a list of all meetings, pre-scheduled, is the preferred method of handling this situation.  Second, I interpret "telegrammed", as used above, to mean "via e-mail", given the technological changes that have taken place since this provision was initially adopted in 1991.  Third, all of this only applies to those "open" board meetings, not working sessions where no votes are taken.  Fourth, all of this does not apply to board meetings where binding decisions regarding issues that should remain private are made (i.e., collections), where binding decisions regarding pending or existing litigation, or contract negotiations, are made, where communications between the board and legal counsel will occur or where binding decisions regarding the employment, discipline or dismissal of an officer, vendor or employee are made.  Fifth, this provision controls if any portion of the condominium's bylaws or governing documents conflict; however, the bylaws or governing documents can provide more restrictive (to the condominium) notice requirements without contradicting this code provision.  Lastly, this provision applies only to condominiums, not cooperatives, homeowners associations or other forms of community associations.

Neither the Condo. Act nor PREDFDA empower owners in attendance at an "open meeting" to participate in that meeting.  There is nothing in either law that requires a governing board to permit an open session of owners, or permit any involvement by owners at all.  In fact, PREDFDA provides in relevant part that at "each meeting required under this subsection to be open to all unit owners, the participation of unit owners in the proceedings or the provision of a public comment session shall be at the discretion of the executive board".  N.J.S.A. 55:22A-46A.

There are exceptions to this "open meeting" general rule, as well as some practical considerations.  First, the following types of decisions can be made by a governing board at a meeting closed to the attendance of owners:  (1) any matter the disclosure of which would constitute an unwarranted invasion of individual privacy; (2) any pending or anticipated litigation or contract negotiations; (3) any matters falling within the attorney-client privilege, to the extent that confidentiality is required in order for the attorney to exercise his ethical duties as a lawyer; and, (4) any matter involving the employment, promotion, discipline or dismissal of a specific officer or employee.  N.J.S.A. 46:8B-13(a) & N.J.S.A. 45:22A-46a.  These categories would include decisions regarding employees, decisions involved with contract negotiations, decisions on delinquent owner payment plans and/or decisions to settle lawsuits, or authorize actions in those lawsuits.

Second, it is obviously impractical if not impossible to have each and every decision of a condominium's, or homeowners association's, governing board made at a meeting open to attendance of owners.  Many decisions are made on daily basis, in order to ensure the proper functioning of that community.  Some of these are even emergent.  Since neither the Condo. Act nor PREDFDA require a governing board to allow any owners in attendance to participate in the meeting, certainly not to vote, the "open meeting" requirement can be said to essentially be directed to ensure notice to (and not involvement of) owners of decisions.  In turn, many associations comply with the "open meeting" requirement of both laws by making most decisions at meetings or in circumstances, not open to attendance of owners, but then "ratifying" those decisions at that that governing board's next meeting open to attendance by owners.  A governing board can list on the agenda of that open meeting something like "Ratification of Decisions", even attaching to the agenda a list of those decisions to be "ratified", and then at the meeting entertain a motion to "ratify" those decisions.  The minutes of this "open meeting" will reference the ratification vote, and even have the list of the ratified decisions attached as an exhibit.

If you would like to discuss the Condo. Act, PREDFDA, open governing body meetings or anything related to community association governance  in more detail, please contact David J. Byrne, at 609-895-7365.

The seminar discussed fiduciary duty & governing documents, the roles of boards, members and management in cooperatives, what is necessary when conducting board meetings, and cases/courtroom stories involving associations and cooperative governance issues.

You can download the New Jersey Legal Update Podcast # 65 here. (34 MB)

Since board members most often live in the communities of the associations they oversee, they are in a particularly capable and competent position to ascertain useful information to assist the associations attorneys and management in the collection process. Board members residing in the community can keep an eye on community happenings, such as units listed for sale, prevailing home values, etc. A debtor's current employment status, vehicle information or tenant status, are useful bits of information, essential to collecting outstanding debts. Board members can take note of employment information such as a homeowner who wears a uniform identifying the company name. Such information could make a wage execution possible, without having to pay a searcher to identify a current employer. A board member may also know whether an owner has a tenant residing in his unit. This information will help to make a rent execution possible, and ensure that legal notices are sent to the debtor's actual address, and not the unit.

