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

The sunlight and the scenic views are often times what draw people to buy a condominium and co-op unit with floor to ceiling windows. However, many of those owners and their Associations soon come to regret that decision.  Floor to ceiling walls made of glass are generally referred to as "window wall systems".  Typically, the system is built on site by a contractor who assembles pre-cut pieces of metal and glass on site.  Unfortunately, although they provide spectacular views and a sense of openness, too often the systems are plagued by major problems.  These problems include insulation failures, water intrusion, and air leaks causing higher heating and cooling bills.  The cause of these problems can generally be traced back to the contractor's failure to follow the manufacturer's instructions and details.  Contractors all too often fail to install proper sealants (caulk), insulation and waterproofing (flashing), which can cause immediate problems for the owners and the Associations that are often time are responsible for replacement of exterior elements such as windows and doors. Furthermore, the glass and metal freeze and thaw at differing temperatures than the surrounding brick, stucco, concrete or siding.  As such, small cracks and voids can develop into larger problems much more easily, leading to water and air intrusion and ultimately a complete failure of the system.  In New Jersey, New York and Pennsylvania, temperatures range from the 90's in the summer to below 0 in the winter, putting an even larger strain on these systems.
 

Several experts in the field have opined that these types of window wall systems will generally fail within 5 to 15 years.  This is in stark contrast to concrete and steel buildings which have a 50+ year life span. Moreover, buildings with window walls require significant amounts of maintenance to ensure that they function as they should. Even if the system doesn't fail, Associations must hire engineers and other contractors to keep up with the maintenance of these systems.  Not surprisingly, these window wall systems are often cheaper and faster to install than a typical concrete or steel wall system.  This makes a window wall an enticing choice for a developer looking to maximize their bottom line.
 

For buildings with window wall systems only on the top most floors, the cost of replacement could be hundreds of thousands of dollars.  Buildings comprised entirely of these systems could be facing tens of millions of dollars worth of repairs.  For the Board Members of affected Associations, there are generally only two options: special assess the owners for the cost of the repairs, or file a lawsuit against the developer and contractors in an effort to have them pay for the repairs.  Stark & Stark has been very successful in recovering from developers and subcontractors the money that their clients need to repair or replace their own window wall systems.  Moreover, we can guide the Association through the complicated process of choosing experts, navigating insurance issues and fielding and responding to unit owner complaints which occur in virtually every lawsuit.  We have also counseled our clients on how to hire the right experts to ensure that the window wall systems are maintained in an effective, but cost efficient manner.

 

If you would like to discuss this client alert in more detail or how it may affect your community association, please contact Mark Wiechnik at 609-895-7249 or by email at mwiechnik@stark-stark.com

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A Hudson County jury has awarded a group of 16 condominium owners just under $4 million in a lawsuit against the Developer for making false promises and misrepresenting the view from its units.  In this instance, the jury found that the Developer mislead potential buyers of units at the Shore Club in Jersey City, by claiming that they would have “breathtaking” and “panoramic views” of New York City.  In fact some of the promotional materials depicted “unobstructed views” of the city skyline.  However, after moving into the building, the unit owners discovered that the Developer was building a neighboring high rise that also promised spectacular views of the Manhattan skyline. 

 

In materials given to Shore Club buyers, the neighboring building was depicted as a 12 story high rise.  However, when it was built, the neighboring AquaBlu, ended up being 32 stories tall.  Ultimately, the jury awarded each unit owner 20 percent of what they paid for their units, presumably the increased value of a unit with a view of the skyline.  Under the New Jersey Consumer Fraud Act, that amount could be trebled, making the total judgment just under $4 million.

 

This case is an example of how the consumer protection statutes in New Jersey operate, and that if you purchase a townhome or condominium unit and rely upon certain information provided by the Developer and that information proves to be untrue, then you may have recourse in the court system.

