On certification to the Superior Court, Appellate Division, whose opinion is reported at 184 N.J. Super. 442 (1982).
For affirmance in part; reversal in part and remandment -- Chief Justice Wilentz, and Justices Clifford, Schreiber, Pollock, O'Hern and Garibaldi. Opposed -- None. The opinion of the Court was delivered by Schreiber, J.
[93 NJ Page 372] We are called upon in this case to consider certain aspects of the Condominium Act, N.J.S.A. 46:8B-1 through -38, in particular those concerning the relationship of the owner of a unit to the associations representing all unit owners with respect to claims against the builder of the condominium. Plaintiffs, owners and inhabitants of housing units in the condominium community "Harmon Cove" in Secaucus, New Jersey, sued the developer, Hartz Mountain Associates (Developer), and the unit owner associations, Harmon Cove I Condominium Association, Inc. (Association), and Harmon Cove Recreation Association, Inc. (Recreation Association) (collectively the Associations). The suit related to alleged defects in and about the units and common
areas and facilities and to a settlement that the two associations were prepared to effectuate on behalf of all unit owners, including plaintiffs, with the Developer.
The plaintiffs, as individual unit owners and on behalf of others similarly situated, had instituted the suit by filing a verified complaint and an order to show cause, in which they sought temporary restraints to prevent consummation of the settlement between the Developer and the Associations. The trial court denied any temporary restraints, signed an order directing the parties to file briefs "as to the standing of plaintiffs to bring this action" and set a date for a hearing on the standing issue. In addition to the briefs, the plaintiffs submitted an affidavit of one unit owner with copies of various documents including the master deed. Defendant Hartz Mountain also submitted a certificate of the director of its residential department with certain attachments and the defendant Association submitted a certified statement of its president with certain attachments.*fn1 The parties and the trial court considered the matter as if defendants had filed a motion for summary judgment on the ground that plaintiffs lacked standing to institute and maintain the action.
The trial court dismissed the complaint against the Developer and permitted the defendants to consummate the settlement at their own risk. It sustained part of one count of plaintiff's complaint against the Associations. 184 N.J. Super. 450 (Ch.Div.1981). Plaintiffs appealed and the Appellate Division affirmed. 184 N.J. Super. 442 (1982). We granted plaintiffs' petition for certification. 91 N.J. 264 (1982).
The complaint contained five counts. The first, second, third and fifth counts were directed solely against the Developer. Generally they asserted that the Developer had planned and
built the condominium known as Harmon Cove I in Secaucus and had sold units to the five plaintiffs. They alleged that the condominiums and the common elements had numerous defects and deficiencies, all attributable to the Developer. The complaint specified improper insulation of the individual units; inadequate caulking of windows and doors; improper heating system; inadequate driveways and sound insulation; defects in the marina dock area, swimming pool, and boardwalk; and soil settlement problems throughout the entire development. It is important to note that, though most complaints in these counts pertained to the common elements and areas, some related to the individual units. The trial court dismissed these four counts (first, second, third and fifth) with prejudice.
The fourth count, directed solely against the Associations, alleged that settlement negotiations between the Association, the Recreation Association*fn2 and the Developer with respect to claims arising from the design and building of the "condominiums and the common elements" were near completion. The trial court sustained that part of the fourth count*fn3 that challenged the actions taken by both Associations on procedural and substantive grounds and permitted the plaintiffs to amend the complaint to express this clearly. This count, as subsequently amended by plaintiffs, charged that the proposed settlement was unreasonable, unlawful, and inadequate, that the Associations had breached their fiduciary duties and responsibilities to plaintiffs, and that the Developer, which at one time properly controlled the Associations, had continued unlawfully to exercise control and influence over the Associations. Moreover, the plaintiffs asserted that the Associations and the Developer were
settling claims pertaining to the individual units as well as the common elements.
The Legislature recognized a new form of ownership of real property in enacting the Condominium Act.*fn4 N.J.S.A. 46:8B-1 through -38. The Act requires the developer to execute and file a master deed describing the land, identifying the units, defining the common elements, and providing for an association of unit owners. The condominium property consists of the land and all improvements. N.J.S.A. 46:8B-3(i). The individual condominium purchaser owns his unit together with an undivided interest in common elements. Each unit is a separate parcel of real property which the owner may deal with "in the same manner as is otherwise permitted by law for any parcel of real property." N.J.S.A. 46:8B-4. The result is that the unit owner, having a fee simple title, enjoys exclusive ownership of his individual apartment or unit, while retaining an undivided interest as a tenant in common in the common facilities and grounds used by all the residents. Kerr, "Condominium -- Statutory Implementation," 38 St. Johns L.Rev. 1, 2 (1963); Berger, "Condominium: Shelter on a Statutory Foundation," 63 Colum.L.Rev. 987, 989 (1963); 15A Am.Jur. 2d, Condominiums and Cooperative Apartments, § 1.
The Act also provides that the condominium will be administered and managed by the association. N.J.S.A. 46:8B-3(b);
46:8B-12. The business form of the association is unrestricted. N.J.S.A. 46:8B-12. The developer initially controls the association. When 25% of the units have been sold, the unit owners are entitled to elect at least 25% of the association's governing body. N.J.S.A. 46:8B-12.1(a). The unit owners' authority is increased to 40% when half of the units have been sold. When the unit owners own 75%, they are entitled to elect all the members of the governing body. N.J.S.A. 46:8B-12.1(a).*fn5 Once that occurs, the developer is required to "relinquish control of the association." N.J.S.A. 46:8B-12.1(d).
The association is charged with the "maintenance, repair, replacement, cleaning and sanitation of the common elements." N.J.S.A. 46:8B-14(a). The ...