These are several ways board members can assist counsel and management in collecting unpaid assessments.

In Woodview Condominium Association, Inc. v. Shanahan, et al., Kevin Shanahan owned two (2) units in the Association. In early 2000, Mr. Shanahan conveyed title to both units to Tomas Pratts, Jr. who in exchange, executed a one-year purchase money mortgage payable to Mr. Shanahan. Pratts eventually defaulted on that mortgage. Thereafter, Shanahan assumed control of both units as a "mortgagee in possession". Shanahan then rented the units to third parties.

New Jersey's Condominium Act conditions liability for condominium fees on "ownership". However, special rules and doctrines apply to mortgagees in possession. For instance, New Jersey law provides that "a mortgagee in possession may be liable for services rendered to him in connection with the property during his occupancy thereof on the basis of an express or implied contract." Here, Woodview provided services to these units, including utilities. Here, "monthly dues ... represent carrying costs necessary to maintaining the property and keeping the rental income flowing". Ultimately, Shanahan should not be allowed to benefit from the goods and services provided by the association to him without "having to pay" that association "his pro rata share of the costs".

In a recent case, New Jersey's appellate court held that a condominium may breach its fiduciary duty to its members by failing to maintain the common elements, failing to increase assessments sufficiently to maintain the property, and fund adequate reserves. In Ebert v. Briar Knoll Condominium Association, Ms. Ebert alleged that the board of trustees failed to hold meetings open to the members and failed to provide proper notice of board meetings. Importantly, she also alleged that the association was not maintaining the property, was not setting aside adequate reserves and was not raising assessments sufficient to fund both of these things.

The appellate court reiterated the longstanding rule that a condominium has a fiduciary duty to its owners, and that said condominium is responsible, by law, to maintain, repair and replace common elements. The appellate then added that a condominium must assess and collect funds for common expenses sufficient to carry out those responsibilities. Then it wrote that a board's decision associated with repairs, reserves and the amount of assessments is protected by the "business judgment" rule only if the board's actions or inactions were authorized by law or its governing documents and, if so, whether the actions or inactions were "fraudulent, self-dealing or unconscionable".

Here, Ms. Ebert presented evidence that the condominium had "allowed the common elements to deteriorate" thereby diminishing the value of the common property. She presented evidence that the condominium "failed to provide adequate reserves for the maintenance of common elements by refusing over the course of years to increase maintenance fees sufficiently to create such reserves". This evidence included the condominium's own reserve report which recommended to the board, at that time, that "maintenance fees be increased threefold in order to create adequate reserves".

Cases like this one, and others, remind condominiums that despite the objections of owners, or concerns about a backlash, a condominium and its board must raise maintenance fees to a level sufficient to maintain the property and set aside "adequate" reserves. Note also New Jersey's Planned Real Estate Development Full Disclosure law, or PREDFDA, which requires via its regulations that each association (not just condominiums) must "prepare and adopt an operating budget which shall provide for .... adequate reserves for repair and replacement of the common elements and facilities". A condominium board that fails to raise its maintenance fees to levels sufficient to maintain the property and set aside adequate reserves could very well be found to have breached its fiduciary duty.

A New Jersey Appellate Court recently upheld a trial court's refusal to force a condominium owner to pay an assessment levied to cover the replacement of each unit's sliding glass doors. In Regent Beach Condominium Association v. Capolino, the Appellate Court ruled that this condominium was without the power to assess owners to pay the replace those items included within the definition of "unit".

Here, sliding glass doors were clearly part of of the "unit", pursuant to New Jersey's Condominium Act and that condominium's master deed. Since the Condominium Act permits assessments to maintain, repair, protection and/or replace common elements, and the assessment in question in this case related to the replacement of items other than common elements, the assessment was invalid and not due from the complaining owner.

The Appellate Court also rejected the condominium's argument - one made often by condominiums in similar circumstances - that this assessment, and the condominium's replacement of the sliding glass doors, were necessary because if owners were left to replace these doors themselves, the replacement doors might not match those of other units. The Appellate Court felt that even if the Condominium Act allowed the condominium to do this, which it did not, the condominium could have protected against this possibility simply by requiring each owner to replace his door, and then identifying doors similar in style, quality and aesthetic standards, and requiring their use.

