Wednesday, November 1, 2017

Q&A: Access to Financial Documents


Q: How often do HOAs need to provide financial reports that include a balance sheet, receipts for work contacted and bank statements to the contributing members?

A: It is not readily apparent from the question whether the reader is asking on behalf of a condominium association, or a homeowner’s association, as many use the term “HOA” interchangeably. Here, however, the answer is the same for both.

The New Jersey Condominium Act (“Condominium Act”) requires condominium associations to maintain accounting records, “in accordance with generally accepted accounting principles [GAAP], open to inspection at reasonable times by unit owners.” According to the Condominium Act, such records include “(i) a record of all receipts and expenditures and (ii) an account for each unit setting forth any shares of common expenses or other charges due, the due dates thereof, the present balance due, and any interest in common surplus.” Thus, all those records required to be kept in accordance with GAAP, should be made available for inspection by any member upon request. New Jersey case law has also found that the right of access set forth in the Condominium Act applies to other types of associations, such as cooperative and homeowners associations.

Importantly, the Condominium Act only requires that documents kept in accordance with GAAP be open to inspection upon reasonable notice. Thus, there is no requirement under the law to provide financial reports to members of an association, unless your governing documents specifically require that you do so. For example, many Bylaws require community associations to conduct an annual audit and distribute same to its members. If your Bylaws do not have such a requirement, then documents such as balance sheets, receipts for work and bank statements need only be open to inspection.

Finally, while the Condominium Act is silent as to whether owners have a right to make copies, and New Jersey case law has not resolved this precise issue, the New Jersey Department of Community Affairs takes the position that the right of inspection includes the right to copies of those documents. Thus, we recommend that you allow members to make copies of financial records that are required to be open to inspection. And, unless your Bylaws provide otherwise, the association may charge the cost for the copying. 

Thursday, October 12, 2017

Did the New Jersey Supreme Court Reduce the Time for a Common Interest Community to Assert Construction Defect Claims?

On September 14, 2017 the New Jersey Supreme Court issued a long anticipated decision in the matter of The Palisades at Fort Lee Condominium Association, Inc., v. 100 Old Palisade, LLC (“Palisades”). The decision may have an immediate impact on recently constructed condominiums, or those to be constructed in the future, that have construction deficiencies. While innately fact-driven and evidence specific,[1] Palisades held that the six-year statute of limitations on a condominium association’s direct claims against a developer’s contractors and design professionals for construction defects begins to run upon the latter of six-years from: (a) substantial completion of the contractor’s work, or (b) when the “owner” knows, or should have known through the exercise of reasonable diligence, of the existence of a claim. 

Remarkably, the Palisades use of the term “owner” was not exclusive to the condominium association, but included the original owner of the property – i.e. the developer. In other words, the Court posited that causes of action accrue when someone in the chain of ownership, including the developer, first knows or reasonably should know of a defect and the party responsible therefore, even if transition to unit owner control had not yet occurred. Thus, although Palisades was decided on its peculiar facts, the decision opens  the possibility that direct claims by a condominium association against a developer’s contractors and design professionals could expire long before transition of control to the unit owners. 

It is not realistic to suggest that a developer would initiate an action against itself, or its contractors and design professionals, prior to transitioning control to the unit owners. Yet, in certain circumstances, this is precisely what Palisades requires to preserve the association’s claims against the developer’s contractors and design professionals. Many reading this may say, “So what, the developer is responsible and will still have to pay for the construction defects.” While it is true that the condominium association would likely still have various viable claims against its developer in such circumstances, the developer is likely a single purpose entity with little to no asserts. It is also likely that the developer failed to reserve significant funds to address warranty and other related construction defect claims. 

In light of Palisades, if your association is currently experiencing problems due to potential construction or design defects it is suggested that you seek the advice of counsel immediately. Though the developer may ultimately still be responsible, to the extent that you may also have direct claims against the developer’s contractors and design professionals, you may need to initiate litigation sooner rather than later. 

[1] The full opinion can be downloaded at:, in New Jersey, a condominium association has six years from the date the developer transfers control to the owners to bring a claim against the developer for deficiencies in the design and construction of the common elements. While Palisades does not appear to change this well-settled law, the Supreme Court has called into question years of trial and appellate decisions that held that the same tolling applied to claims by a condominium association against a developer’s contractors and design professionals. 

Friday, October 6, 2017

Does Your Homeowners Association Have Adult Only Swims

Did you know that adult only swims in homeowner associations can be discriminatory?

