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Category Archives: General Corporate

Homeowners Must Install Carbon Monoxide Detectors

Posted on Author By Francis J. McGovern, Jr., Esquire

In the fall of 1994, international tennis star Vitas Gerulaitis died while staying in the guest house of a Long Island Estate.  His death was caused by carbon monoxide which came from a faulty heater.  Some sources estimate that carbon monoxide is the number one cause of death by poisoning in the United States.  Further estimates suggest that in excess of one thousand people per year die from exposure to high indoor concentrations of carbon monoxide.  In addition, even if carbon monoxide levels are not lethal, headaches, nausea, fatigue, dizziness, brain damage and aggravation of heart problems may occur.

Carbon monoxide is a toxic gas that is produced when fuel is burned with incomplete combustion.  Home fuel burning appliances (for example: furnaces, fire places, hot water heaters, stoves, generators etc.) produce carbon monoxide.  Carbon Monoxide is especially dangerous because it cannot be smelled, tasted or seen.  The United States Consumer Product Safety Commission suggests that the best line of defense against Carbon Monoxide is to have your home fuel burning appliances inspected each year, preferably before the start of the home heating season, to make sure these appliances are in good working order.

At the time of Vitas Gerulaitis’ death, effective, low cost Carbon Monoxide detectors/alarms were not available.  Since then, relatively inexpensive Carbon Monoxide detectors/alarms have become widely available (check hardware and home supply stores).  In light of this, the New Jersey Legislature has mandated the installation of Carbon Monoxide detectors. The statute provides that every unit of dwelling space in a multiple dwelling (a condominium etc.) shall be equipped with one or more carbon monoxide sensor devices that bear the label of a nationally recognized testing laboratory and have been tested and listed as complying with the most recent Underwriters Laboratories standard 2034, or its equivalent.  This statute became effective February 8, 1999 and applies to Condominiums and other multiple dwellings.  The Department of Community Affairs Commissioner has released a regulation which specifies that single station carbon monoxide alarms shall be installed and maintained in full operating condition in the immediate vicinity of each sleeping area in any room or dwelling unit in a building that contains a fuel-burning appliance or has an attached garage.  There are some very limited exceptions to this however, most often the exceptions do not apply.

The required carbon monoxide alarms must be manufactured, listed and labeled in accordance with UL 2034 and must be installed in accordance with the requirements of the regulation and NFPA 720.  Installation and operation instructions should be provided by the manufacturer.  Carbon monoxide alarms must be battery-operated, hard-wired or of the plug-in type.

Department of Community Affairs’ inspections will check units for compliance with the carbon monoxide regulations and will likely enforce this regulation by assessing fines against those who do not comply.

Association Rules And Regulations

Posted on Author By Francis J. McGovern, Jr., Esquire

1. REASONS FOR ASSOCIATION RULES AND REGULATIONS

a) PRESERVATION AND ENHANCEMENT OF PROPERTY

Developers prepare and implement rules and regulations in an effort to, among other things, preserve the value of the homes in the community.  This is the basis for many architectural rules and regulations.  Since many community associations involve high density housing, developers and governmental  planners have used rules and regulations in an effort to avoid the problems suffered by non-association high density housing.

Among other things, non-association high density housing problems involve the wide range of care and maintenance provided by the individual home owners and the wide range in taste with respect to painting, decorating and landscaping properties.  Rules and regulations provide a framework which standardizes the level of maintenance and the look of the homes.  With a set of rules and regulations in place, purchasers can expect the community’s physical attributes to remain similar to what they were when they purchased their homes.  Rules and regulations provide a mechanism for purchasers to enforce a certain look and level of home maintenance, thereby preserving the property values throughout the community.

b) PRESERVATION AND ENHANCEMENT OF COMMUNITY HARMONY

Complimentary to preservation and enhancement of the physical property is the idea that rules and regulations also preserve and enhance community harmony –  relationships between home owners.  An association would be hard-pressed to maintain property values if the only power it had was the power to designate the color of the homes and the type of landscaping.

Importantly,  associations also have the power to regulate relationships between unit owners and between unit owners and the association.  These rules and regulations run the gamut in most associations.  They vary from regulation of noise to keeping of pets to maintaining recreational equipment outside of units to conduct in the swimming pool to parking and driving regulations.

This type of rules and regulations regulate how people are to act while they are in their units or upon association property.   This is an important facet of maintaining property value in high density housing. Many people of varying  backgrounds and lifestyles choose to live in close proximity to one another.  Because of the differing backgrounds and lifestyles and close proximity, without settled rules and regulations, friction could lead to unbearable living conditions.  In a city, municipal regulations regulate people’s conduct. Municipal regulations also apply to community associations however,  though enforceable, they are generally not the number one priority for municipal enforcement.  Police forces can hardly be expected to quickly respond to calls regarding people playing loud music when they are responding to calls involving threats to health, safety or property.

Association rules and regulations provide the tools for managing unit owner conduct on a scale that is manageable by the association’s Board of Trustees,  management company and attorneys.  These relational type rules and regulations and their conscientious enforcement may provide as much impact on property values as the impact of rules and regulations directed toward preservation and enhancement of property.

c) NEW RULES AND REGULATIONS

At one time or another, most people have been told that the “squeaky wheel gets the grease”.  This is no different in the community association field.  In many associations, especially more mature ones, home owner apathy allows a few interested and active individuals to provide the majority of input on how the association is run.  This is often advantageous because these individuals are usually  community-minded and will work with the association’s management and attorneys to maintain property value and amicable unit owner relations.  However, there are times when personal agendas are advocated and adopted to the detriment of the association as a whole.  There are also times when an association’s board is bullied by one or a few outspoken homeowners and the board gives into these demands.