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Most people who have purchased a new home, condo or townhouse in New Jersey at some point have suspected that the builder of that home knew that the construction was not done properly and that the home would have significant problems. Defects ranging from improperly installed roofs, faulty plumbing and electrical and leaky stucco are far too common, and give owners of those homes the sense that the builder had to know, on some level, that the work wasn't being done correctly. Those suspicious have been confirmed in a recent court decision. The South Carolina Supreme Court, in Crossman v. Harleysville Ins., recently determined that faulty workmanship which results in property damage is no accident. The court found that in most cases, property damage is not only foreseeable by most builders, but is generally expected and sometimes intended by builders who are more concerned with finishing on time or increasing their margin. The decision related to whether or not the builder's insurance policy covered the homeowner's damages. The court found generally that the policy covered accidents, and these defects were not accidental, and were, therefore, not covered by the insurance policy.
 

This decision, while insulting to builders, is potentially a disaster for condominiums and homeowners associations that depend upon the developer or sponsor's insurance policies to pay for the damage caused by shoddy construction. In many cases, developers create a separate company for each development they build. These companies typically have no assets, employees, bank accounts or income, which leaves insurance policies as the only potential source of recovery for most associations. The court's finding makes it much more difficult to recover from these policies, and could leave an association with huge damages no way to pay for the costly repairs that they must undertake. Ironically, in this instance not only does the insolvent builder misrepresent the quality of the construction, it further hurts its customers and associations by building in such a manner that it jeopardizes insurance coverage which is the only means by which the association could be reimbursed for its damages.

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Rather than focusing on the cause of costly and time consuming construction defect litigation, i.e., poor construction.  Developers of condominiums and townhome associations are more frequently trying to limit the association's (and the unit owners') ability to bring such a lawsuit.  Instead of constructing buildings properly and ensuring quality construction, some Developers of condominiums and townhomes have inserted clauses in the association governing documents that forces condominium to mediate or arbitrate those claims prior to , or even instead of, filing suit.  Given that the Developer drafts the governing documents with no input from the yet-to-be created association or its future unit owners, Developers essentially have free reign to limit the association's access to the court system to resolve its disputes.
 

A court of appeals in California, however, recently prevented a Developer from doing just that.  The association in Villa Vicenza Homeowners Association v. Nobel Court Development, LLC filed suit against the Developer, for failing to provide a sufficient reserve fund and for failing to repair various construction defects.  The Developer then filed a motion to compel arbitration of the claims under the provisions of the master deed that it had drafted.  The trial court denied that motion and the appellate division affirmed that decision.  In doing so, the court found that although arbitration agreements are generally enforceable (and to some degree encouraged), this was not an "agreement" because the association did not exist at the time the terms were contemplated and drafted and never had an opportunity to negotiate any of the terms of the association governing documents.  The court found that although governing documents are enforceable generally against unit owners prohibiting or encouraging certain conduct, treating the governing documents "as a contract such that they are sufficient to waive the right to trial by jury does not comport with the importance of the right waived."   Meaning that enforcing such an agreement in which the unit owners have little or no say whatsoever is not permissible when you are enforcing a term with such importance as waiving the right to a jury trial. This term was clearly meant to severely limit the rights of the association for the sole benefit of the Developer, and thus the court would not enforce the term against the association.  The Association was free to continue it suit against the Developer.

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Stark & Stark recently obtained a favorable settlement for one of its over 55 communities faced with a homeowner whose granddaughter resides in one of the units. The Association, after becoming aware of the violation, sent notices of the violation to the homeowner and offered Alternative Dispute Resolution (ADR) as a means to resolve the dispute without the need for litigation. However, after the offer of ADR was rejected by the homeowner, the Association was forced to file suit in order to obtain compliance. After spending a significant amount of time and counsel fees serving discovery and having the unit owner's counter claim dismissed, the Association was able to resolve the case via a court ordered mediation. By arguing not only the relevant master declaration standards, but also the applicable federal regulations and case law, Stark & Stark was able to obtain a date certain on which the unit owner would come into compliance (either by selling or renting the unit to a qualified resident), and also obtained a reimbursement of legal fees from the offending unit owner in the amount of nearly 90% of the total fees spent by the Association in the enforcement action.

