New Jersey, along with many other states, has adopted a Smoke-Free Air Act (the “Act”) that bans smoking tobacco or electronic cigarettes in the workplace and in indoor public places. Most people are aware that this ban extends to restaurants and stores, but the definition of “indoor public place” also includes an “apartment building lobby or other public area in an otherwise private building.” (N.J.S.A. 26:3D-57). Most agree that this definition includes common areas in condominium associations and cooperatives, but banning smoking in common areas is not where the challenge of creating a smoke-free community lies.

Even though a board may ban smoking in common areas, such rules do nothing to stop secondhand smoke in units from filtering into a non-smoker’s unit. This can become a critical quality of life and health issue for the non-smoker next door. According to the Centers for Disease Control and Prevention (CDC), “There is no risk-free level of exposure to secondhand smoke.”[i] The CDC goes on to note that research has shown that exposure to secondhand smoke increases the risk of heart disease, lung cancer, Sudden Infant Death Syndrome (SIDS) and numerous other health risks, especially for children. In other words, secondhand smoke is more than just a nuisance.

The only way to completely eliminate secondhand smoke from homeowners’ living spaces in a condominium or cooperative association is to ban smoking within the units themselves.

Banning Smoking Within Units.

Although, there are no published cases in New Jersey on the enforceability of banning smoking within condominium or cooperative units, case law around the country suggests that the trend is toward upholding these types of smoking restrictions. However, since few boards have the power to establish these rules on their own, the most effective way to enact a rule that bans smoking within units is to amend the association’s bylaws in a condo association or the proprietary lease in a cooperative.

Since the amendment process requires a membership vote, there is an additional benefit – greater acceptance by homeowners, even those that did not vote for the amendment. When a person buys into a condominium or cooperative association, they know – or should know – that the membership is empowered to change the rules. For most people, a change made through a vote of the membership is easier to accept than the vote of a few board members.

Enforcement of Smoking Bans

The biggest obstacle to creating a smoke-free community is enforcing a smoking ban. While voluntary compliance would be a nice fairytale ending to the implementation of such a rule, it is unlikely. Also, boards should remember that the real goal in passing a smoking ban is not to run people’s lives and turn their homes into boot camps. The goal is to protect residents and owners who are concerned about the health effects of secondhand smoke. Focusing on this “goal” is important, as it should guide an association’s enforcement efforts and help them to steer clear of witch hunts for smokers.

Before issuing a violation notice for smoking, there needs to be an eyewitness or “nosewitness” to the smoking. This person should be required to file a complaint that is submitted to the association’s ADR process. If ADR and fines do not result in compliance, an association may choose to sue a smoker.

Although lawsuits are often time consuming and expensive, a case to enforce a smoking ban will likely be a good candidate for a relatively quick summary judgment motion, unless the defendant alleges that s/he does not smoke in their unit.

The best way to enforce any rule is to encourage voluntary compliance. Providing convenient locations for smokers outside of residential building(s) is one option that can help encourage compliance and reduce litter from discarded cigarette butts. These locations could range from a simple smoker’s stand, to actual covered areas away from doors and windows of residential buildings. Designating certain areas for smoking also shows the membership that the association is concerned about all members’ ability to use and enjoy their homes, as long as it does not endanger the health, safety or welfare of other owners or residents.

 

You hated them as a kid. You wish they were no longer necessary as an adult. But in community living, having some rules is a necessity. Many of these rules are established in the process of creating a condominium, homeowners or cooperative association. To change these initial rules, which are most often found in the declaration, master deed, bylaws or proprietary lease, associations must typically obtain a vote of the membership to amend the governing documents.

However, Boards of Trustees are also empowered with certain rule-making authority. Such rules are best adopted via a board resolution, which must be voted on by the board at an open meeting of the membership – whether any members show up to the meeting, or not. Each association may have unique needs that have to be addressed with unique rules, but almost every association can benefit from implementing certain standard rules and regulations.