Boards should be cautious not to accept suggestions for new rules and regulations solely because they are strongly advocated by one or a few individuals (the ‘squeaky wheels’).  Instead, whether formally or informally, the association’s board should attempt to determine other association members’  feelings on the proposed rules and regulations.  This avoids the situation where a small group of zealous advocates champion new rules and regulations, the new rules and regulations are adopted, and the ‘silent majority’ erupts with extreme hostility and disfavor.  Rule and regulation creation and implementation without association input  has lead to turnover of entire well functioning boards under the wrath of a no longer silent majority.  Unfortunately  board members in this position are often  surprised and disappointed because they were acting in good faith and they thought they were doing what the people wanted.   Turnover of a board causes instability which often leads to difficulty in managing and representing the association.  Communication and investigation prior to rule and regulation  creation and implementation is critical.

Failure to gain association consensus on proposed rules and regulations may also lead to divisiveness on the board.  Without consensus, a single board member may split from the board and advocate against the remaining board members.  While debate among board members is healthy, divisiveness impairs the board’s ability to get work done and function on a day-to-day basis.  Rather than the board polarizing, consensus should be  worked toward in creating and implementing new rules and regulations.

Unfortunately, obtaining community consensus and feed back is difficult.  Informal surveys are thought to be  less accurate and less reflective of the true feelings of association members.  However, formal opinion surveys/referendums can do more harm than good because rules or regulations that may “need” to be implemented may not receive a majority of  votes in a formal survey.  Then, home owners are naturally inclined to believe that, since the proposed rules and regulations did not receive a majority vote, the new rules and regulations are not going to be implemented.  This is contrary to the function of the board.  The board, as a representative body, knows the day-to-day workings of the association, its management company and attorneys generally have an awareness of the need for the rules and regulations.  What may seem unwise upon superficial  review by a non-participating homeowner may, from the board’s perspective, be critical for the proper functioning of the association.

We generally advise against performing  surveys on proposed rules and regulations but do advise that the board notify the association of the proposed rules and regulations through a news letter or otherwise to attempt to obtain the community’s feelings on the proposed rules and regulations.  This may be combined with open discussion at meetings prior to rules and regulations adoption.

2) SOURCE OF RULES AND REGULATIONS

a) STATUTE   

Rules and regulations in community associations arise from a number of sources.  Among numerous other statutory provisions, the Condominium Act appears atN.J.S.A. 46:8B-1 et. seq. and the Cooperative Recording Act at N.J.S.A. 46:8D-1 et seq.  Homeowners’ associations are generally left to the provisions in the deed of restrictive covenants with provisions from other statutes being applied by analogy.  The Community Association Institute is advocating passage of  a single statutory framework for community associations: The Uniform Common Interest Ownership Act. The hope is that the Uniform Common Interest Ownership Act will provide a standardized statutory basis for all forms of common ownership of real property in New Jersey and thereby provide a clearer basis for administering common ownership associations.

b) GOVERNING DOCUMENTS

Regardless, most association rules and regulations are not derived from statute but, are generally outlined in the association’s deed of restrictive covenants or master deed.   Generally these documents empower the association’s board to create and enforce rules and regulation for the common property and residents’ conduct within the association.   So long as the rules and regulations are implemented pursuant to the association’s governing documents, they are generally upheld.  However, the other source of rules and regulations is case law.

c) CASE LAW

Case law generally arises when the association and a unit owner become involved in a suit over implementation or enforcement of a certain rule or regulation.  Generally either a statute, rule or regulation is not one hundred percent clear or the facts are such that they do not fit exactly with the statute or regulations.   To resolve a dispute, the court will look to statute, the association’s governing documents and decisions of past courts to form an opinion as to whether the particular rule or regulation and the enforcement of such rule or regulation is valid.

Once a court decision has been rendered on a particular rule and regulation, that decision comes into play in considering enforcement of the subject rules and regulations in future cases with similar facts.  The decision may even bind the association with respect to future rules and regulations.  This was demonstrated, to the chagrin of many associations, when the court in Walker v. Briarwood Condominium Association, 274 N.J. Super. 422 (App. Div. 1994) struck down an association’s ability to impose fines for violations of rules and regulations and the court in Holbert v. Great George Village S. Condominium Council, Inc., 281 N.J. Super. 222 (Ch. Div. 1994) struck down an association’s ability to impose late fees.  Note that both of these court cases were statutorily overruled by passage of the amendments to the condominium act. See, N.J.S.A. 46:8B-15(e) and (f).

3. NOTICE OF RULES AND REGULATIONS

a) GENERALLY

Notice of rules and regulation may be provided in a number of ways.  First, individuals are generally put on actual notice of rules and regulations by receiving a copy of them at the closing of the sale of their home or by receiving a copy when the rule or regulation is passed.  The purchaser’s closing attorney should have reviewed all rules and regulations in the governing documents and otherwise with the purchasers. However, this is often not  done and, though copies of the governing documents are received, they are never reviewed.  Upon enforcement, many claim that they never heard of the rule and regulation.

If  the governing documents containing the rules and regulations and/or separate rules and regulations are recorded in the County Clerk’s office, the home owner is bound by the rules and regulations through constructive notice.   With constructive notice, individuals purchasing real property are conclusively presumed to have notice of documents affecting  their real property that are on file with the County Clerk’s office even though they may have never read the documents.  See, Camp Clearwater, Inc. v. Plock, 59 N.J. Super. 1 (App.Div. 1959).  Since master deeds and deeds of restrictive covenants are filed with the County Clerk’s office, property owners are bound by the rules and regulations contained therein. See, N.J.S.A. 46:21-1.

