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Chin v. Coventry Square Condominium Ass'n

Decided: February 4, 1994.

DR. PAO-KUO CHIN, PLAINTIFF-RESPONDENT,
v.
COVENTRY SQUARE CONDOMINIUM ASSOCIATION, DEFENDANT-APPELLANT. ARTHUR CHESLEY, ET ALS., PLAINTIFFS-RESPONDENTS, V. COVENTRY SQUARE CONDOMINIUM ASSOCIATION, DEFENDANT-APPELLANT



On appeal from the Superior Court, Law Division, Ocean County.

King, Havey and A.a. Rodriguez. The opinion of the court was delivered by Havey, J.A.D.

Havey

[270 NJSuper Page 325] Coventry Square Condominium Association appeals from a judgment, entered after our remand, declaring invalid a $375 fee

charged by the Association to condominium owners each time they rented their units. The judgment also compels the Association to refund over $90,000 to the owner-landlords, representing fees collected since 1989. We conclude that a condominium association may charge a rental fee, provided the fee is reasonably related to the actual cost of reviewing the rental transaction and inspection of the rented unit. We reverse and remand with direction that the Law Division Judge fix the rental fee, based on the reasonable costs incurred by the Association.

Coventry Square, a condominium complex situate in Lakewood, Ocean County, consists of 633 units, approximately forty-percent of which are rented to tenants by unit owners. Historically, the Association has resisted the trend toward leasing units in the complex. In 1977, the Association passed a regulation requiring that owners of rental units deposit $225 with the Association as security for expenses such as glass breakage and excessive watering during the tenancy. The fee was declared invalid in Coventry Square Condo. Ass'n v. Halpern, 181 N.J. Super. 93, 436 A.2d 580 (Cty.Ct.1981). Also, in May 1982, the bylaws of the Association were amended to impose several conditions on the rental of units. Pertinent here are the amended bylaws that require: (1) submission of the proposed lease to the Board of Directors fifteen days prior to its effective date for review and approval;*fn1 (2) production of a certificate of occupancy from the Township of Lakewood certifying that the unit has passed municipal inspection; and (3) proof by the owner that he or she is in good standing with the Association. Until 1989, the Association charged an "administration-inspection" fee of $125 each time a unit was rented. In early 1989, the fee was increased to $375. According to the Association, the increase was necessary to defray the cost of processing and review of the proposed lease and inspection of the common elements contained within the unit.

Plaintiffs, owners of approximately forty units, filed these consolidated actions seeking to invalidate an array of bylaws as well as the $375 administration-inspection fee. After a bench trial, the Law Division Judge concluded that the fee was sustainable under the "business judgment" rule. In an unreported opinion dated July 15, 1992 (A-4721-90T1), certif. granted, 130 N.J. 598, 617 A.2d 1221 (1992), appeal dismissed, 133 N.J. 418, 627 A.2d 1129 (1993), we reversed and remanded with direction that the Judge determine whether the $375 fee was reasonably related to the cost incurred by the Association, and if not, to "reduce the fees accordingly, so that the owner/landlords are not subject to a double assessment."*fn2 On remand, apparently misconstruing our opinion, the Judge found that the $375 figure was unreasonable and invalidated the entire fee. He also ordered that the Association refund all of the fees paid since January 1989, totalling $90,000.

We are again compelled to reverse and remand. For purposes of clarification, we reiterate several pertinent legal principles developed in our prior unreported opinion.

We have no doubt that the Condominium Act, N.J.S.A. 46:8B-1 to -38, authorizes the assessment of a rental fee. The Act gives the condominium association the power, indeed the responsibility, to govern the common elements and common facilities used by the unit owners. N.J.S.A. 46:8B-14(a); Thanasoulis v. Winston Towers 200 Ass'n, 110 N.J. 650, 656, 542 A.2d 900 (1988). "Common elements" include the foundations, structural and bearing parts, supports, main walls, roofs, basements and halls, many such facilities being contained within the units themselves. N.J.S.A. 46:8B-3d. To that end, the association is given reasonable access to each unit for the purpose of maintaining, repairing

or replacing common elements therein. N.J.S.A. 46:8B-15(b). We may reasonably conclude from this statutory scheme that the association is empowered to inspect a unit upon the commencement of, or change in, a tenancy to assure that common elements have not been damaged. Inspection allows for prompt repair and a determination by the association as to which party is responsible for the damage. There is also little doubt that the association may review the proposed lease to assure that both the owner and prospective tenant will comply with the Master Deed, bylaws and other rules pertaining to rentals.

The costs attendant to such review and inspection should not be deemed "common expenses," N.J.S.A. 46:8B-3e; N.J.S.A. 46:8B-17, since they are not incurred for a beneficial object common to all of the owners within the complex: they arise solely because of the owner's choice to lease the unit rather than to occupy it. Therefore, the costs should be recouped by the association by a "remedial assessment" similar to that made against a unit owner for minor repairs to his or her unit. See Wendell A. Smith, New Jersey Condominium Law, §§ 6:7.13; 6:7.14 (1990); Gary A. Poliakoff, Law of Condominium Operations § 5:12 (1988). Moreover, N.J.S.A. 46:8B-21 imposes a lien upon each unit for any "unpaid assessment duly made by the association for a share of common expenses or otherwise [.]" (Emphasis added). This statutory language strongly suggests that the reasonable costs of "rental review" and inspection may be passed on to the ownerlandlords as assessments beyond the general assessment for common expenses.

As stated, the Law Division Judge initially sustained the $375 fee by applying the "business judgment" rule. That rule, applied by Justice Garibaldi in her Dissent in Thanasoulis, 110 N.J. at 664-66, 542 A.2d 900 (Garibaldi, J., Dissenting in part; Concurring in part), establishes a two-prong test to determine whether the association has breached its fiduciary duty in adopting the challenged bylaw: (1) whether ...


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