New Jersey-2010-S2187-Introduced

An Act concerning homeowners' associations and amending and supplementing P.L.1993, c.30 (C.45:22A-43 et seq.).

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. Section 1 of P.L. 1993, c. 30 (C.45:22A-43) is amended to read as follows:

1. a. For the purposes of P.L.1993, c.30 (C.45:22A-43 et seq.) and P.L. , c. (C. ) (pending before the Legislature as this bill), the term "owner" and "unit owner" shall mean the owner of any lot, parcel, unit, or interest, in a planned real estate development that is, or is intended to be, a separately-owned area thereof.

b. A developer subject to the registration requirements of section 6 of P.L.1977, c.419 (C.45:22A-26) , or the entity charged with the management of a planned real estate development as that term is defined pursuant to section 3 of P.L.1977, c.419 (C.45:22A-23), regardless of the date of formation of the association or whether the developer thereof was subject to the registration requirements, shall organize or cause to be organized an association whose obligation it shall be to manage the common elements and facilities. The association, if not formed prior to the effective date of P.L. , c. (C. ) (pending before the Legislature as this bill), shall be formed on or before the filing of the master deed or declaration of covenants and restrictions, and may be formed as a for-profit or nonprofit corporation, unincorporated association, or any other form permitted by law. If the planned real estate development will not be or is not formed as a condominium or a cooperative, the title to the common elements and facilities may be, but are not required to be, placed in the name of the association, provided that the association governing documents comport specifically with the provisions of subsection c. of this section, and with all other provisions of P.L. , c. (C. ) (pending before the Legislature as this bill), and P.L.1977, c.419 (C.45:22A-21 et seq.) and P.L.1993, c.30 (C.45:22A-43 et seq.). The fact that the common elements and facilities of a planned real estate development may be titled in the name of the association shall not be construed as diminishing the ownership interests of the unit owners in those common or shared elements and facilities.

c. Membership in the association at all times shall be comprised solely of all of the owners of dwelling units or homes in the planned real estate development, and shall include the developer if there are any unsold units or homes in the development, and the declaration shall state clearly words to the effect that every owner of a unit or lot subject to the declaration shall be a member of the association.

If not stated otherwise in the declaration, the ownership interests of an individual unit owner in the common elements or facilities shall be deemed to be in the same proportion as the portion of the common property maintenance expenses attributed to that unit owner, provided that the total of all common property interests shall not be greater than 100%, or one, if determined on a fractional basis. Any governing documents of an association not in compliance with this section, as amended by P.L. c. (C. ) (pending before the Legislature as this bill), shall be deemed amended to be in compliance.

d. The provisions of P.L.1993, c.30 (C.45:22A-43 et seq.) and P.L. , c. (C. ) (pending before the Legislature as this bill) shall apply to all associations formed to manage the common property of planned real estate developments, and shall be construed broadly to supplement the "Condominium Act," P.L.1968, c.457 (C.46:8B-1 et seq.), and shall control over that act whenever the provisions of that act require less accountability to owners or less transparency in the actions of associations than required under P.L.1993, c.30 (C.45:22A-43 et seq.) and P.L. , c. (C. ) (pending before the Legislature as this bill).

e. The Legislature declares that the provisions of P.L.1993, c.30 (C.45:22A-43 et seq.) and P.L. , c. (C. ) (pending before the Legislature as this bill) shall be construed as the enabling act for the formation and operation of associations created to manage the common elements and facilities of planned real estate developments, notwithstanding the fact that condominiums shall also be subject to the provisions of the "Condominium Act," P.L.1968, c.457 (C.46:8B-1 et seq.).

(cf: P.L.1993, c.30, s.1)

2. Section 3 of P.L.1993, c.30 (C.45:22A-45) is amended to read as follows:

3. a. (1) The form of administration of an association organized pursuant to section 1 of P.L.1993, c.30 (C.45:22A-43) shall provide for the election of an executive board[,] or governing board, elected by and responsible to the members of the association pursuant to section 4 of P.L.1993, c.30 (C.45:22A-46), which board shall be comprised of at least three members and through which the powers of the association shall be exercised and its functions performed.