However, the general rules and regulations outlined in the master deed and deed of restrictive covenants often do not fit the day-to-day needs of the association closely enough and the association’s board is often required to implement rules and regulations within the scope of the master deed and by-laws that better fit the day-to-day operation of the association.  These rules and regulations are, so long as they are within the scope of the provisions of the master deed and by-laws, passed by a resolution and should be kept in a resolution book that is held by the association’s manager and is open for review by homeowner owner or potential homeowner.  Additionally, many property managers provide a summary rule and regulation booklet that advises homeowners of all specific rules and regulations (this summary should be distributed with the closing package).  This is  wise  because it highlights the rules and regulations before an actual breach.

b) RECORDATION REQUIRED

While it is not necessary to record every rule and regulation in the Clerk’s office, it is wise to record rules and regulations which will significantly affect the lifestyle of the homeowners (i.e., banning of pets) or would significantly affect the unit owners’ ability to deal with their property or the common property (i.e., regulations relating to installation of decks).  These two types of rules and regulations must be addressed very carefully.  They must be recorded because the association will want to have the benefit of the conclusive presumption that home purchasers are aware of the rule and regulation.

Prior to implementation, the board must also have these types of  proposed rules and regulations carefully reviewed by the association’s management company and attorney.  This is so because rules and regulations which will significantly affect the homeowner lifestyle or the homeowner’s ability to deal with their property may require amendment to the master deed and/or the by-laws.  This  generally requires a solicitation and vote of all homeowners.

Further, the proposed rule may so significantly affect the lifestyle of the unit owners or the unit owners’ ability to deal with condominium property that the rule works a “change in a unit” such that, statutorily, the proposed regulation requires an affirmative vote of every unit owner.  This is required by the Condominium Act at N.J.S.A. 46:8B-11 which provides that “unless otherwise provided therein, no amendment shall change a unit unless the owner of record thereof and the owners of record of any liens thereon shall join in the execution of the amendment or execute a consent thereto with the formalities of a deed.”  This is supported by the New Jersey Supreme Court’s decision in Thanasoulis v. Winston Towers 200 Association, 110 N.J. 650 (1988).  InThanasoulis the Court determined that a regulation passed by the association’s board which charged non-resident unit owners higher monthly parking fees than those charged resident unit owners constituted a proscribed “change in a unit” and therefore could not be affected without the unit owner’s consent.  In the Matter of 560 Ocean Club, L.P. 133 B.R. 310 (Bkrtcy. D.N.J. 1991) the court determined that the association’s attempt to pass a regulation which proscribed short term leases constituted a “change in a unit” requiring the consent of each homeowner.  “Change in a unit” is not defined in the statute but the New Jersey Supreme Court has said “we assume that the legislative intent was that a unit owner should retain essentially the same property rights originally deeded to him for as long as he owns his unit unless he affirmatively consents to them being altered”.  Thanasoulis, 110 N.J. at 663.  The Thanasoulis court described the parking space as a vital component of the unit and held that the revised parking rules had the effect of confiscating a portion of the property interest the unit owner acquired when he purchased the unit, thereby denying him economic value of a portion of his unit.  Whether a rule or regulation ‘changes a unit’ must be evaluated on a case by case basis.  However, any time a proposed regulation may change the  property rights originally deeded to the unit owner, the Board should evaluate whether it will be able to obtain the consent of all unit owners.  This would likely be the rare instance.  Recordation of rules and regulations which significantly affect lifestyle or use of a unit is required.  However, these significant rules and regulations must be carefully evaluated because special procedures may be required for their implementation.

4. ENFORCEMENT OF RULES AND REGULATIONS

In most cases, rules and regulations are complied with after a simple notice from the management company.  However, at times, unit owners are recalcitrant.  This involves enforcement through other means.

First a notice is sent to the homeowner to remedy the violation with an indication that the homeowner may seek alternate dispute resolution.  If the homeowner chooses alternate dispute resolution, the homeowner meets with the alternate dispute resolution committee or individual and the dispute is typically mediated.  The Committee then makes a recommendation as to resolution.  The board then makes a decision with respect to enforcement in light of the alternate dispute committee’s recommendation.

If the required compliance is not met by the unit owner, the association’s board may then institute a fine for singular violations or a number of fines for a continuing violation.  See, N.J.S.A. 46:8B-15(p).  Fines should be collected in the same fashion as  any other homeowner assessment.

The association, after consultation with its attorney, may also take self-help measures.  The association may have the ability to correct the violation and charge the homeowner for the expense involved in the correction.  The association’s attorney must be consulted when considering self help as property ownership and control issues arise as do problems regarding breach of the peace.  Further, self help may become expensive and the association should, if possible, avoid becoming a significant creditor.