The Federal Fair Housing Act [the “Act”] prohibits policies that discriminate against any person in the terms, conditions, or privileges of sale or rental of a dwelling, or in the provision of services, or facilities in connection therewith, because of race, color, religion, sex, familial status, or national origin.  “Familial status” under the Act, is defined as one or more individuals under the age of 18 being domiciled with a parent or any another person having legal custody.  Hence, the issue concerns status and not age. As such, any policy that intentionally  discriminates against families with children or a policy although neutral on its face, has a discriminatory impact, is prohibited. Courts have found that rules that limit children's access to common amenities, based solely on the fact that the children are under 18, violate the Act. An adult only swim may be found to be facially discriminatory because it treats  children and families with children differently and less favorably than households composed of adults only.  Hence, a blanket adult only policy, based upon the desire to enjoy the pool with peace and tranquility, may be found to be discriminatory.

#familial status

Thursday, September 21, 2017

Q&A: Enforcement of Violations


Q. One resident constantly complains about another resident who is in violation of a HOA rule. As a board we are aware of the violation but allow the situation because of the personal situation involved. We have communicated to the complaining resident we do not wish to discuss why we allow this violation. Do we have to provide an answer?

A.  Very often, seemingly small changes in the facts of a matter can make a significant difference in the correct legal advice.  For instance, your question indicates that a resident is complaining about a violation of a “rule.”  It makes a difference whether the rule is a restriction contained in your HOA’s declaration, or a rule that the governing board adopted.  Generally, the board has a higher duty to enforce the declaration’s restrictions, then it does in connection with its own rules, with respect to which it has greater flexibility. 

Further, you indicate that board would prefer not to aggressively pursue the rule violation because of a personal situation impacting the owner against whom a violation is alleged and you prefer not to divulge the reason for the board’s inaction to the complaining owner.  The nature of the personal situation may be meaningful in providing an answer to your inquiry.  For example, assuming, hypothetically, the rule in question involves a restriction against creating excessive noise, but the resident making the noise needs to have temporary medical equipment that is the cause of the noise.  Depending on all the facts, it may be that the person causing the noise is entitled to an accommodation under the Federal Fair Housing Act.  In such a case the board would be obligated to allow an accommodation in the enforcement of the restriction if it is “reasonable” to do so.  Further, the law concerning making accommodations to people who are disabled prohibits the disclosure of confidential information concerning the disability – although it doesn’t prohibit the board from stating that it is obligated to make an accommodation because there is a claim of disability, without providing details. 

Another example might be that the HOA has a restriction against conducting any business from a home.  Perhaps the owner is out of work and is a professional who can’t afford to rent an office. Therefore, the owner opens her business from her home.  As a result, that owner starts seeing clients from her home and has a secretary working from the house.  In that case, there is no law that protects that activity and the board has a duty to take reasonable action to enforce the restrictions.  In order to avoid a costly legal dispute with the owner conducting the business, the board may lawfully provide the offending owner with a reasonably short period of time – say, for instance, 30 days – thereby giving that owner an opportunity to earn some income but also require that she find another location for his or her business. 

While the board may be empathetic to an owner facing personal difficulties, it still has a duty to enforce the restrictions contained in a declaration.  The law doesn’t mandate that a board show no humanity to their fellow residents by temporarily allowing a violation, particularly if the violation is technical in nature and does not cause any harm to the welfare of the other residents.  Ultimately, however, the board has the duty to enforce the use restrictions, particularly where another owner is validly complaining about a violation and no law protects the violating owner.  Because these situations can be nuanced and the correct answer depends on an analysis of all of the facts, we urge you to discuss this with an attorney who specializes in community association law.

Tuesday, September 19, 2017

Q&A: Mandatory Evacuation During a Hurricane?


Q.  Can we order our residents to evacuate our association in cases of things like hurricanes? Does a state emergency order play a role? If the state orders a mandatory evacuation can we fine residents who remain?
A.  Generally, if the State or local authorities have not issued an evacuation order, the answer is no.  Unless your governing documents had an unusual provision granting the board the authority to issue an evacuation order, absent a government order of evacuation, the board would not have the authority to issue such an order.  Typically, the powers of a board are far greater with respect to the use of the common elements as opposed to the use of the units.  A board cannot unilaterally tell an owner that he or she must leave their own home, when the governmental entity hasn’t made that determination.  If the State has issued a mandatory evacuation order and your governing document require an owner to comply with all law, then it might be possible to fine an owner for failing to evacuate. If, though, an owner didn’t evacuate and it did not cause the association or fellow owners any harm, it would appear to be an overreaction to a situation where the association’s efforts might be better targeted towards recovering from the hurricane, rather than seeking to fine owners who failed to evacuate.