Rules that May Reduce Increases in Insurance Premiums

Although there is no direct correlation between these rules and an association’s insurance premiums, when associations implement policies that reduce the likelihood of lawsuits and insurance claims – two important factors in determining insurance premiums – there is a strong chance that their future premium increases will be lower. Some of these rules are:

  1. Adopt a board resolution requiring owners to conduct dryer vent and chimney cleanings and inspections at least every two years. This reduces the risk of lint and soot-related fires – fires that could result in increased insurance premiums.
  2. Adopt a board resolution requiring owners to replace water heaters after a specific number of years. Water heaters are generally expected to have useful life of eight to twelve years. Unfortunately, without a rule requiring timely replacement, many people will wait until their water heater malfunctions before replacing it, and water heater malfunctions frequently result in insurance claims for water damage and increased premiums.
  3. Adopt a board resolution requiring owners to install burst resistant washing machine hoses. Along with failed water heaters, leaking or burst washing machine hoses are probably the top causes of insurance claims for water damage in associations. Stop this problem before it happens.
  4. Pass a Tort Immunity Amendment to the Bylaws. This limits an association’s liability for injuries that occur on the association’s property, but it does require at least a two-thirds vote of the membership. The two-thirds requirement is a minimum set by statute, but if the bylaws that are being amended have a higher amendment threshold, then the higher voting percentage will apply.

Rules that May Increase Revenue

Assessments are the financial lifeblood of associations. Unfortunately, over the past five to six years, delinquencies have increased substantially. Some people just do not have the money to pay, but others may simply have put their assessments further down their list of priorities. In order to increase collections and revenue from other sources, associations should consider the following rules:

  1. Adopt a Parking and Towing Resolution. Not only should this resolution contain parking rules, but it can – and should – contain provisions that permit the towing of delinquent unit owners’ vehicles. It is amazing how often a payment plan is proposed after a trip to the vehicle impound. (Of course, it is critical to ensure that all towing is conducted in compliance with the Predatory Towing Prevention Act.)
  2. If an association has the authority to fine unit owners, it should set up a system and schedule of fines for violations of the rules. Ideally, the bylaws permit the board to set the amount of fines, and in such cases, it is possible to establish an escalating system of fines, such as $50 for the first violation, $75 for the second and $100 for the third and subsequent violations. However, it is important to remember that, before these fines can be collected, the member charged with the violation(s) must be given an opportunity to participate in alternative dispute resolution (ADR).
  3. Associations that do not have the authority to assess fines, charge late fees or accelerate assessments should attempt to adopt an amendment to their governing documents to establish these powers. Since these powers must generally be in the bylaws, master deed, proprietary lease or declaration, an amendment is necessary to add them. Without the “teeth” of a fining authority, it is very difficult to enforce rules. Without the ability to charge late fees, it is very difficult to enforce timely payment of assessments, and without the ability to accelerate assessments, associations’ liens and judgments will almost always be less than the amount truly owed within a month.
  4. Adopt a leasing amendment to empower the association to immediately collect the rents of delinquent owners who lease their units. Not only can a leasing amendment allow associations to collect tenants’ rents, but it can also increase associations’ ability to enforce rules against the tenants. If a landlord does not evict his problem tenants, the association can step into his shoes and conduct the eviction – charging the costs back to the landlord.

These lists are just a sampling of the strategies that associations can implement when making rules that can lead to reduced expenses, improved enforcement and increased revenue. We have an expansive fixed fee “menu” of various resolutions we could discuss with the board.

In 2010, the Department of Housing and Urban Development (HUD) turned the financing of FHA mortgages upside down by announcing the end of spot approvals for condominiums and a new requirement of biannual community-wide certification for FHA mortgages. Many condominium associations went through the process of obtaining initial FHA approval, but the two-year recertification period has now come and gone – or is approaching expiration – for many of those communities.

WHEN TO SEEK RECERTIFICATION:  Condominium associations can seek recertification up to six months before and six months after the expiration date of their FHA certification, which is good for a two-year period. This process is essentially identical to the process of obtaining the initial FHA certification – with minor tweaks in HUD’s documentation requirements.

Associations should calendar the expiration dates of their certification to ensure that recertification can be obtained without a gap. When associations wait to seek recertification until a potential buyer discovers that s/he cannot obtain an FHA mortgage, unit sales often fall through due to the typical six to eight week approval process. Since many industry commentators suggest that 30% to 40% of condominium mortgages are FHA-backed, FHA certification should increase the potential market for buyers of condominiums in an association.

BARRIERS TO CERTIFICATION:  Whether an association is seeking initial certification or recertification, the following issues are the most common barriers that prevent associations from obtaining FHA approval:

  • Delinquencies are in excess of 15% of the membership.
  • There is ongoing litigation that is not covered by insurance – especially litigation involving construction defects.
  • Rentals exceed 50% of the total number of units.
  • There is inadequate reserve funding – less than 10% of the annual budget.