Compliance with the association’s rules and regulations  may also be enforced through injunctive actions.  Injunctive actions involve the association’s attorney requesting that the court issue an order requiring the homeowner to do or not to do something.   The problem with seeking injunctive relief is that  attorney fees become very expensive, requiring numerous hearings and significant time in preparation of detailed witness certifications.  Generally, injunctive relief actions are reserved for significant rule and regulation violations, emergency requests, where quick relief is necessary or where a unit owner is “judgment proof” that is, where a unit owner does not have the funds the pay fines even if a judgment were entered.  An injunction or court order will compel the homeowner to comply where the pressure of fines may not.  In cases where a homeowner is judgment proof, the action for injunctive relief may be followed by a foreclosure action to dispossess the homeowner and motivate the mortgage company to foreclose.  Again, this  is costly and time consuming.

a) FIDUCIARY DUTY

It is a board’s Fiduciary duty to enforce association rules and regulations.  This is an important consideration which is often overlooked in the enforcement process.  Usually the violating person argues why they should be permitted to continue the violation or be given some type of special allowance.  Rarely does the association’s board highlight the fact that every other unit owner purchased and continues to maintain their homes in reliance on the association’s governing documents which include the rules and regulations.  The value of maintenance of the rules and regulations should be reflected in the value of the home.  Therefore, if the association’s board fails in its fiduciary duty to enforce the rules and regulations, the association’s board may be subject to suit by the non-violating homeowners for failure to enforce rules and regulations.  It is very important that board members keep in mind that it is their affirmative duty to enforce the rules and regulations.

b) REASONABLENESS IN APPLICATION

Keeping in mind that it is the fiduciary duty of the board to diligently enforce the rules and regulations of the association.  This is balanced by the “reasonableness” factor that it is imposed by case law in New Jersey.  Essentially, courts have read into association rules and regulations a reasonableness factor whereby the association, while maintaining enforcement of its rules and regulations, must do so reasonably.  See, Billig v. Buckingham Towers Condominium Association I, Inc., 287 N.J. Super. 551 (App. Div. 1996).

The reasonableness test is whether the interests of the unit owners as a whole are served, advanced or protected by the board’s action.  If so, the regulation will likely be determined to be reasonable, if not, the association may have to give deference to the unit owner desires.  This reasonableness standard helps avoid draconian imposition and enforcement of rules and regulations.  It further recognizes that, though rules and regulations may appear perfectly suitable on paper, their application often involves consideration of factors that were not considered during the drafting and implementation process.  The reasonableness requirement speaks to application of rules and regulations in the daily living of homeowners and the good faith application of these rules and regulations.

c) FAILURE TO ENFORCE

Most, if not all, association governing documents contain a provision which specifies that, if the association’s board’s fails to enforce rules and regulations, such failure to enforce will not work as a waiver, release or estoppel against the association enforcing these rules and regulations at a later date.  This is important because in other contractual arrangements, if a party fails to enforce a certain provision, the person that the regulation is being enforced against can claim waiver, release or estoppel and may successfully overcome enforcement of the regulation.  Association living is an arrangement involving more than a mere one on one contract.  It is a mutual relationship among homeowners and between the homeowners and the association (essentially, a small form of government).  It is important that associations always take the position that, even if a certain rule or regulation was not previously enforced, the board may enforce it in the future and past non-enforcement will not be considered a waiver, release or estoppel.

d) ATTORNEY FEES FOR ENFORCEMENT OF RULES AND REGULATIONS

Most governing documents provide for collection of “reasonable” attorney fees if the association is required to take legal action to collect association assessment and fees.  However, many documents do not provide for the association collecting its reasonable attorney fees expended in efforts to compel a unit owner to comply with the association’s rules and regulations.  Additionally, most documents also do not contain provisions addressing cases where counterclaims are raised against the association by home owners that the association is seeking to enforce rules and regulations against. Homeowners should be held responsible for the reasonable attorney fees incurred by the association in enforcing its rules and regulations and in defending counterclaims if the homeowner is unsuccessful in prosecuting the counterclaim.  Though this is generally untested, associations may wish to attempt to amend their documents to provide for collection of reasonable attorney fees if the association is required to take legal action to enforce its rules and regulations and it successfully defends counterclaims either in  collection actions or in suits to enforce rules and regulations.  This is important because associations are often compelled to settle cases because of frivolous counterclaims but counterclaims which nonetheless generate insurance claims and non-recoverable attorney fees.

5. EXCEPTIONS TO RULES AND REGULATIONS

Often, though the association has exclusive power with respect to modification of the common elements and  association property, as an association matures, members will wish to modify certain portions of the units, or the common elements.  This has been seen with respect to the installation of attic fans, installation of satellite antennas, installation of skylights, homeowner maintenance of flower beds, installation of various landscaping modifications, installation of storage sheds and other modifications that somehow affect  homes, limited common elements or common elements.  While the association should take steps to maximize the use and enjoyment of the community, the association should be very cautious in granting use of and/or modification of property which is outside of that initially contemplated in the governing documents.

If the association does wish to grant these exceptional rights, the association must pass a specific resolution with respect to the particular unit addressing the proposed use. The association must also have the unit owner enter into a separate agreement with the association addressing the modification, and addressing the unit owners and his successors and assigns responsibility for the modification.  A copy of a sample agreement is attached hereto as Exhibit A.

Often the association will require a fee for the requested  use.  It should cover attorney fees for preparation of the various documents as well as the County Clerk’s recording fee.   The fee may also include a charge for inspection by the association’s contractor.  It is important that these types of agreements are recorded in the County Clerk’s office because they modify rights and responsibilities with respect to the particular unit and not just the particular unit owner but also his successors and assigns (i.e. people who purchase the unit from him, etc.).  The unit owner should also provide evidence of insurance and agree to maintain the modification in the future. See exhibit A.

Alternative Dispute Resolution In Community Associations

Posted on Author By Francis J. McGovern, Jr., Esquire

WHAT IS ‘ADR’

Alternative Dispute Resolution (‘ADR’) is any one of a number of methods designed to resolve a dispute without the necessity of a lawsuit or trial.