 

Generally, the Fair Housing Act (“FHA”) provides that it is unlawful “[t]o refuse to sell or rent after the making of a bona fide offer, or to refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of ... familial status ....” 42 U.S.C. § 3604(a). The FHA further precludes representing “to any person because of ... familial status, ... that any dwelling is not available for ... rental when such dwelling is in fact so available.” 42 U.S.C. § 3604(d). However, the FHA provides an exception for discrimination on the basis of familial status for housing “for older persons.” 42 U.S.C. § 3607(b)(1). This gives municipalities and groups of older citizens to create over 55 communities which provide tax revenue, without expenses such as schools.

 

The Act defines “housing for older persons” in part as housing "intended and operated for occupancy by persons 55 years of age or older" and (i) at least 80 percent of the occupied units are occupied by at least one person who is 55 years of age or older; (ii) the housing facility or community publishes and adheres to policies and procedures that demonstrate the intent required under this subparagraph; and (iii) the housing facility or community complies with rules issued by the Secretary for verification of occupancy. As long as the Association demonstrates intent to provide housing for older persons, establishes regulations related to that intent and enacts a plan to enforce the rules, the Association will maintain its status and whatever benefits were conferred upon it as a result of this status. (See also 24 C.F.R. 100.304 through 100.308). 

 

Over 55 communities must be vigilant not only in surveying their unit owners, but also in enforcing the provisions of the master declaration or applicable restrictive covenants, otherwise, the Association runs the risk of losing its designation as an over 55 community, exposing it to litigation risk for discrimination as well as potentially losing any tax benefits were conferred upon the community.

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The Federal Housing Finance Agency recently reversed its August proposal to ban real estate transfer fees that would have put a huge burden upon homeowner and condominium associations in all 50 states. The FHFA proposal attempted to curtail the practice of investor-driven private transfer fee programs, which funnel profits, unconnected to any value or service provided, to developers, bond investors and others. However, in making such a broad rule, the proposal would have had the unintended consequence of banning transfer fees charged by condominium and homeowner associations when units sell in those associations. The proposal banned fees from all mortgages eligible for purchase by Fannie Mae, Freddie Mac and the Federal Home Loan Banks, which effectively would have banned the practice in the majority of community associations across the country. 
 

The fees collected by associations across the country offset some of the operating expenses of the association without directly affecting all of the unit owners by raising monthly association fees. Banning these fees would have had a detrimental effect on the bottom line of many associations, forcing them to raise monthly maintenance fees in order to offset the difference. Raising fees would make units harder to market and sell, and ultimately further damage the real estate market and the overall health of associations nationwide. However, after bringing this detrimental effect of the new regulation to the attention of the FHFA, the rule was specifically altered to exempt homeowner associations that use the proceeds to benefit the community it serves. For now, it appears that the transfer fees charged by associations are safe.

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Associations should be aware that the New Jersey Municipal Services Act ("MSA") provides a protection from unit owners being "double taxed" for various fees and services.  Every homeowner in every New Jersey municipality pays taxes which go, in part, to services such as garbage and recyclables collection, road obstruction removal, street lighting and snow removal.  Homeowners who live in condominiums and/or homeowners associations may also pay maintenance or dues to an association which may also directly provide those services, or those owners may pay for the service themselves.  The MSA protects those owners and communities from having to pay twice for those services.  It gives the local municipality the choice of either providing the service to all of the association's owners or reimbursing the association or owner for the expense, up to the amount it would cost the municipality if it were to provide that service itself.  Associations are not generally entitled to reimbursement for services above and beyond what the other homeowners in the municipality are provided, but are protected from having to pay twice for garbage pickup, street lighting and/or snow removal.
 

Unfortunately, many associations are presently unaware of these protections even though the MSA was enacted over 17 years ago.  For example, unit owners in a condominium in Dover, New Jersey are presently attempting, through a petition to the mayor of Dover, to obtain a reimbursement of nearly $800 per month for trash removal service.  The Township of Dover claims that it would provide curbside garbage pickup, but the owners of the 69 unit building argue that 69 garbage cans in front of the building twice per week would be a logistical and health nightmare.  This situation shows that both associations and many municipalities are unaware of the requirements of the MSA, the rights that it affords to homeowners and the municipalities responsibilities thereunder. Associations and homeowners in this situation should be fully aware of their rights under the MSA and have the option of suing the town to force the municipality to either provide services or a reimbursement.