(2) Any power granted to or restriction placed on a condominium association or developer pursuant to P.L.1968, c.457 (C.46:8B-1 et seq.), shall be inferred as equally applicable to a developer thereof or a homeowners' association as defined in section 1 of P.L.1993, c.30 (C.45:22A-43), regardless of the lack of specific provisions in P.L.1993, c.30 (C.45:22A-43 et seq.), based on the intent of the Legislature that all types of planned real estate development associations should have uniform powers, standards of operations, and protections for the property interests of homeowners. These shall include, but not be limited to, the power of an association to adopt, amend and enforce reasonable administrative rules and regulations, including the imposition of fines and late fees which may be enforced as a lien if such powers are contained in the bylaws, and incorporating by reference the authority of sections 14, 15, and 21 of P.L.1969, c.257 (C.46:8B-14, C.46:8B-15, and C.46:8B-21) to a homeowners' association, relating to the operation, use, and maintenance of the common elements, including limited common elements. The Legislature declares that the rights of owners living in these communities to transparency and fairness in actions from their respective associations, and their elected governing boards, is granted through the provisions of P.L.1993, c.30 (C.45:22A-43 et seq.) and P.L. , c. (C. ) (pending before the Legislature as this bill), and shall not be distinguished or diminished on the basis of the type of planned real estate development that has been formed by the developer.

b. Subject to the master deed, declaration of covenants and restrictions, bylaws or other instruments of creation, [subsection d. of this section] the provisions of P.L.1993, c.30 (C.45:22A-43 et seq.), the provisions of P.L. , c. (C. ) (pending before the Legislature as this bill), and the laws of the State, the executive board may act in all instances on behalf of the association.

c. The members of the executive board appointed by the developer shall be liable as fiduciaries to the owners for their acts or omissions. The members of the executive or governing board elected by the members of the association shall be liable as fiduciaries to the owners for their acts or omissions.

d. (1) During control of the executive board by the developer, copies of the annual audit of association funds shall be available for inspection by owners or their authorized representative at the project site.

(2) An owner shall be entitled to inspect the business and financial records of the association upon written request at reasonable times, and at a reasonable location if not on-site. "Business records" means and includes notices, agendas and minutes of meetings, governing documents, including copies of the declaration and bylaws, and governmental orders. "Financial records" means and includes a record of all receipts and expenditures, invoices, cancelled checks, and an account for each unit setting forth any shares of common expenses or other charges due, the due dates thereof, the present balance due, and any interest in common surplus. The financial records of the association shall be kept in accordance with generally accepted accounting principles. Business and financial records of the association, which shall be kept separately from the developer's business and financial records, shall be deemed presumptively non-confidential for the purposes of disclosure to members of the association; the executive board of the association, however, shall redact any clearly personal identifying information contained in association business or financial records, such as social security numbers or personal addresses, in order to facilitate disclosure to requesting members of the association. The provisions of this paragraph shall be deemed applicable to condominiums, notwithstanding the language of subsection (k) of section 14 of P.L.1969, c.257 (C.46:8B-14), and shall be construed broadly for the purpose of providing transparency in the management of common property and facilities, and the assessment of common expenses. Oversight and review of claims by owners for noncompliance with the provisions of this section shall be with the agency administering "The Planned Real Estate Development Full Disclosure Act," P.L.1977, c.419 (C.45:22A-21 et seq.), administered in accordance with the Legislative intent that owners living in these communities have the right to transparency and fairness in actions from their respective associations, and their elected governing boards.

(cf: P.L.1993, c.30, s.3)

3. Section 4 of P.L.1993, c.30 (45:22A-46) is amended to read as follows:

4. The bylaws of the association, which shall initially be recorded with the master deed shall include, in addition to any other lawful provisions, the following:

a. A requirement that all meetings of the executive board, [except conference or working sessions at which no binding votes are to be taken,] shall be open to attendance by all unit owners, and adequate notice of any such meeting shall be given to all unit owners in such manner as the bylaws shall prescribe; except that the executive board may exclude or restrict attendance at those meetings, or portions of meetings, dealing with (1) any matter the disclosure of which would constitute an unwarranted invasion of individual privacy; (2) any pending or anticipated litigation or contract negotiations; (3) any matters falling within the attorney-client privilege, to the extent that confidentiality is required in order for the attorney to exercise his ethical duties as a lawyer, or (4) any matter involving the employment, promotion, discipline or dismissal of a specific officer or employee of the association. At each meeting required under this subsection to be open to all unit owners, the participation of unit owners in the proceedings or the provision of a public comment session shall be at the discretion of the executive board, minutes of the proceedings shall be taken, and copies of those minutes shall be made available to all unit owners before the next open meeting.