WHY ‘ADR’

  1. It is required.  New Jersey requires that parties to a dispute participate in some form of ADR prior to an Association imposing a fine and/or prior to proceeding to trial.
  2. Cost savings.  ADR often saves all parties costs in terms of attorney fees, court costs and time commitment.
  3. Risk Reduction.  The parties maintain control of the dispute outcome.  Rather than risk having a judge or jury, who may not be as familiar with or interested in the dispute, make a binding decision, the parties can reach a compromise where each may get less than everything but neither will risk losing everything.
  4. Post-Dispute Relations.  Parties to Association disputes will typically continue to live as neighbors or community members after the dispute.  This is unlike many commercial litigation cases where the parties are unrelated except for the subject of their dispute.  An agreed upon settlement may more quickly return relations to normal after the dispute is resolved.

METHODS:

Today the most common forms of alternative dispute resolution are mediation and arbitration.

Mediation is typically a loosely structured process involving a neutral mediator who assists the parties in identifying the key disputed issues, suggests solutions and aids in reaching a compromised resolution.

Mediation is probably the most common form of alternative dispute resolution in community associations.  The reason for this is procedural simplicity and flexibility combined with the fact that the parties retain control over their dispute.

The Mediation process typically involves the following:

  1. Notice.  The Association sends the violation notice describing the alleged violation, notifying the accused of the date and time for the mediation and notifying the accused that non-attendance will be taken as a waiver of the right to alternate dispute resolution.
  2. Mediator.  Appointment of a mediation committee composed of non-Board members who do not know the parties to the dispute and who are not involved with the disputed issues.  An independent mediator (or arbitrator) may also be hired.  The advantage of this is that the independent mediator (or arbitrator) will likely be even more independent and may compel the parties to more seriously discuss the matter.  The drawback is that professional mediators charge significant fees.
  3. Process Overview & Confidentiality. The mediator must outline the mediation process and discuss confidentiality with the parties (determine which information he or she may disclose to the other side during the mediation process). Prior to the mediation the mediator should also discuss payment of any mediation costs, the attorney fees and who will bear such costs.
  4. Initial Statements.  Allow each party to explain their version of the facts without interruption.
  5. Individual Caucuses.  Often mediators will then separate the parties and discuss the nuances of each party’s position.  The mediator will also point out the strengths and weaknesses of each party’s position and highlight the benefits of settling versus pursuing the case through the courts.  During individual caucuses the mediator may learn of sources of friction that are not the original source of the complaint.  If possible, these additional issues should be addressed too.
  6. Framing Key Disputes & Possible Settlements.  The mediator will then bring the parties back together, frame the key disputes and suggest settlement scenarios.
  7. Reducing Settlement to Signed Writing & Providing for Default Penalty. If the parties reach an amicable settlement, the mediator should assist in reducing the settlement to a written instrument that is signed by both parties and that provides for penalties if the parties fail to abide by the settlement agreement.  If the parties cannot reach an agreement, the mediator should issue an opinion as to how the mediator feels the matter should be settled.  This would be an advisory opinion or a non-binding arbitration.

In contrast to mediation,arbitration is more formalized and involves one or more neutral or non-neutral arbitrators who, much like judges, listen to the parties’ arguments, review their evidence and render a decision.  The determination may be binding or non-binding.  In a non-binding arbitration the parties have the right to have the dispute reevaluated by a court.  In a binding arbitration, the arbitration decision is binding and enforceable against both parties.

In Association disputes, arbitration decisions are typically non-binding unless otherwise agreed to in writing.  This allows the parties to take the non-binding decision as advisory and either adopt it or reject it.  Further, settlements are limited by the Association’s governing documents and a binding arbitration decision regarding governing document interpretation may be unwise and/or unenforceable.

In sum ‘ADR’ need not be complicated, confusing or expensive but rather a simple method of attempting to work out a problem without the necessity of going to Court.

DCA Regulations Positive or Punitive?

Posted on Author By Francis J. McGovern, Jr., Esquire

On June 3, 2019, the New Department of Community Affairs (the “DCA”) proposed regulations that would significantly impact Association governance. Many of you raised concerns with respect to the proposed regulations.
On Monday, May 18, 2020, with few modifications, the proposed regulations became effective. The DCA issued a 112-page document outlining the public comments and the DCA’s responses. That document is available by clicking here: PREDFA Regulations May 18, 2020 The DCA declined requests for hearings on the public comments.
The good news is that, decades before the proposed regulations, most Associations, Board Members and Managers worked hard to provide transparency, member participation and good governance. Theoretically, not much should change for them.
The bad news is that, because of the relatively few bad-apple Associations, all Associations, Board Members and Managers are now saddled with micro-regulation backed by the threat of fines and penalties.
It is hard to know where this will lead. Increased transparency, member participation and good governance? I hope so. Increased administrative expenses? Yes. Increased D & O claims? Most likely. Decreased volunteer participation? I hope not. “Wag the dog” politics? Sadly, probably.
Let’s be positive and hope that the DCA will, as it historically has done, use a constructive approach rather than a punitive approach to assisting Associations and their members. A lightly marked up copy of the original proposed regulations may be seen by clicking here: Mark-up Copy

Business Judgement For Board Members

Posted on Author By Francis J. McGovern, Jr., Esquire

The Standards Of The Business Judgement Rule

Board members have a fiduciary duty to the association/corporation and arguably directly to the individual members.  Fulfillment of this duty requires that the board members exercise utmost good faith.

In ordinary corporate matters, the ‘business judgment rule’ is the standard by which board action is evaluated.  The business judgment rule generally provides that, so long as the board members fulfill their duties of ‘care’ and ‘loyalty’ the board’s decisions will not be second-guessed by a court.

