Tuesday, January 9, 2018

Q&A: Board Member Confidentiality Agreements



By: Martin C. Cabalar

Q:     Can board members adopt a policy requiring all members of the Board to execute a confidentiality agreement?  

A:       While there is no New Jersey case law directly on point, the likely answer is that with respect to material that is confidential, the governing board of a common interest community may adopt a policy requiring that the right of a director or trustee to access confidential material will be conditioned upon the board member's execution of a confidentiality agreement.

The New Jersey Condominium Act and New Jersey Planned Real Estate Development Full Disclosure Act (PREDFDA), despite having vigorous open meeting requirements, recognize that certain discussions should be held in confidence. Specifically, the governing board, in the exercise of its powers and duties, may exclude or restrict attendance at those meetings, or those portion(s) of meetings, dealing with: (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; or (4) any matter involving the employment, promotion, discipline or dismissal of a specific officer or employee of the association. See N.J.SA. 46:8B-13 and N.J.S.A 45:22A-46(a). It is very likely that the reason for such provisions in the Condominium Act and PREDFDA are in recognition of the fact that to act within the best interest of the association (i.e. maintain a duty of loyalty) requires members of the governing board to exclude and restrict attendance at certain meetings in order to maintain the required fiduciary level of confidentiality. Thus, a governing board would be justified in denying a board member access to such confidential information or materials where that board member refused to sign a confidentiality agreement with respect thereto.

In fact, the Appellate Division in one New Jersey case did not appear to take issue with the association requiring its members to sign confidentiality agreements in order to obtain a list of all members of the association.  Instead, the court held that a one thousand dollar liquidated damages clause in the confidentiality agreement was unreasonable and invalid, but did not otherwise appear to take issue with the confidentiality agreement or the board’s requirement that members sign same. See Comm. for a Better Twin Rivers v. Twin Rivers Homeowners' Ass'n, 383 N.J. Super. 22, 60 (App. Div. 2006) rev'd on other grounds, 192 N.J. 344 (2007). Likewise, in a corporations cases from Delaware, the court there has held that the access to materials as a director may be conditioned on the execution of a confidentiality agreement. See e.g. Hollinger Int'l, Inc. v. Black, 844 A.2d 1022, 1092 (Del. Ch. 2004); Stroud v. Grace, 606 A.2d 75, 89-90 (Del. 1992).


In light of the aforementioned legal precedent, where a member refuses to sign a reasonable confidentiality agreement but continues to demand access to confidential information, the board of a common interest community would likely be justified in seeking a judgment declaring that the member’s access to materials be conditioned on his or her execution of a confidentiality agreement.  In addition, while the board likely cannot remove the member from the board, as most governing documents require a vote of the unit owners, the board may also be justified in calling upon the unit owners for a vote to remove the obstinate board member.

Tuesday, December 19, 2017

Q&A: Charging for Copies of Financial Documents


BY: MARTIN C. CABALAR

Question:       

Is there a limit how much we can charge to pull, provide and copy requested paperwork? Can we make a profit?

Answer:

Yes, there is a limit to the amount a condominium association can charge its residents to provide copies of records the association is required to keep open to inspection by its owners. In New Jersey, the charge cannot exceed an amount reasonably related to the association’s copying cost, which may include any additional administrative expense incurred. Therefore, unless your governing documents provide otherwise, the association may charge the cost for copying.

It is important to keep in mind that the New Jersey Condominium Act provides that associations shall be responsible for “the maintenance of accounting records in accordance with generally accepted accounting principles open to inspection by unit owners at reasonable times.” N.J.S.A. 46:8B-14(g) (emphasis added). The accounting records required to be open to inspection by unit owners include (1) a record of all receipts and expenditures and (2) 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, while the association may charge a fee reasonably related to the association’s copying cost to provide copies, the association must grant access to inspect the financial records required to be kept open to inspection without charge to the unit owners. Even if another party, such as the Association’s managing agent or accountant, charges the association a production fee, the association cannot charge the owner a fee to merely inspect these records.

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.

Tuesday, December 12, 2017

Hudson County Court Distinguishes Controversial Palisades Decision


On December 7, 2017, a Hudson County Superior Court Judge, in the matter of Grandview II at Riverwalk Port Imperial Condominium Association, Inc. v. K. Hovnanian at Port Imperial Urban Renewal III, LLC, et al, Docket No. HUD-L-2839-14 ("Grandview II"), denied summary judgment to an architect retained by the developer who argued that the statute of limitations barred the association's claims pursuant to the Supreme Court's controversial decision in the matter of The Palisades at Fort Lee Condominium Association, Inc., v. 100 Old Palisade, LLC (“Palisades”)[1] because the developer knew of the defects more than six-years prior to the lawsuit being filed. In denying summary judgment, the Court specifically held that Palisades (1) was factually distinguishable from a project such as Grandview II that was originally developed as a condominium with the intent to transition the operational control to an association in the future and (2) did not modify the long-standing rule that claims by a condominium association against the developer, its design professionals and subcontractors do not accrue until transition. Citing Terrace Condominium Association, Inc. v. Midlantic National Bank, 268 N.J. Super. 488, 503 (Law Div. 1993). 

Becker & Poliakoff represents the plaintiff condominium association in Grandview II and argued in opposition to the motion for summary judgment, among other things, that Palisades was not only factually distinguishable, but that it did not change long-standing New Jersey case law holding that such claims do not accrue, at the earliest, until transition of control by the developer. Fortunately for common interest communities throughout New Jersey the Court agreed that "no claim could be brought by the association until the transition occurred. That is until at least seventy-five percent of the units were sold to require the transition from owner to association control." 

As recognized by the Court, the statute of limitations is a rule of equity and as such equitable considerations must control the Court. There is an inherent conflict of interest in the argument put forth by the architect in Grandview II that a cause of action for construction defects by a condominium association accrues when anyone in the chain of ownership, including the developer, first knows or reasonably should know of a defect, even if transition to unit owner control had not yet occurred. While such may be equitable in the unique circumstances presented by Palisades, where the building was constructed as an apartment complex and subsequently transitioned to a condominium, 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 in the normal condominium context. 

While we believe the decision by the Hudson County Superior Court is correct and well-reasoned, it certainly will not bring an end to design professionals and subcontractors attempting to dismiss a condominium association's construction defect claims as being barred by the applicable statute of limitations based on the decision in Palisades and the developer alleged knowledge of defects. The Palisades decision, while innately fact driven, is nonetheless a decision by the Supreme Court. Thus, defendants may still attempt to argue that Palisades is not distinguishable and as a decision of the Supreme Court is the applicable controlling law. While we believe that argument to be incorrect for the very reasons argued to and set forth by the Court in Grandview II, 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 to best protect your interests.



[1] The full opinion in Palisades can be downloaded at: http://njlaw.rutgers.edu/collections/courts/supreme/a-101-15.opn.html

Wednesday, November 1, 2017

Q&A: Access to Financial Documents



BY: MARTIN C. CABALAR

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: http://njlaw.rutgers.edu/collections/courts/supreme/a-101-15.opn.htmlGenerally, 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.

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#FHA
#discriminatory
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#homeownerassociation
#BeckerandPoliakoff

Thursday, September 21, 2017

Q&A: Enforcement of Violations


BY: J. DAVID RAMSEY

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.