Alternative Dispute Resolution – commonly referred to as “ADR” – has been an especially hot topic for community associations since the New Jersey Appellate Division’s 2012 decision in Bell Tower Condominium Association, Inc. v. Haffert. In that case, the Court held that “housing-related disputes” under the Condominium Act include disputes over the validity of special assessments for repairs and improvements to the common elements. Many commentators subsequently suggested that this holding meant that all disputes between an association and a homeowner must be submitted to ADR. Not so. The Appellate Division recently provided additional guidance on ADR in a March 25, 2014 unpublished opinion, Townsquare Village Homeowners Association, Inc. v. Walton. In that case, this firm successfully argued that the right to ADR has been waived once a person has participated in a trial on the underlying issues.

In Townsquare Village, the association obtained a judgment for unpaid monthly assessments after participating in a one-day trial with the homeowners. After winning at trial, the association filed an application for an award of attorneys’ fees with the trial court. In opposition to the application for attorneys’ fees, the homeowners filed a motion demanding that the judgment for monthly assessments be vacated, and that the matter be submitted to ADR as required under the Condominium Act (and the Planned Real Estate Development Full Disclosure Act Regulations). When the homeowners’ motion was denied, they appealed the matter to the Appellate Division.

On behalf of the association, this firm argued that the homeowners waived whatever right they had to participate in ADR when they elected to participate in a trial. The Appellate Division agreed – even though a judgment for attorneys’ fees had not yet been awarded in the case – and held that the underlying merits of the case had already been decided by the trial court, which was also in the best position to make a ruling on attorneys’ fees. Therefore, the association was no longer required to participate in ADR regarding the matter.

The Townsquare Village case clearly demonstrates that the expansiveness of the ADR mandate for associations may be more limited than many commentators previously thought.

When natural disasters or fires cause massive destruction to association property, it is not only important to find the right contractor to conduct the repair work, but it is also critical to negotiate a well-worded contract with that contractor.  Specifically, an association needs to protect itself from unexpected bills that are not covered by insurance.

In order to protect an association from the nasty surprise of a bill for uncovered repair work, the following provisions for any insurance-covered repair or remediation project should be included in the contract:

The Contractor Should Agree to Accept the Price Approved by the Insurance Carrier.

Many times, the costs associated with cleanup and repairs from a natural disaster, fire or other major loss are not fully-known when the cleanup or repair work is ready to start.  Rather than waiting for the insurance carrier’s coverage decision or – worse yet – signing an agreement at the price quoted by the contractor, an association should require the contractor to accept, as payment in full, the insurance proceeds for the work performed – and nothing more.  In this scenario, a specific dollar figure is not included in the contract, unless as coverage decision has already been made.

The Association Should Not Have to Pay Until Insurance Proceeds are Received.

In addition to requiring contractors to accept payment in the amount approved by the insurance carrier, contractors should not be permitted to demand payment for work until insurance proceeds are received from the carrier.  Otherwise, an association may find itself fronting the money for the insurance carrier – money the association may not have.  Late payments could then result in otherwise unnecessary interest charges that will not be covered by insurance.  In some instances the insurance proceeds may not be received for several weeks or even months after the remediation and repair work is completed – especially when the damage was caused by a widespread natural disaster, like Superstorm Sandy, and the insurance carriers are handling numerous claims at once.

Additional Work Must Be Approved by a Change Order.

Contractors are experts at finding additional work that needs to be performed once they are onsite for insurance-covered damages, but they should never be given open-ended authority to make “necessary” repairs.  If the issue requiring repair was not related to the covered loss, the association will usually end up being responsible for the cost of the repair.  In order to avoid this problem, contracts should specify that all repairs not covered by insurance proceeds must be pre-authorized by a signed written change order.

Most contractors will not perform additional work without at least speaking to the association first; however, when repairs are related to insurance-covered losses new potential problems arise.  As already discussed the scope of work and approved repair costs may not be known before remediation and repair work start.  This creates a risk for contractors to guess wrong about what work will be covered.  The contractor may believe that an item needs to be completely replaced, but the insurance carrier’s final determination may be that the item was repairable – or not covered at all.  Recently, this problem was exacerbated in flood zone areas after Superstorm Sandy when many contractors performed work on damaged property that was below the “base flood elevation” (BFE), and that work was not covered by insurance.  Had the work been performed above the BFE, it would have been covered by insurance.  By structuring the contract to protect the association, the risk of these types of repair costs being shifted to the association is minimized.