The duty of ‘care’ obligates the board to make their decisions only after ‘due diligence’ – after the board members have become reasonably informed about the issue at hand.  The board members may rely on experts such as engineers, architects, lawyers, accountants, contractors, etc. in fulfilling their duty of care.  The duty of ‘loyalty’ obligates the board to make their decisions for the benefit of the association/corporation rather than for their own benefit.  In the ordinary corporation, once the duties of care and loyalty are fulfilled, the board’s decisions, good or bad, will not be disturbed by the courts.

In associations, condominiums and co-ops however courts frequently graft a ‘reasonableness’ test on to the business judgment rule review.  Although often denying it, courts do in fact second guess association, condominium and co-op boards.  Courts ask themselves: ‘Assuming that the duties of care and loyalty were met, was the decision reasonable’

In your example, assuming a certain membership vote was required but was not obtained (which is likely since the board will not disclose the alleged vote results); the board is not fulfilling its fiduciary duty.  It is not acting in good faith.  It is not fulfilling its duty of care as it is not complying with the governing documents and is not fulfilling its duty of loyalty as it is pursuing its own agenda in spite of the governing documents’ membership vote requirement.

Be aware that, when considering the improvement you described, a super-majority membership vote is typically required rather than just a simple majority.  Regardless, the options are limited.  Typically one or more members will sue to enjoin the board from further action.  Court’s will issue such an injunction if the members can show that the members will be irreparably harmed in the absence of the injunction, the legal basis for the members’ claims is generally settled, the members are likely to ultimately succeed on the merits and the hardship that the members will suffer, if the project is allowed to go forward, will be greater that the hardship suffered by the board/association/corporation if the project is temporarily stopped.  Another, or possibly concurrent, option is the membership undertaking a board member removal vote.  Although the membership typically has the power to remove and replace the board members, this option is usually too cumbersome and time consuming to be used effectively in immediately stopping improper board action.

In addition to the injunction, the membership should also make the board members aware that, in knowingly proceeding without the required membership vote, the board members may be exposing themselves to personal liability.  This liability may not be covered by the Association’s insurance policy and the board members’ actions may take them outside of any exculpation provision in the governing documents.  Essentially, in not complying with the governing documents, the board members are generating unnecessary legal fees and risking having to pay their own defense cost and liability award if the membership proves damages.

Refreshing Insurance

Posted on Author By Francis J. McGovern, Jr., Esquire

CAI-NJ Conference and Expo – Refreshing Insurance

1. Cultivate a Relationship with the Association’s Insurance Representative

Insurance representatives make their living selling insurance and maintaining accounts. They are professionals and should be a part of the Association’s professional services team. Association boards should be familiar with their insurance representatives and use them as a resource. Too often, board members do not even know who their Association’s insurance representative is until a problem arises.

2. Read the Policy:

In Aden v. Fortsh, 169 N.J. 64 (2001), New Jersey’s Supreme Court ‘[R]eaffirm[ed] New Jersey’s longstanding tradition of holding professionals [an insurance broker] to high standards of care’. The court rejected the insurance broker’s claim that the condominium unit owner should bear a portion of the blame for inadequate coverage because he never read his insurance policy.

Nevertheless, policyholders should read their policies. Insureds should know what they are getting for their money and who will pay what in case of a claim. Further, not only did the Aden case work its way all the way to the New Jersey Supreme Court, it also resulted in a 4 to 3 split decision among the justices suggesting that a change in the Court’s makeup could result in a different outcome.

3. Pay the Premiums:

Sounds obvious right But on multiple occasions Associations have failed to timely pay their premiums.

4. Obtain Adequate Coverage:

Beware ‘Coinsurance’. Coinsurance seeks to compel Associations to buy sufficient coverage and pay sufficient premiums but may lead to insufficient coverage even when the value of the loss is within the Association’s policy limits.

Although coinsurance provisions may differ, the following is an example:

A policy may provide that, if the amount of coverage is not equal to at least 80% of the value of the covered property at the time of loss, a co-insurance penalty will apply.

If the Association had $8,000,000 in insurance on its building (the ‘Covered Property’) and the Association had a fire causing $5,000,000 in damage and, at the time of loss, the value of the Covered Property was $10,000,000, $8,000,000 in insurance would be 80% of the value of the Covered Property at the time of the loss and the co-insurance penalty would not apply. Therefore, barring other issues, the carrier would be expected to pay $5,000,000.

If however, the value of the Covered Property was $12,000,000 at the time of the loss, $8,000,000 in insurance would only be approximately 67% of the value of the Covered Property and a co-insurance penalty would apply.

A co-insurance penalty may apply as follows assuming $5,000,000 in damage: $8,000,000(the Limit of Insurance)/$9,600,000 (80% of the $12,000,000 value of the Covered Property) = .83333 x $5,000,000 = $4,166,650, less any applicable deductible = the insurance payment. So, even though the Association in this example had $8,000,000 in coverage and the loss was only $5,000,000, the insurance company would only pay approximately $4,166,650.

5. Determine Who You are Covering or Should Have Coverage For:

The Association, the Board members, other volunteers, Association contractors such as managers who often require the Association to carry certain coverage and/or name them as additional insureds and/or indemnify them in certain circumstances.

6. Report Potential Claims/Demand Coverage:

Policies require notice of claims. Failure to timely notify the carrier will provide the carrier a basis for denying coverage.

7. Challenge Defense/Coverage Denials:

Defense and coverage denials should not be accepted based on the insurer’s opinion of the matter. In fact, even when insurers propose to defend a matter pursuant to a ‘reservation of rights’ the insured need not accept the insurer’s terms proposed in the reservation of rights.

Associations need and expect defense and coverage when a claim is made. Denials of defense and coverage are especially difficult for Associations as the denial may compel the Association to pay attorney fees to fight the denial and, at the same time, defend the underlying lawsuit.