b. The method of calling meetings of unit owners, the percentage of unit owners or voting rights required to make decisions and to constitute a quorum. The bylaws may, nevertheless, provide that unit owners may waive notice of meetings or may act by written agreement without meetings. If permitted pursuant to the bylaws, nothing in P.L. , c. (C. ) (pending before the Legislature as this bill) shall be deemed to alter the right of an association to permit tenants to exercise the voting rights of unit owners who have contracted to them leasehold interests.

c. The manner of collecting from unit owners their respective shares of common expenses and the method of distribution to the unit owners of their respective shares of common surplus or such other application of common surplus as may be duly authorized by the bylaws.

d. The method by which the bylaws may be amended, provided that no amendment shall be effective until recorded in the same office as the then existing bylaws. The bylaws may also provide a method for the adoption, amendment and enforcement of reasonable administrative rules and regulations relating to the operation, use, maintenance and enjoyment of the units and of the common elements, including limited common elements.

e. Notwithstanding the provisions of any governing documents of a homeowners' association to the contrary, a homeowners' association shall be deemed to have amended its governing documents, including bylaws, upon the effective date of P.L. , c. (C. ) (pending before the Legislature as this bill) to provide that:

(1) Any member of the governing board may be recalled and removed from office, with or without cause, by the vote of, or agreement in writing by, a majority of all owners in the planned real estate community, provided that any vote to recall shall be initiated only upon a petition of at least five percent of all owners. A special meeting of the association membership to vote for the recall of a member or members of the governing board shall thereafter be held, giving notice of the meeting as required for a meeting of members, and the notice shall state the purpose of the meeting.

(2) (a) The form of administration of the association, which shall consist of a governing board or executive board, is described in the governing documents, specifying the powers, duties, manner of selection and removal, and compensation, if any, of the officers, directors, or trustees of the governing board. Governing boards shall consist of either five or three trustees. If the number of housing units in the community is less than 11, the governing board shall consist of no more than three trustees, notwithstanding the governing documents.

(b) Terms for all trustees shall be two years. Notwithstanding this requirement, associations shall adjust the terms of office for trustees, staggering them so that for three-member governing boards, two trustees shall be elected in a year alternating with the election of one trustee the following next year; for five-member governing boards, three trustees shall be elected in a year alternating with the election of two trustees the following year.

(c) The governing board shall elect from among its members a president, vice president in the case of communities with more than 10 units, secretary, and treasurer, who shall perform the duties of those offices customarily performed by officers of nonprofit corporations. The governing board may appoint and designate other officers and assign them such duties as it deems appropriate.

(cf: P.L.1993, c.30, s.4)

4. (New section) a. All members of a homeowners' association, which pursuant to section 1 of P.L.1993, c.30 (C.45:22A-43) shall mean all unit owners in a planned real estate development, shall be permitted to be nominated for, run for, and be elected to serve in positions on, the governing or executive board of the association. Elections shall be held at least every year, and shall be conducted with strict adherence to democratic principles and fairness. Other than the initial election required to be held pursuant to section 5 of P.L.1993. c.30 (C.45:22A-47), if an association has not held an election which complies with the provisions of this section prior to the effective date of P.L. , c. (C. ) (pending before the Legislature as this bill), then an election shall be held, to be monitored by the State entity charged with administering "The Planned Real Estate Development Full Disclosure Act," P.L.1977, c.419 (C.45:22A-21 et seq.), in accordance with regulations to be promulgated pursuant to P.L. , c. (C. ) (pending before the Legislature as this bill) by that State entity.

b. An association shall conduct elections under the auspices of a committee of unit owners, none of the members of such committee shall be current board members or candidates for the board. The committee shall function independently of the governing board, and may use the services of a qualified independent individual or organization that is qualified in election monitoring services. The committee or independent individual or organization, as the case may be, shall be responsible for determining the eligibility of unit owners to vote or to run for office, for counting ballots, and for verifying results. No unit owner shall be disqualified from running for office except for reason of nonpayment of assessments. An association shall give all owners at least 60 days advance notice of the election so as to allow all eligible persons who might be interested in filing as candidates a reasonable opportunity to do so. No person shall be disqualified from voting in an election for any reason other than delinquency in the payment of common expense assessments for maintenance, or other special assessments that have not been paid when due and remain unpaid at the time of the election. No person shall be disqualified from voting in an election for common expense assessments of special assessments with a pending due date.

