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Thanasoulis v. Winston Towers 200 Association Inc.

Decided: June 30, 1988.

TRIANTAFYLLOS THANASOULIS, PLAINTIFF-APPELLANT,
v.
WINSTON TOWERS 200 ASSOCIATION, INC., DEFENDANT-RESPONDENT



On appeal from the Superior Court, Appellate Division, whose opinion is reported at 214 N.J. Super. 408 (1986).

For reversal and remandment -- Chief Justice Wilentz and Justices Clifford, O'Hern and Stein. For affirmance in part, and reversal in part -- Justices Handler, Pollock and Garibaldi. The opinion of the Court was delivered by Stein, J. Garibaldi, Justice, dissenting in part, concurring in part. Justices Handler and Pollock join in this opinion.

Stein

In this case we are required to reconcile the exercise of a condominium association's managerial powers with the provisions of the Condominium Act, N.J.S.A. 46:8B-1 to -38 (the "Act"), and a condominium master deed. Specifically, the primary issue is whether a condominium association can charge nonresident unit owners higher monthly parking fees than it charges resident owners in order to retain the extra revenue for the association's benefit. A second issue concerns an association regulation that prohibits a new purchaser of a condominium unit from renting the unit until after he or she has lived in the unit for one year. The trial court upheld both regulations and granted summary judgment in favor of the association. A divided Appellate Division panel affirmed, Thanasoulis v. Winston Tower 200 Ass'n, Inc., 214 N.J. Super. 408, (1986). We hold that in adopting the parking fee differential, the association exceeded the scope of its power as defined by the Act and the master deed, and that the regulation is therefore invalid. We also find that because there remain unresolved issues of material fact concerning plaintiff's challenge to the one-year residency requirement, that question should not have been disposed of by summary judgment. We therefore reverse the judgment of the Appellate Division.

I

Plaintiff, Triantafyllos Thanasoulis, owns a condominium unit in the Winston Towers high-rise residential complex, located in Cliffside Park, New Jersey, which he presently leases to a tenant. The complex contains 614 apartment units and includes

a multi-level parking garage with 903 spaces and a parking yard with 100 spaces. Defendant, Winston Towers 200 Association, Inc. (Association), is the association of unit owners created by the Winston Towers Master Deed.

The Association, through its elected Board of Directors (Board), is responsible for the administration and management of the Winston Towers common elements, which include the parking areas. Paragraph nine of the master deed deals with the parking facilities:

9. PARKING AND GARAGE FACILITIES: The parking and garage facilities within the Property shall be part of the Common Elements and, subject to the provisions of the By-Laws, will be operated by the Association which shall have the right to lease all or part of the operation thereof on such terms and conditions as it may determine. Each Unit Owner, upon application, will be entitled to rent annually at least one garage space. Rentals for garage space will be established by the Association and shall be payable as the Association shall direct. All revenue received by the Association from the garage operation shall be applied in accordance with the By-Laws. [Emphasis added.]

Plaintiff purchased his unit in December 1972 and resided there until February 1981. During this period, plaintiff exercised his right to lease a parking space at the condominium's parking garage. The charges per month for parking spaces for all unit owners were $25 for a single indoor space, $40 for a tandem space, and $20 for an outdoor space.

In June 1981, the Board revised the parking charges. The rates for nonresident owners were increased to $75 for a single indoor space, $125 for a tandem space, and $50 for an outdoor space; the Association's rationale was that the new rates reflected the "market value" of parking spaces in the community. Resident unit owners would continue to pay the original rates. The president of the Association stated that through this action the Association sought to prevent unit owners who rented their units from realizing profits from parking space rentals. The Board determined that a unit owner would be prohibited from renting his unit unless his tenant separately leased the unit's parking space from the Association at the

higher rates.*fn1 The trial court noted that the additional funds raised by the revised rates were added to the common expense fund, which financed the maintenance of all the common elements.

In October 1981, the Association adopted another rule that required incoming unit owners to occupy their units for at least one year before leasing them to third parties.

In February 1983, plaintiff leased his unit, for the first time, to a tenant for a two-year term.*fn2 To conform with the Board's parking rule, plaintiff's agreement with his tenant contained the following language:

Landlord [plaintiff] agrees that he will guarantee payment of rent due and owing under said parking lease in the event Tenant fails to pay same promptly.

It is understood and agreed that the Tenant should enter into a lease with Management for Parking Space: $75.00 for indoor parking; $125.00 for tandem parking and $50.00 for outdoor parking per month and that any additional security required by management shall be paid by Tenant.

Plaintiff filed suit in the Chancery Division, seeking to invalidate

both rules.*fn3 The court granted defendant's motion for summary judgment. It found that although the differential parking charges discriminated against nonresident unit owners, such discrimination was not an illegal exercise of the Association's power. The court similarly disposed of plaintiff's challenge to the one-year residency requirement on the basis of a colloquy with counsel that apparently persuaded the trial court that plaintiff had been given notice of the residency requirement at the time he purchased his unit.

