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Berkley Condominium Association Inc. v. Berkley Condominium Residences Inc.

Decided: June 7, 1982.

THE BERKLEY CONDOMINIUM ASSOCIATION, INC., PLAINTIFF,
v.
THE BERKLEY CONDOMINIUM RESIDENCES, INC., ET AL., DEFENDANTS



Gibson, J.s.c.

Gibson

[185 NJSuper Page 315] These are consolidated cases which bring into question the constitutionality of N.J.S.A. 46:8B-36. That statute creates a rebuttable presumption of unconscionability with respect to provisions in master deeds or condominium-association bylaws which retain to the developer or the association a right of first

refusal to buy a condominium upon resale, gift or devise. On its face, the statute purports to apply to master deeds and bylaws recorded prior to the effective date of the act.

The procedural history is extensive but, for the most part, is not relevant to the issue to be decided here. The material facts are not in dispute. Plaintiff is an association of unit owners in a high-rise condominium located in Atlantic City and constructed prior to 1974. Defendant is the developer and sponsor of the condominium project. The master deed and ยง 701 of the bylaws of the association require any owner who may wish to sell his unit to first offer the same to the developer. Over the years there have been a number of such sales, including many in which the developer exercised the right of first refusal. Although the association acquired a similar right if the developer failed to exercise its option, it was the association which first sought to challenge these provisions. That effort was initially unsuccessful for reasons unrelated to the present motions. The association appealed. During the pendency of the appeal the Legislature passed N.J.S.A. 46:8B-36 (effective 9/11/80), following which the matter was summarily reversed and remanded for further proceedings in light of the legislation. 85 N.J. 151. Cross-motions for summary judgment have now been filed.*fn1 R. 4:46-2.

Both parties agree that that statute is facially controlling. Defendant has not sought to present evidence to rebut the presumption of unconscionability, but instead argues that the law is unconstitutional because it purports to effect contracts already in existence at the time of passage. Since there are no reported cases interpreting the statute, this is a matter of first impression. N.J.S.A. 46:8B-36 reads as follows:

There is hereby established a rebuttable presumption of unconscionability with respect to provisions of master deeds or association bylaws recorded prior to the effective date of this act which shall arise whenever such a master deed or

bylaws shall contain any provision or clause affording the developer or the association a right of first refusal to buy a condominium unit upon resale, gift or devise by the condominium unit owner. Such presumption may be rebutted by the developer or the association by the presentation of evidence of the existence of facts and circumstances sufficient to justify and validate a provision of the master deed or the bylaws which would otherwise appear to be unconscionable under the provisions of this section.

Plaintiff does not seek to invalidate contracts already entered into by the developer pursuant to the exercise of the right of first refusal. Thus, although it relies on the statute to invalidate the existing right of first refusal, it seeks to do so only as to the developer's further exercise of that right.*fn2 This position, however, does not eliminate the constitutional challenge given the applicability of the statute to contracts already in existence, i.e., the master deed and bylaws.

Defendant's objections go not only to the retroactive nature of the legislation, but include claims of a lack of valid state interest as well as an absence of standards with respect to what constitutes evidence sufficient to overcome the presumption of unconscionability. In examining these challenges it is helpful to review the preamble to the statute.

The Legislature also finds and declares that many contracts for sale of condominium units, master deeds and association bylaws contain provisions affording the developer or the association a right of first refusal to purchase in the event of resale, gift or devise of condominium units by the purchaser, provisions which are in the financial interest of the developer or the association and are designed to limit the freedom of the purchaser to resell the property as he sees fit. The Legislature finds that the relative balance between the consideration given the financial interests of the developer or the association and the limitations placed upon the property rights of the purchaser contained in such provisions is such as to warrant the establishment of a rebuttable presumption of unconscionability with respect to those master deeds and bylaws, and amendments thereof, adopted prior to the effective date of this amendatory and supplementary act, and to warrant the prohibition of such provisions in contracts for the sale of condominium units executed, and in master deeds and bylaws or

amendments of master deeds or bylaws adopted, on or after that date. ...


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