The case makes it clear, yet again, that condiminiums are authorized to raise and spend owners' funds to maintain, protect, replace and/or repair only common elements, not units, even if, practically speaking, the owners may be better off in that particular situation if portions of units are replaced using those same owners' funds.

Technorati Tags: New Jersey : Community Associations

At the end of February, Richard Linderman and I won a directed verdict motion, after the close of the owners' presentment of its case to a jury, on behalf of a Northern New Jersey condominium, dismissing an owners' claim for punitive damages arising from that condominium's indefinite suspension of their pool privileges, and asking the police to remove the owner from the pool.

The plaintiffs claimed that they should be awarded punitive damages because the condominium wrongfully, and with "an evil mind", suspended their membership privileges for approximately a year and a half, and thereafter asked the police to remove one of the plaintiffs from the pool.

After hearing only the owners' evidence, the court agreed with the condominium that the bylaws did allow for the suspension of privileges, that the condominium took no action without consulting with legal counsel first and that the owner willfully visited the pool after being warned repeatedly that such a visit would lead to a call to the police. Additionally, and importantly, the court agreed with the condominium that its having offered ADR, which the owners expressly rejected, within a month of the suspension was evidence of good faith and reasonable conduct, undercutting the owners' claim of the condominium's "evil mind".

This decision shows that condominiums need not fear claims for punitive damages as long as they act in good faith, consult with and rely upon their attorneys, and make ADR or some form of alternative dispute resolution available.

Technorati Tags: New Jersey : Community Associations

The seminar, Conflict Resolution - Solving Problems Without Lawsuits, discussed how the process of alternative dispute resolution (ADR) and mediation can be used by boards, managers and residents, as ways of resolving conflicts while avoiding litigation.

You can listen to the seminar here (41MB).

You can also download a copy of David's seminar handouts here (PDF).

Technorati Tags: New Jersey : Podcast : ADR : Condo : Co-Op

You can download the New Jersey Legal Update Podcast # 27 here.(9.4MB)

Technorati Tags: New Jersey : Podcast : Community Associations : Homeowner Associations : Condo

The New Jersey's Appellate Court has issued a landmark decision stating that New Jersey's Constitution and its protections "can be available against private entities, as well as governmental entities, when the private entities have 'assumed a constitutional obligation not to abridge the individual exercise of such freedoms because of the use of their property'".

In Committee for a Better Twin Rivers, et al. v. Twin Rivers Homeowners' Association, et al (A-4047-0352), owners sought an order permitting "the posting of political signs" on their property "and on common elements under reasonable regulation." The trial court rejected that claim and found that the association is "not subject to the constitutional limitations imposed on state actors ...." and was therefore permitted to limit the actionable speech of its community members. The trial court upheld the association's ban on political signs and applied the "business judgment rule" as the standard of review for "duly enacted policies and decisions" of association boards.

The Appellate Court, noting the increasing number of New Jersey residents living in private community associations, reversed the Trial Court's ruling and found that New Jersey's Constitution and its protections are available to citizens (including association residents) and can be used against private entities (community associations) in certain circumstances. The Court discussed the long line of cases by which New Jersey's Constitution was found to be applicable to private property and referenced its previous decisions (the 1995 Guttenberg Taxpayers and Rentpayers Ass'n v. Galaxy Towers Condominium Association and the 1996 case of the same name, which involved the access to flyers, and other promotional materials by opposition candidates to the condominium's board) in which the Court held that the "constitutional right to free speech could outweigh the property rights of a private condominium even in the absence of an express or implied invitation to the public or the speaker".

In the Twin Rivers case the Appellate Court felt that an association's suppression or control of certain "expressive" exercises "relating to life in the community or elsewhere" should not be considered as a contract dispute / matter of business judgment. This part of the case was sent back to the Trial Court to review the facts of this particular association's regulation of expressive activity, not as it relates to the business judgment rule, but in relation the limitations imposed by New Jersey's Constitution.

As a result of the Appellate Court's decision in this case, and until altered by the New Jersey Supreme Court or otherwise, associations must tread carefully when considering rules and/or regulatory schemes connected to members' expressive exercises (i.e., flyers related to board elections, hanging flags outside of a home, petitions to remove trustees, limit or expand board or member powers).