Thursday, August 17, 2017

New Legislation to Enhance Owner Participation in Community Association Elections


On Thursday, July 13, Governor Christie signed legislation to enhance owner participation in community association elections. The CAI Legislative Action Committee, with Community Association Practice Chair, Dave Ramsey, leading the effort, worked side-by-side with Senator Gordon, the primary sponsor of the bill, to ensure that the final version of the law would be balanced and not impose undue burdens on community associations while making the election process democratic where it currently isn’t. Only through an eleventh-month effort and the willingness of Senator Gordon to listen to, and accommodate, CAI’s concerns was this able to occur.
A few important features of the new law:
• Although the law is effectively immediately, the implementation of portions of the bill that may require associations to modify some procedural aspects of their election process are delayed until October 1, 2017 to give associations an adequate opportunity to prepare.
• Subject to certain exceptions, in those few associations where the owners are not members of the association, effectively immediately, they are.
• Starting with elections occurring after October 1, Unit owners in good standing will have the right to nominate themselves or other owners in good standing. Bylaws requiring nomination by a Nominating Committee or requiring the signing of a petition by other owners will no longer be required, though Nominating Committees may continue to nominate owners for election to the board – but not exclusively.
• Certain time periods are statutorily imposed, including notices seeking nominees for the board must be sent to all owners not less than 30 days before the notice of the election meeting is sent.
• Notice of the election meeting must go out 14 or more days before the meeting but not more than 60 days before (this impacts many associations that previously had a minimum time notice period of 10 days).
• Board members’ names must be listed alphabetically on all ballots.
• Electronic voting in board elections is statutorily authorized and electronic notice of meetings is also authorized if permitted under the bylaws.
• In a provision unrelated to elections, governing boards may amend bylaws without a vote of the owners in two methods: First, it may amend the bylaws to be consistent with federal, state or local law. Second, it may propose an amendment to the bylaws together with a ballot to reject the amendment and if not more than 10% of the owners’ vote, within 30 days, to reject the bylaws amendment, it becomes enacted.
A number of other parties also voiced concerns about the new law, including the Department of Community Affairs and the New Jersey Builders Association. While a number of language clarifications from each of those parties were accepted, through the efforts of the Legislative Action Committee provisions that were overly burdensome or had negative impacts on community associations were successfully fended off. While there were numerous association election bills posted in the Senate and Assembly this year, most of which would have imposed significant burdens on associations were therefore unacceptable to CAI, only this bill reached the Senate and Assembly floors for a vote, and passed each house unanimously.
Look forward to a future article by Dave Ramsey in Community Trends providing additional details about this bill and a CAI program in late August in which he will provide information concerning important exceptions to the law and tips on how to take advantage of certain beneficial provisions in it.

Friday, August 4, 2017

Benefits of the Municipal Services Act

Many communities are either not receiving the benefits of the Municipal Services Act or are being substantially shortchanged by the municipality in reimbursements due

New Jersey’s Municipal Services Act (the “Act”), N.J.S.A. 40:67-23.2 – 23.8, requires that every municipality provide “qualified private communities” with certain municipal services on its roads or streets or reimburse those communities for such services.  The purpose of the Act is to eliminate double payment for services (such as snow and ice removal, lighting of the roads and streets and collection or disposal of garbage, recyclables and leaves) by residents who pay for them through both their property taxes and association common expenses.  The vast majority of condominiums, as well as other community associations in the State of New Jersey, meet the requirements of a “qualified private community,” as defined in the Act.

If the municipality chooses to perform the designated services, it must do so in the same fashion as it does throughout the municipality.  However, if the municipality selects the reimbursement option under the Act, the municipality enters into a written agreement with the Association to reimburse it annually for the municipality’s actual cost (not that of the Association’s) to obtain the covered services.  While these costs may be significantly less than the Association’s cost to hire private contractors, as is often the case, many municipalities reimburse communities amounts which do not reflect the true full costs to the municipality.  For example, costs associated with the services should include and take into consideration direct and indirect costs such as: labor (straight and overtime), supervisory and administrative personnel, employee benefits, materials, fuel and oil, vehicles and equipment, and the housing of vehicles and equipment and maintenance of same.   Moreover, in some circumstances, a community may be entitled to greater reimbursements when taking into consideration certain “difficulty” factors, such as the steepness of the roads. 

Those communities that do not currently have an agreement in place with the municipality may be entitled to significant monetary sums for the prior years the municipality failed to either provide services or reimburse the community for same.  For newer developments, it is important to keep in mind that it is not necessary that the roads meet municipal standards/specification or that they be accepted by the municipality for dedication for the Act to apply.  In such circumstances, the municipality still has a duty to reimburse the community. 

Despite the enactment of the Act in 1993, many communities are either not receiving the benefits of the Act or are being substantially shortchanged in the municipality’s calculation of the costs for such services.  For this reason, it is important that communities have counsel who specialize in common interest communities, such as those at Becker & Poliakoff, LLP, to carefully negotiate with a municipality in order to assure they receive the maximum amount to which they are entitled.