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In re Appeal of Adoption of N.J.A.C. 5 25A-1.1

Decided: July 30, 1993.

IN THE MATTER OF THE APPEAL OF ADOPTION OF N.J.A.C. 5:25A-1.1, ET SEQ., BY THE NEW JERSEY DEPARTMENT OF COMMUNITY AFFAIRS, DIVISION OF HOUSING AND DEVELOPMENT


On appeal from the Adoption of Regulations by the Department of Community Affairs.

King, Landau and Thomas. The opinion of the court was delivered by Thomas, J.A.D.

Thomas

[266 NJSuper Page 627] Appellants are various builders, developers and homeowners. They appeal the adoption of regulations (N.J.A.C. 5:25A-1.1 to -2.10) by respondent Department of Community Affairs (DCA), pursuant to the New Jersey Home Warranty Act, N.J.S.A. 46:3B-1 to -20, which, together, provide the mechanism for establishing damage claims for defective fire retardant plywood (FRT plywood).

Specifically, appellants take exception to N.J.A.C. 5:25A-1.3.

To place the present litigation in perspective, a brief historical overview is necessary. In order to comply with the New Jersey Uniform Construction Code Act, N.J.S.A. 52:27D-119 to -141, and regulations adopted pursuant to the Act, N.J.A.C. 5:23-1 to -12.8, effective January 1, 1977, builders began in 1981 to use FRT plywood in the construction of roofs of multifamily dwellings. FRT plywood was treated with certain chemicals whose intended purpose was to react in such a manner as to retard the spread of fire. However, by 1987, it became apparent that FRT plywood often developed severe decomposition to the point of risking collapse of the roof structure it supported. Safety concerns sometimes dictated the replacement of entire roof systems. To recover for this costly process, litigation was commenced against those manufacturers and suppliers responsible for introducing this product. This litigation has been settled in part but not completely at this time.

The regulations in question were adopted by the Commissioner of the DCA pursuant to the New Home Warranty Act, N.J.S.A. 46:3B-1 to -20 as amended by L. 1991, c. 202 N.J.S.A. 46:3B-13 to -20. Under the New Home Warranty Act, the builder of a new home must provide warranty coverage for that new home by participating in a State plan administered by DCA, or in an approved alternative private plan. N.J.S.A. 46:3B-5. Pursuant to the Act, warranty against major construction defects is provided to new home owners for ten years as set forth in N.J.S.A. 46:3B-3b(3).

Because of extensive problems stemming from the failure of FRT plywood roof sheathing and the resistance to claims by warranty guarantors under the Act (which were only resolved after prolonged negotiation or litigation), the Legislature enacted N.J.S.A. 46:3B-13 to -20. In doing so, the Legislature's intent was "to establish a funding mechanism, based upon the State's New Home Warranty program . . . to make immediate funding

available to homeowners faced with emergent needs for immediate remediation of the[ir] major construction defect[s], as well as to builders and warranty guarantors who honor the claims of such owners." N.J.S.A. 46:3B-13d.

The 1991 legislation authorized the DCA Commissioner to adopt and promulgate "[s]tandards, procedures and technical criteria for making an examination and determination . . ." of whether the claimed damage is ascribable to FRT plywood, and whether it resulted or materially contributed to the creation of a major construction defect. N.J.S.A. 46:3B-15b(1). In carrying out this provision, the legislation authorized the Commissioner to develop "a method of nondestructive testing or other procedure capable of ascertaining inevitable premature failure of an FRT plywood installation." N.J.S.A. 46:3B-15b(2). These regulations, N.J.A.C. 5:25A-1.1 to -2.10, were adopted by the Commissioner on March 27, 1992, and became effective on April 20, 1992. 24 N.J.R. 1480. This appeal is taken from the adoption of these regulations.

Appellants contend that the warranty coverage standards set forth in the regulations impermissibly limit recovery under the Act. They assert that the regulations require actual failure within the ten-year warranty period as a prerequisite to recovery, while the Act only requires the detection of inevitable premature failure within the warranty period. Phrased differently, appellants contend the effect of the regulations is to prevent recovery for roofs which will inevitably fail prematurely but which have not yet actually failed within the ten-year warranty term.

Respondent maintains that the regulations should be upheld because they are entirely consistent with the statutory scheme. It argues that what appellants actually seek is an extension of the warranty period beyond the stated ten-year period. We agree with appellants that the regulation improperly limits recovery and reverse and remand.

Administrative regulations are accorded a presumption of reasonableness. In re Adoption of N.J.A.C. ...


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