While it is likely that associations can impose reasonable rules "governing the time, place and manner for the exercise of ... expressional rights", associations must balance the law's protections afforded to private property and expressive exercises upon such property. A guide can be found in a 1980 New Jersey Supreme Court case which directs the private association or entity to account for the: (1) nature, purposes, and primary use of such private property; (2) extent and nature of the public's invitation to use the property; and, (3) the purpose of the expressional activity undertaken upon such property in relation to both the private and public use of the property.

Associations should undertake a review of all existing rules utilized to regulate and/or control the expression of its members and consider their enforceability under stricter constitutional limitations and not under the more lenient business judgment rule.

Technorati Tags: New Jersey : Community Associations

Technorati Tags: New Jersey Condo Community Association

In the context of a contested 2002 election for the condominium's board of trustees, an owner e-mailed a candidate in which she alleged misconduct on that candidate's opponent's behalf. Some of the facts alleged by Ms. Petricha about candidate Gulrajaney were false, unbeknownst to Ms. Petricha. The e-mail recipient forwarded that e-mail onto others, thus "publishing" a possible defamatory statement. Gulrajaney's defamation against everyone was dismissed.
Here, the Appellate Court continued and affirmed the general rule that a candidate for a seat on a community association's board of trustees is a limited public figure, for purposes of defamation law. In the context of these elections, comments about candidates constitutes "political speech", which "presents the strongest possible case for applications of" the First Amendment. Since a candidate for a community association's board of trustees is a limited public figure, that candidate can only win a defamation suit if he demonstrates, "by clear and convincing evidence," that alleged defamatory statement was "made with the knowledge of its falsity or with reckless disregard for the truth." Here, since Ms. Petricha did not know the statements were false when made, and the topic related to the contested election, she could not be found to have committed to tort of defamation.

This case extended similar protections to persons that take the alleged defamatory statements and publish them or forward them to others. Since the e-mail involved the board election in question and the recipients, and then publishers, had an interest in that election, their distribution of the e-mail to others was protected by "conditional or qualified privilege." As long as the statement is not "excessively published" or the publisher knows it's false, the privilege is preserved. Important for the publishers, this privilege is utterly unrelated to the initial author's protection under the limited public figure doctrine.

In the end, this case and the appellate court's opinion in Verna v. the Links at Valleybrook Neighborhood Ass'n, 371 N.J. Super. 77 (App. Div. 2004), make it clear that speakers and publishers have wide latitude in speaking, writing, etc. within the context of a community association election or other matters of concern to that association.

Technorati Tags: New Jersey Condo Community Association

In a reported decision, a New Jersey Appellate Court recently invalidated a $750.00 non-refundable working capital contribution created by a condominium by board vote and resolution. The Board's resolution provided, "[u]pon acquisition of title to a unit, the unit owner shall pay to the Association a one time non-refundable working capital contribution of $750.00". That resolution also created a "one time processing fee of $125.00" upon acquisition of title.

Parties to a unit's sale in 2003 challenged the working capital contribution fee. Those parties did not challenge the $125.00 processing fee. In invalidating the $750.00 fee, the court found that New Jersey's Condominium Act mandates that all of the condominium's expenses be charged to owners in accordance with their percentage interests, or as otherwise set forth in the master deed or bylaws. Thus, since the disputed fee was intended to offset common expenses, it was a discriminatory fee, not assessed against all owners.

Additionally, since the condominium's master deed contained identical language regarding the allocation of common expenses, the fee was not protected by the business judgment rule. The court found that the "business judgment rule, which governs judicial review of decisions within the scope of a" condominium's "discretionary authority", was not applicable.

First, this case leaves untouched any closing-related or processing fees charged by management companies or condominiums for insurance information, certificates of sale, copies of public offering statements, etc. Second, this case leaves untouched any and all working capital contribution-type fees in the context of cooperatives or homeowners associations. Third, this case leaves untouched any and all working capital contribution fees authorized by either a condominium's master deed or its bylaws. Even if this decision stands ( i.e., it is not reversed by the New Jersey Supreme Court), its prohibition against fees due upon the acquisition of title is limited strictly to those fees that are created by board vote and resolution.

Technorati Tag: New Jersey

Read a related New York Times article here.