This makes Associations particularly inclined to accept the terms of ‘reservations of rights’ letters. However, Association’s should not leap to accept these reservations of rights. Instead, the Association should spend time with the Association’s general counsel determining whether it is in the Association’s best interest to accept insurance counsel defense given the rights the carrier ‘reserves’ or attempt to negotiate a defense agreement whereby issues such as counsel selection, fee allocation and liability coverage are resolved amicably with a view toward defeating the underlying claim.

8. Use New Jersey’s Department of Banking and Insurance, Office of Insurance Ombudsman to Assist with Insurance Coverage and Claims

New Jersey’s Office of the Insurance Ombudsman was established ‘to assist consumers with issues related to insurance availability; claims processing; coverage questions and other matters related to consumer education and assistance’. The contact information for the Office of the Insurance Ombudsman is:

Office of the Insurance Ombudsman

NJ Dept. of Banking and Insurance

20 West State Street, P.O. Box 472

Trenton, NJ 08625-0472

1-800-446-7467

Association’s Need to Collect Assessments to Keep Up the Fight

Posted on Author By Francis J. McGovern, Jr., Esquire

Community Associations fight the spread of COVID-19 where people live. Associations must not be stopped from collecting the assessments they need to keep up the fight. Senate Bill S2330 sponsored by Senators Joseph P. Cryan and Nellie Pou; and Assembly Bill A3908 Sponsored by Assembly Members Mila Jasey, Verlina Reynolds-Jackson and John McKeon had been listed for votes in the Senate and Assembly on April 13, 2020.

To the great relief of Condominiums, Co-Ops, and Homeowners Associations throughout New Jersey, neither the Senate nor the Assembly voted on these bills on May 13, 2020. These bills have however re-surfaced. And, at least for the moment, they do not contain Senator Pou’s proposed Amendment that would remove Association-crippling Section 3. A copy of Senator Pou’s proposed amendment may be viewed by clicking here: Senator Pou’s proposed amendment

The Assembly version, A3908, is scheduled for hearing before the Assembly Commerce and Economic Development Committee on Thursday, May 7, 2020 at 11:00 AM. The Senate version, S2330, is scheduled for hearing before the Senate Budget and Appropriations Committee on Thursday, May 7, 2020 at 1:00 PM. The Senate and Assembly Bills are identical for the time being. A copy of Senate Bill S2330 may be found by clicking here: https://www.njleg.state.nj.us/2020/Bills/S2500/2330_I1.HTM

The Committees would have taken your oral testimony on A3908 and S2330, by telephone and/or video but a deadline for submitting the required SBA Committee Registration Form was set as 3:00 pm on May 5, 2020 so it seems that the late notice will effectively exclude telephonic or video testimony. You may however still submit written testimony via e-mail to OLSAideSBA@njleg.org. Your e-mails will be included in the committee records and distributed to the Committee members. Please reference the bill numbers and Committees you are submitting your comments to in the e-mail Re: line.

Without amendment, the proposed legislation will cripple Association cash flow. It will make it more difficult or impossible for Associations to perform their critical functions. It will make it more difficult or impossible for Associations to pay the individuals and small businesses Associations employ.

Assessment revenue is the lifeblood of every Condominium, Co-Op, and Homeowners Association. To a degree, the crisis has already hobbled collection efforts.

We have advocated forbearance agreements and encouraged flexibility. We continue to do so.

Please e-mail the Assembly Commerce and Economic Development Committee members: Gordon Johnson, Robert Karabinchak, Robert Auth, John Catalano, Nicholas Chiaravalloti, John DiMaio, Aura Dunn, William Moen, Annette Quijano and Verlanda Reynolds-Jackson and the Senate Budget and Appropriations Committee members: Paul Sarlo, Sandra Cunningham, Dawn Addiego, Nilsa Cruz-Perez, Patrick Diegnan, Linda Greenstein, Declan O’Scanlon, Steven Oroho, Teresa Ruiz, Troy Singleton, Michael Testa, and Samuel Thompson and request that these bills not move forward without Senator Pou’s amendment removing Section 3. You may find your legislators by clicking here:  https://www.njleg.state.nj.us/members/legsearch.asp

Thank you.

Notarizing Documents Remotely

Posted on Author By Francis J. McGovern, Jr., Esquire

On April 14, 2020, Governor Murphy signed Assembly Bill 3903 into law. The text of the Bill may be reached by clicking here: https://www.njleg.state.nj.us/2020/Bills/A4000/3903_R1.PDF  The new law provides for notarizing documents remotely during the public health emergency and state of emergency.

Among other things, notaries confirm from personal knowledge or from satisfactory evidence that the person appearing before them is the person whose true signature is on the document. In New Jersey and certain other states, lawyers may also acknowledge documents.

Although it is easy to become a New Jersey notary. Acknowledging documents and performing the other duties of a notary is serious business. In his article Signed, Sealed, Delivered…Disbarred – Notarial Misconduct by Attorneys, available by clicking here: https://repository.jmls.edu/cgi/viewcontent.cgi?article=1644&context=lawreview   Christopher B. Young surveyed improper notary practices by attorneys and the sanctions that followed such activity.  31 J. Marshall L. Rev.1085 (1998). In especially egregious cases attorney discipline has been severe.

Mr. Young’s article, highlights instances where lawyers attempted to defend themselves by claiming that it was common practice for attorneys to have notaries notarize clients’ signatures without the client being present, such arguments were rejected. A quick review of New Jersey Attorney Disciplinary Decisions reveals that the New Jersey Supreme Court has reprimanded at least two New Jersey attorneys for execution of improper acknowledgments.

