On certification to the Superior Court, Appellate Division.
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
The issue in this appeal is whether the Condominium Act (Act), N.J.S.A. 46:8B-1 to 38, permits a developer to require a condominium association to be responsible for assessments owed by individuals of the association to an "umbrella" organization.
Brandon Farms is a 556-acre development of single-family detached homes, townhouses, and condominiums. The Declaration of Covenants and Restrictions (Declaration), filed by the developer, created the Brandon Farms Property Owners Association (Property Owners Association) to serve as the umbrella organization charged with maintaining and managing the common property intended for the beneficial use of all homeowners in the community. Although the Property Owners Association is not responsible for the common elements of the condominiums, which are the responsibility of the respective condominium associations, the Declaration governs both the Property Owners Association and the Brandon Farms Condominium Association (Condominium Association). The Condominium Association assesses its members for costs and expenses separate and apart from the assessments by the Property Owners Association.
Property Owners Association membership is divided into three classes. All Class A and C members pay a recreational limited common expense assessment to the Property Owners Association in return for access to the community's swimming pool and clubhouse. Class B members, however, are not assessed that charge, but must pay an optional recreation facilities fee to use the pool and clubhouse. In addition to the recreational limited common expense assessment paid by members of Class A and Class C, every homeowner in Brandon Farms is responsible for paying a general common expense assessment levied by the Property Owners Association.
The Brandon Farms community also includes affordable housing units pursuant to an Affordable Housing Plan. All affordable housing units are Class C condominiums and the owners are members of the Condominium Association. Consistent with the Declaration, owners of affordable housing units pay reduced assessments.
Section 7.21 of the Declaration, which is the critical key area of contention in this case, provides, in pertinent part: "Despite anything to the contrary herein, the primary responsibility for the payment to [the Property Owners Association] of all Assessments, other than Miscellaneous Assessments, assessed against Class C Members, shall be that of the Condominium Association rather than that of the individual Class C Members." Initially, the Property Owners Association directly billed and collected assessments from all members, including Class C members. When the developer no longer controlled the Property Owners Association, the homeowners in control sought to enforce the provision of section 7.21 that required the Condominium Association to be responsible for the collection and payment of assessments owed by Class C members. The Condominium Association refused to undertake those responsibilities, leading to the present litigation.
The parties stipulated to the following facts: (1) as of November 13, 2001, there were 138 delinquent units of which 59 units or 43% were Class C units: (2) the total delinquent amount for all Property Owner Association members was $23,528.90 of which the Condominium Association members accounted for $14,266.65, and (3) Class A and B members were insulated from having to compensate for the default as to Property Owners Association assessments to Class C members, but Class C members nevertheless had to contribute for the defaults of Class A and B members.
The trial court found that section 7.21 of the Declaration was void and unenforceable because it violated the Act by requiring Class C members to be solely responsible for Class C deficiencies while requiring all classes to make up for the delinquencies of Class A and B members. The Property Owners Association appealed. The Appellate Division reversed. The panel held that section 7.21 did not violate the Act because that section rendered the assessments "common expenses" of the condominium units and because the developer had a reasonable basis for implementing section 7.21. Condominium Association's motion for reconsideration or clarification was denied.
The Supreme Court granted Condominium Association's petition for certification. In addition, the Court granted amicus curiae status to the Community Association Institute.
HELD: Under the Condominium Act, N.J.S.A. 46:8B-1 to 38, a builder or developer may not make a condominium association responsible for an association member's failure to pay assessments owed to an "umbrella" organization.