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A recent court ruling unraveled a developer's creative attempt to avoid litigation related to its construction of a new condominium.  Pinnacle Market Development designed and constructed the Pinnacle Museum Tower Condominiums in San Diego California.  Contained within the association's governing documents was a clause which stated that all disputes with the developer must be decided through arbitration rather than via a jury trial.  After the association filed suit against the developer for construction defects which caused damage to the common areas, the developer filed a motion with the court to dismiss the case and enforce the arbitration clause. 
 

The court found that from a contractual standpoint, such an agreement could never be enforceable.  The developer created the association after the governing documents were drafted, and also controlled the association until the unit owners were elected to the board.  Given the fact that the Association did not exist at the time the "contract" was made, and that the developer was essentially contracting with itself, the court refused to enforce the arbitration clause.  The association's lawsuit was permitted to continue to recover damages to the association for various construction defects and deficiencies. 

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Further evidence that coverage under D&O policies is extremely narrow, the 11th Circuit determined once again that a D&O carrier did not have an obligation to defend an Association that was sued for, among other things, breaching its fiduciary duty to the unit owners.  The Eastpointe Condominium Association was sued by one of its unit owners for failing to maintain and repair the roof and the air conditioning system.  The unit owner complained of water intrusion, interior damage and mold growth, and sued the Association for negligence and breach of its fiduciary duties.
 

The Association notified both its general liability carrier as well as its directors and officers carrier ("D&O") of the claim.  The liability carrier accepted defense of the Association but the D&O carrier denied defense and indemnity, claiming that the policy contained a "property damage" exclusion.  After a trial and verdict in favor of the Association, the Association filed a declaratory judgment action against the D&O carrier.  The Association argued that the claim is a breach of fiduciary duty, which should result in coverage, regardless of whether or not that breach resulted in some property damage.  Further, the Association argued that nearly every claim against the Association would in some way involve property damage, as maintenance and repair of the common property is the main purpose of the Association. 
 

The 11th Circuit disagreed.  The court stated that the language contained in the exclusion that excluded all coverage for any loss arising out of damage to any property, precluded coverage under this policy because the breaches of the Association's fiduciary duty ultimately caused property damage.  Further, the court rejected the Association's argument that coverage under the D&O policy was illusory, because it would cover claims that did not arise out of property damage, however, limited.  For example, the court referenced claim of slander of title, breach of the covenants, or restraint of trade, that may be covered under a D&O policy as those claims do not arise out of property damage.  As such, the Association's claims against its D&O carrier were dismissed.

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Florida law now permits homeowner associations to do what Stark & Stark has been encouraging its associations to do for years.  The Florida legislature recently passed a law that allows homeowner association's to go after renters for association fees when the homeowners fail to pay their monthly maintenance fees.  Interestingly enough, Stark & Stark has been obtaining similar recovery for its clients for several years now, without the help of New Jersey's legislature.
 

Associations are feeling the effects of the recession just like everyone else, and most Associations have at least a few owners who have not paid their dues in several months.  Amazingly enough, some owners have failed to pay their regular dues, but continue to accept rent from tenants who are living in the unit.  The Florida law permits homeowner associations to formally notify renters that their payments should be paid directly to the association, not to a landlord who has failed to pay the organization.  If the tenant is ordered to make a payment to the association, it counts as rent credit. The tenant pays the remaining balance to the landlord and can not be evicted for failure to pay rent. 
 

The process isn't as simple and straightforward in New Jersey, but nonetheless, lawyers in Stark & Stark have successfully argued to the court the inherent unfairness of a unit owner who refuses to pay his maintenance fees, but continues to collect rent from a tenant.  In many of these situations, the court has appointed a "rent receiver", typically the property management company, to accept the rent from the tenant each month, pay the outstanding associations fees, and give any balance of those fees to the unit owner/landlord.  This benefits not only the Association, but the tenant as well, who arguably should not be evicted or foreclosed upon when they are complying with the terms of their lease agreement.  Stark & Stark's New York clients have the benefit of a New York statute which permits the Association to collect rent from tenants, however, if the tenants do not pay, the statute does not give the Association the right to sue the tenant directly, which all but eliminates the Association's ability to enforce the statute.

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