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Fox v. Kings Grant Maintenance Association, Inc.

A-2376-98T2 and A-3038-98T1 (N.J. Super. App. Div. 2000) (Unpublished)

CONDOMINIUMS—A condominium sub-association can delegate its duties to an umbrella association and a developer’s agreement with a municipality for a very large project can require such a delegation, but the internal governance of the sub-association is not under the control of the umbrella association.

A planned unit development was governed by a number of sub-associations structured within an umbrella association. One of the sub-associations objected to the scope of control asserted by the umbrella association. In particular, it believed that condominium law required that each sub-association be responsible for the management of common property within the sub-association’s common areas and that the umbrella association was not authorized by law to take over management of the common property within the overall development. In addition, it argued that the municipality’s planning board resolution, which called for the establishment of the umbrella organization as a single entity to maintain and manage all common property within the overall development, was improper. Lastly, it objected to the umbrella association’s insistence that it had the ability to control the sub-association’s membership meetings. The overall development consisted of fifteen distinct communities, all of which were managed by the umbrella association. A Declaration was filed establishing the umbrella association as the entity required to provide for the maintenance, management, preservation, administration, and operation of all common property within the development. It further effectuated an “irrevocable delegat[ion]” by each condominium sub-association to the umbrella association of “all powers appurtenant to the provision of maintenance, management, preservation, administration, and operation for the Common Property within the Subject Community.” The Declaration further provided that each sub-community would elect or appoint a delegate to represent its members to the umbrella association. About ten years after this basic structure was put in place, this particular sub-association was created. Its Master Deed declared that certain powers and duties of the sub-association would be irrevocably delegated to the umbrella association, as required by the planning board resolution. A time came when the umbrella association issued a memorandum notifying the unit owners within the sub-association that the annual membership meeting of the sub-association was scheduled for a particular date at the office of the umbrella association. The president of the sub-association notified the umbrella association that the sub-association objected to the umbrella association’s involvement in the annual meeting. In response, the umbrella association insisted that it had the right to control the sub-association’s membership meeting and refused to provide a list of the sub-association’s members in “good standing” for voting purposes.

The Court held that the municipality’s planning board’s decision “directing that an umbrella maintenance association be created was reasonable ‘in light of the proposed development’s size and residential-type diversity.’” It also found no prohibition under either the Condominium Act or the Planning Real Estate Development Full Disclosure Act (PREDFDA) which would invalidate an assignment to an umbrella association of authority to maintain common property. In doing so, it rejected the sub-association’s contention that under the Condominium Act, “each condominium shall have its own condominium association,” and that a requirement by a planning board that all condominiums within a development be subject to the umbrella association, a professional maintenance association, was a violation of the Condominium Act. Therefore, the sub-association contended that the planning board’s creation of the umbrella association violated the doctrine of preemption, which prohibits any municipality from making or enforcing a rule or by-law contrary to the laws of New Jersey. This argument was rejected by the Court when it held that a municipal planning board generally has substantial flexibility to set reasonable conditions for the management of planned unit developments. “Because of the enormity of this planned unit development, including the common roadway systems and similar maintenance needs, a single management association is necessary for the viability and maintenance of uniform standards throughout the development.” The sub-association also contended that the Municipal Land Use Law “does not allow for governmental intrusion in the area of management of private property.” By extension, it argued that a “municipality also cannot require that a condominium community be subject to a professional maintenance association.” The administrative code states that no development regulation, for example by a municipality, may impose requirements concerning the “use, location, placement, or construction of buildings or other improvements for condominiums ... unless such requirements shall be equally applicable to all buildings and improvements of the same kind not then or thereafter under the condominium ... form of ownership.” The Court, however, rejected this argument by stating that the Planning Board’s requirement for an umbrella association was in no way discriminatory. According to the Court, the umbrella association requirement applied to all types of residential developments having common elements within this development irrespective of ownership. The sub-association further contended that it had been deprived of its right to preserve its property, to make management and maintenance decisions, to select and remove its property managers, to establish a budget and invest its funds, to determining whether to pay for future repairs, to decide whether to incur debt, and to decide whether contracts are to bind them. The Court rejected this line of argument, holding that the sub-association had not been unconstitutionally deprived of any rights associated with property ownership by the creation of the umbrella association. According to the Court, the umbrella association consisted entirely of unit owners and had been created based upon the need to “promote the responsibilities and economies which are necessary in a development as large as” this one. The sub-association then argued that the umbrella association’s Declaration violated the Condominium Act because under the Act, ultimate authority must rest in “an association of unit owners,” not in a professional maintenance association, such as the umbrella association. The Court rejected this argument as well. It pointed out that the Master Deed of the sub-association expressly provided that all unit owners were subject to the umbrella association’s Declaration and by-laws, “which irrevocably delegate[d] supervision and maintenance powers of all common property” to the umbrella association. The sub-association’s fundamental objection to the creation of the umbrella association was that the Condominium Act allegedly requires that administrative power over the common elements reside in a board consisting of, and elected by, the members of that condominium unit only. Consequently, because of the structure of the development, it felt that the power to manage the sub-community rested with a board of trustees elected not only by the sub-association’s members, but also by members of the other condominium associations, thereby diluting their own unit owner’s votes. The Court, however, held that the establishment of the umbrella association and the delegate-based voting system conformed with the letter and spirit of the Condominium Act. According to the Court, the umbrella association’s board of trustees consisted solely of unit owners within the development, who were elected by all unit owners within the development through their delegates. The Court pointed out that the Condominium Act “does not require compartmentalized associations governing each sub-community.” While the sub-association was responsible for the conduct of “all activities of common interest to the unit owners, “the provisions in this sub-association providing the delegation of powers to the umbrella association furthered the goal of conducting activities that are of common interest to all unit owners.” With respect to the delegate-based voting structure, the Court pointed out that nothing in New Jersey Nonprofit Corporation Act nor in the Condominium Act barred an electoral-college type voting mechanism such as was in place here. Basically, the Court held that if the members of the sub-association felt that the umbrella association was not acting in their best interest, their remedy was to bring a breach of fiduciary duty action. With respect to the dispute over voting procedures within the sub-association, the Court found that nothing within the organizational documents of either the umbrella association or the sub-association gave the umbrella association the ability to control the sub-association’s membership meetings. There was no delegation of that right. It was the sub-association’s documents that provided how the election of delegates should occur. Specifically, only the sub-association’s by-laws provided detailed procedures concerning elections and meetings of the sub-association. While the by-laws of the umbrella association granted the umbrella association the right and duty to control the membership meetings of all subject communities, the Court pointed out that this only set forth general procedural rules concerning the election of delegates, and did not grant the umbrella association unfettered power to control the sub-association’s meetings and elections.


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