1. The Condominium Act (Act), N.J.S.A. 46:8B-1 to 38, adopted in 1970, established a comprehensive scheme for regulating condominiums and their associations. Condominium unit owners are responsible for a proportionate share of the common expenses and if the unit owner fails to pay the common expenses charged to the unit, that amount shall be a lien against such unit. N.J.S.A. 46:8B-17. A unit owner is presumed to have agreed to pay his proportionate share of common expenses and may not avoid liability for those expenses by waiver of the right to use the common elements. Contracts or agreements entered into on behalf of the association are governed by the Act and any agreements contrary to the Act are void. Although the Act neither provides for nor prohibits the creation of an umbrella association, our courts have recognized and approved the use of umbrella associations in a planned unit development. In Fox v. Kings Grant Maint. Ass'n, 167 N.J. 208 (2001), this Court addressed the powers and responsibilities of an umbrella property owners association in connection with a condominium association. Although the Court recognized that an umbrella organization could serve a useful purpose in controlling common elements shared by several associations, it found no intent by the Legislature to diminish the statutory power of condominium unit owners to control their common elements. (Pp. 9-16)
2. Condominium Association members are proportionately liable for the payment of all expenses declared common by their master deed. N.J.S.A. 46:8B-3e, -17. However, section 7.21 of the Declaration, requires the Condominium Association, not the unit owners, to be responsible for collection and payment of all Property Owners Association assessments. The Condominium Association is a corporation and can act only through its officers or governing board, N.J.S.A. 46:8B-15a, which never agreed to be responsible for collection and payment of the Property Owners Association assessments owed by Class C members. The "agreement" approach is predicated on the fact that the individual unit owners took title subject to the Master Deed, which incorporates the Declaration that contained section 7.21. Yet, that approach fails to recognize that the unit owners have no authority to bind the Condominium Association; thus, the unit owners could not enter into this agreement. Further, the Act expressly prohibits the developer from entering into a long-term management contract or agreement on behalf of a condominium association. The Condominium Association has the authority to enter into an agreement to collect common expenses owed by the individual unit owners. Absent such an express agreement, however, neither the developer nor the umbrella association may bind the Condominium Association to collect and be responsible for the payment of assessments when an individual unit owner fails to pay. Thus, the Property Owners Association's attempt to enforce section 7.21 as an agreement violates the Act, and pursuant to N.J.S.A. 46:8B-7, any agreement contrary to the Act is void. (Pp. 16-19)
3. We adopt the trial court's analysis of the disproportionate and unfair impact of section 7.21 on affordable housing unit owners and other Class C members. By insulating single family homeowners in Class A and Class B from the perceived risk of default by affordable housing unit owners and other Class C members, the developer made the single family dwellings in Class A and Class B more attractive. Thus, section 7.21 violates the public policy set forth in the Act by putting the developer's interest in selling Class A and Class B homes ahead of the Condominium Association's interests. Moreover, if section 7.21 were enforced, the affordable housing unit owners, who are solely in Class C, would bear a disproportionate burden of their neighbor's delinquencies, thereby substantially reducing or eliminating the discount for affordable units. Assessments imposed under an umbrella association's authority should be proportionate to similarly situated unit members of a development to ensure they are consistent with the purposes of the Act. (Pp. 19-22)
The judgment of the Appellate Division is REVERSED and the judgment of the trial court is REINSTATED.
CHIEF JUSTICE PORITZ and JUSTICES VERNIERO, LAVECCHIA, ZAZZALI and ALBIN join in JUSTICE WALLACE's opinion. JUSTICE LONG did not participate.
The opinion of the court was delivered by: Justice Wallace
In this case, the primary issue is whether the Condominium Act (Act), N.J.S.A. 46:8B-1 to -38, permits a developer to require a condominium association to be responsible for assessments owed by individuals of the association to an "umbrella" organization. The trial court invalidated the scheme. In an unpublished opinion, the Appellate Division reversed. We granted certification, 178 N.J. 35 (2003), and we also granted amicus curiae status to the Community Association Institute. We now reverse the judgment of the Appellate Division and hold that under the Act, a builder or developer may not make a condominium association responsible for an association member's failure to pay assessments owed to an umbrella organization.
The essential facts are not disputed. Brandon Farms is a 556-acre development of single-family detached homes, townhouses, and condominiums located in the townships of Lawrence and Hopewell. The Declaration of Covenants and Restrictions (Declaration), filed by the developer, created the Brandon Farms Property Owners Association (Property Owners Association) to serve as the umbrella organization charged with maintaining and managing the common property intended for the beneficial use of all homeowners in the community. Although the Property Owners Association is not responsible for the common elements of the condominiums, which are the responsibility of the respective condominium associations, the Declaration governs both the Property Owners Association and the Brandon Farms Condominium Association (Condominium Association). Section 7.02 of the Declaration authorizes the Property Owners Association to collect and disburse assessments and charges necessary to fulfill its mandate.
Each owner of the 1,293 total units in Brandon Farms, whether single-family house or condominium unit, is a member of the Property Owners Association. Membership is divided into three classes: Class A consists of owners of single-family, detached homes on certain designated parcels; Class B consists of owners of single-family homes and some condominium unit owners who are members of the Twin Pines Condominium Association; and Class C consists of 469 owners of condominium units in the Condominium Association. Thus, the owners of condominium units in Class C are members of both the Property Owners Association and the Condominium Association.
All Class A and C members pay a recreational limited common expense assessment to the Property Owners Association in return for access to the community's swimming pool and clubhouse. Class B members, however, are not assessed that charge, but must pay an optional recreational facilities fee to use the pool and clubhouse. In addition to the recreational limited common expense assessment paid by members of Class A and Class C, every homeowner in ...