The above being said, notary duties must be taken seriously and the new law, in sum provides:

During the public health emergency, except with respect to the exceptions in the law, notaries may take acknowledgements remotely via communication technology that allows the individuals to communicate with each other via sight and sound if:

  1. The notary has (a) personal knowledge of the identity of the person appearing, (b) has evidence by oath via a credible witness also appearing before the notary or (c) has obtained satisfactory evidence of the identity of the remote-located individual by using at least two different types of required identity proofing and
  2. The notary is reasonably able to confirm that the document before the notary is the same document on which the remotely located person executed a signature and
  3. The notary creates and maintains for ten years an audio-visual recording of the performance of the actions required.

Further, the acknowledgement shall state that the document was notarized using communication technology. Consult your lawyer for details. This law helps during the crisis, but the process must be followed.

Legislative Bills S2330/A3908 Tabled – For the Moment

Posted on Author By Francis J. McGovern, Jr., Esquire

I hope you and your family had a nice weekend despite the social distancing.  I write to follow up on my April 10th e-mail.  This morning the Senate met virtually and tabled S2330.  You may read the bill by clicking here: https://www.njleg.state.nj.us/2020/Bills/S2500/2330_I1.PDF.   A3908 is currently identical.  My understanding is that, when the Assembly meets this afternoon, it will table A3908.

Thank you to everyone who reached out to their Senators and Assembly Members and voiced concern on these bills.  They could cripple Condo. Co-Op and HOA cash flow.

The fact that these bills are tabled for the moment however does not mean that we should rest.  Versions of these bills will likely resurface shortly.

If you have not done so already, please reach out to your State Senator and Assembly Members and voice your concerns.  Contact information for State Senators and Assembly Members may be found here:  https://www.njleg.state.nj.us/members/legsearch.asp

I have written the following: “Dear Senator and Assembly Members:  Please revisit the above bill and either exempt or make specific provision for collection of Condo, Co-op and HOA assessments.  These Associations are financed on zero-based budgets.  There is no profit built in.  The annual expenses are distributed among the members.  If the assessments are not collected, the Associations will not have the funds to pay their expenses.”

I cited the below as language some associations are using when considering forbearance requests:

•          Arrearage will accrue for May and June 2020’s assessments (the “Accrued Assessments”).

•           Late fees will accrue for May and June 2020’s assessments (the “Accrued Assessment Late Fees”).

•           Membership rights will not be suspended for failure to timely pay May and June 2020’s assessments so long as they are paid as provided for in this agreement.

•           Unit Owner must timely pay all Association obligations arising on July 1, 2020 and thereafter beginning on July 1, 2020 and thereafter.

•           Unit Owner must also pay Accrued Assessments in six equal payments beginning on July 1, 2020 and on the first day of each month thereafter until all Accrued Assessments are paid in full.

•           So long as the Accrued Assessments are timely paid in six equal payments beginning on July 1, 2020 and on the first day of each month thereafter and all Association obligations that arose on July 1, 2020 and thereafter are timely paid in full, the Association will waive Accrued Assessment Late Fees;

•           So long as this agreement is timely complied with, the Association will forebear from collection action with respect to the Accrued Assessments.

•           So long as the Accrued Assessments are timely paid in six equal payments beginning on July 1, 2020 and on the first day of each month thereafter and all Association obligations that arose on July 1, 2020 and thereafter are timely paid, the Association will take no legal action with respect to the Accrued Assessments.

I noted that Associations are addressing forbearance agreements depending on their populations and financial positions.  So, for example, certain Associations are forbearing for May and June while others may be forbearing for longer.

I advised that, although we may or may not represent an Association in their District, the Associations in their district work hard to keep the Associations on sound financial footing.  I suggested that the Legislators contact the President of one of the Associations in their district for feedback.

Again, please reach out to your State Senators and Assembly Members.  Emphasize the great work that you do, emphasize that your Association is showing flexibility via forbearance agreements (if true) and emphasize that, though perhaps well-intentioned, hampering Associations’ ability to collect will do more harm than good.  Thank you.

Associations Need Time to Comment on Proposed Collection Legislation

Posted on Author By Francis J. McGovern, Jr., Esquire

I write to follow up on my April 3, memo suggesting assessment forbearance agreements for certain Association Members. Late in the day yesterday State Senators Joseph P. Cryan and Nellie Pou introduced Senate Bill S2330; State Assembly Members Mila Jasey, Verlina Reynolds-Jackson and John McKeon introduced Assembly Bill A3908. The Senate and Assembly Bills are identical for the time being. A copy of Senate Bill S2330 may be found here: https://www.njleg.state.nj.us/2020/Bills/S2500/2330_I1.PDF

The proposed legislation will impact Association cash flow. It could make it more difficult or impossible for Associations to perform their critical functions. It could make it more difficult or impossible for Associations to pay the individuals and small businesses Associations employ.

There is speculation that these bills may be voted on this Monday, April 13, 2020. The timing of this proposed legislation is a great concern. Among other things, Passover, Good Friday and Easter have justifiably drawn Association Members’ attention to family and spiritual commitments.

Assessment revenue is the lifeblood of every Community Association. There should be adequate time for Association Members and others to consider and comment on this legislation. To a degree, the crisis has already hobbled collection efforts.

We have advocated forbearance agreements and encouraged flexibility. We continue to do so. We ask that you reach out to your State Senators and Assembly Members and request that they not vote on this proposed legislation until Association Members and others have had time to consider and comment on it.

You may find your legislators by clicking here https://www.njleg.state.nj.us/members/legsearch.asp

Thank you.

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