c. All elections shall be conducted in a manner requiring secret ballots to be cast by owners for the election of governing board members, utilizing such safeguards as perforated, pull-off tabs from the ballot sheet, or other devices, to ensure correct counting of the votes cast. Allocating numbers to owners on ballots shall not be permitted. An owner also shall be allowed, at his or her option, to cast a ballot by mail, in person, or if the association permits, by electronic ballot. A mailed ballot or an electronic ballot shall be deemed to be a proxy for purposes of determining a quorum for the meeting at which the election is conducted. All candidates shall be afforded the opportunity to observe the entire process of counting and tabulation of the ballots, either in person or through a designated representative, and shall have access to lists of persons who are eligible to vote and, after the voting has started, to any list of persons who have voted that the association may maintain. Any challenge to the validity of an election shall be submitted to the governing board and to the agency administering "The Planned Real Estate Development Full Disclosure Act," P.L.1977, c.419 (C.45:22A-21 et seq.) within 30 days following the date on which written notice of the results of the election is given to members of the association. Pending the outcome of any such challenge, the persons declared to be elected by the committee, individual, or organization responsible for conducting the election shall serve as de facto officers or trustees, as the case may be. Ballots, envelopes, registration records, eligibility lists, proofs of mailing, and other voting materials shall be subject to inspection by all owners at the time of the election and shall be sealed after the election and kept unopened, in the custody of a licensed certified public accountant or the organization that conducted the election, for not less than 30 days following the election, or until such later time as any challenge to the election brought within that 30-day period has been resolved and the documents are no longer required. Voting materials and procedures shall at all times be subject to inspection and review by the agency administering "The Planned Real Estate Development Full Disclosure Act," P.L.1977, c.419 (C.45:22A-21 et seq.). The parties to any dispute shall be allowed the opportunity to be present or to be represented at any such inspection and review.

5. This act shall take effect immediately.

STATEMENT

This bill sets association membership standards for the governing documents of homeowners' associations that are not formed as condominiums or cooperatives, and sets standards for the election and recall of governing board members of all types of homeowners' associations, which are formed to manage commonly-owned elements in condominiums, cooperatives, and certain planned communities with common elements. The bill also specifically provides statutory rights to owners to have access to business records of the homeowners' association managing their commonly-owned property, and requires working sessions of executive or governing boards of associations to be open to members of the association, similar to the requirements of the "Senator Byron M. Baer Open Public Meetings Act" which requires meetings open to the public for State and local governments. All unit owners in a planned real estate development, for which membership in the association managing the community property is made mandatory by the bill, shall be permitted to be nominated for, run for, and be elected to serve in positions on, the governing or executive board of the association. Elections shall be held at least every year, and shall be conducted with strict adherence to democratic principles and fairness.

The bill clarifies that the membership of a homeowners' association of a planned real estate development, which is formed by the developer to manage the commonly-owned facilities and amenities, is at all times to be comprised solely of all of the unit or home owners in the planned community. The bill also permits the title to the common facilities to be held in the name of the association, provided that the governing documents correctly reflect the membership in the association as being strictly limited to all homeowners in the planned community, and provided that the community is not formed as a cooperative or condominium. This provision of the bill is to overturn a recent court decision in which the court incorrectly construed a provision of the "Planned Real Estate Development Full Disclosure Act" as permitting an association to exclude from membership many homeowners who had purchased homes in such a community.

The bill would limit the size of governing boards of such communities comprised of less than 11 homes, to three members, and would set staggered terms of office for all trustees serving on such boards. The bill requires that elections for governing board members, or trustees, be held annually. The bill also requires that associations require owners to cast secret ballots for trustees, and establishes fair election procedures. Violations of these procedures could be appealed to the State entity having oversight of planned communities, which currently is the Department of Community Affairs. The bill also establishes standard procedures for recall votes of governing board officers or trustees, and provides that any trustees of a governing board may be recalled and removed from office, with or without cause, by the vote of, or agreement in writing by, a majority of the members present and eligible to vote at a meeting called for that purpose, provided that any vote to recall shall be initiated only upon a petition of at least five percent of all owners. The bill sets forth the rights of owners to have access to their association's business and financial records

The bill also provides that a unit owner cannot be disqualified from running for office for any reason other than nonpayment of assessments that are due. Similarly, the bill provides that no person shall be disqualified from voting in an election for any reason other than delinquency in the payment of common expense assessments for maintenance, or other special assessments that have not been paid when due and remain unpaid at the time of the election. In addition, the bill provides that no person shall be disqualified from voting in an election for common expense assessments of special assessments with a pending due date.