The Appellate Division's affirmance was "substantially for the reasons expressed by" the trial court. 214 N.J. Super. at 412. According to the majority, the scope of judicial review of condominium association decisions is limited to a two-pronged test: "(1) whether [an association's] action was authorized by statute or its own bylaws and, if so, (2) whether the action was fraudulent, self-dealing or unconscionable." Id. at 411. The court assumed, without extended discussion, that the Association's action was properly authorized, and concluded that the first prong had been satisfied. In addition, the court accepted the trial court's finding that the parking rate differential "was reasonable and was adopted in good faith," and ruled that the Association's action was valid under the second prong of the test as well. The majority opinion did not address the one-year residency requirement issue.

The dissenting judge would have invalidated the revised parking fee schedule. Judge Cohen observed that the Association had "improperly converted to the use of all unit owners a property right granted by the master deed to individual unit owners." Id. at 471. After analyzing several sections of the

Act, Judge Cohen concluded that "an association may not selectively create a class of individual owners and deprive them of valuable elements of unit ownership." 214 N.J. Super. at 424. Concerning the residency requirement, Judge Cohen viewed the trial court's ruling on that issue as turning on the question of plaintiff's standing to challenge the rule. Judge Cohen expressed the view that plaintiff had been denied the opportunity to show that he had standing to challenge the residency requirement and that summary judgment in favor of defendant on that issue should not have been granted. Id. at 425.

By virtue of the dissent, plaintiff appealed as of right to this Court. R. 2:2-1(a).

II

In Siller v. Hartz Mountain Ass'n, 93 N.J. 370 (1983), we noted some of the unique aspects of condominium ownership. We observed that "[t]he individual condominium purchaser owns his unit together with an undivided interest in common elements." Id. at 375. In addition, we explained that this ownership interest constitutes a separate parcel of real property that the owner may deal with as he would any parcel of real property. Ibid.

One aspect of condominium ownership that distinguishes it from other types of property interests, however, is the role of the condominium association. An association is comprised exclusively of the unit owners who, through their individual deeds, automatically become members. In essence, an association is responsible for the governance of the common areas and facilities used by the owners of the condominium units. It is a representative body that acts on behalf of the unit owners. Its powers derive from its by-laws, the master deed, and applicable statutory provisions. An association may enter into contracts, bring suit and be sued. The most significant responsibility of an association is the management and maintenance of the

common areas of the condominium complex. See generally W. Smith, New Jersey Condominium Law ยง 2:4, at 10-11 (1985) (generally defining and describing condominium associations); W.S. Hyatt, Condominium and Homeowner Association Practice: Community Association Law, 6-7 (1978) (same).

We have not had occasion previously to consider in depth the appropriate standard of judicial review of actions by condominium associations. In Siller, supra, 93 N.J. 370, however, we recognized certain basic principles: first, that acts of an association "should be properly authorized;" and second, that the association's management has a "fiduciary relationship to the unit owners, comparable to the obligation that a board of directors of a corporation owes its stockholders," and that "[f]raud, self-dealing or unconscionable conduct at the very least should be subject to exposure and relief." Id. at 382.

We need not elaborate on these principles here because, in our view, the validity of the parking fee regulation depends on whether its adoption was within the Association's authority as defined by the Act and the Winston Towers master deed. We agree with the dissent below that "[t]here may be some cases in which differences in judicial approaches to condominium self-government will lead to different results. This case is not one of them." 214 N.J. Super. at 424.*fn4

Our discussion focuses on certain provisions of the Act and the Winston Towers master deed. A condominium is created by the recording of a master deed. N.J.S.A. 46:8B-8. The Act requires the master deed to contain certain information. N.J.S.A. 46:8B-9. Each unit of the condominium must be separately

described and identified. N.J.S.A. 46:8B-9(e). The Act defines "unit" as "a part of the condominium property designed or intended for any type of independent use," including "the proportionate undivided interest in the common elements * * * assigned thereto in the master deed * * *." N.J.S.A. 46:8B-3 o. (Emphasis added.) "Common Elements" means the land described in the master deed, and includes "yards, gardens, walkways, parking areas and driveways * * *, unless reserved or limited by the master deed." N.J.S.A. 46:8B-3d. (Emphasis added.) The Winston Towers master deed provides that the "common elements shall consist of all parts of the property other than the Apartment Units, including the items set forth in the Condominium Act," and specifies that the "parking and garage facilities within the Property shall be part of the Common Elements." The master deed also provides that each apartment owner is "entitled to rent annually from the Association at least one garage space."

Plaintiff's unit deed contained his unit designation as set forth in the master deed and a statement of his proportionate undivided interest in the common elements. A unit deed "shall have the same force and effect in regard to such unit as would be given to a like instrument pertaining to other real property * * *." N.J.S.A. 46:8B-10. Further, "each unit shall constitute a separate parcel of real property which may be dealt with by the owner thereof in the same manner as is otherwise permitted by law for any other parcel of real property." N.J.S.A. 46:8B-4; see also Siller v. Hartz Mountain Ass'n, supra, 93 N.J. at 375 ("unit owner, having a fee ...


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