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Moore v. The Radburn Association, Inc.

A-4284-07T2 (N.J. Super. App. Div. 2010) (Unpublished)

PREDFDA — The 1993 amendments to PREDFDA apply retroactively to common ownership communities even to those communities that were already in existence before the original PREDFDA statute was enacted.

In 1929, a developer created a common interest community. It contained parks, swimming pools, ball fields, playgrounds, and a community center. The developer formed an association (Association) as a nonprofit corporation to set and collect charges; maintain services and the parks within the community; and interpret and apply the restrictions applicable to the community. The developer then transferred the property to the Association, for which it was responsible.

Within the community, the residential homeowners owned their homes but did not own any interest in the common areas such as the parks, pools, and ball fields. All of the common areas were owned by the Association. The residents formed an owner’s group (Owner’s Group), in part to address residents’ concerns with the Association. All residents were permitted to be members of the Owner’s Group, but not all residents were entitled to membership in the Association. The Association’s bylaws defined its members as: (1) those persons specifically named in the Certificate of Incorporation; (2) those persons elected to serve as trustees; and (3) persons elected by the current membership. The President of the Owner’s Group, was also considered a member but only during his or her term. The Association’s board consisted of nine individuals, six of whom were selected by all residents from a list nominated by the trustees.

A group of citizens within the community challenged the governance of the Association. They claimed that the community was a planned community subject to the 1993 amendments to the New Jersey Planned Real Estate Development Full Disclosure Act (PREDFDA) and that the Association was governed by both PREDFDA and the New Jersey Nonprofit Corporation Act (Act). They argued that the Association, which did not include all residents as members, violated PREDFDA. Further, they alleged the Association’s nominating procedure ran afoul of the Act. The lower court found that: (1) the community was subject to the 1993 amendments to PREDFDA and that the PREDFDA amendment applied retroactively; (2) PREDFDA does not require that all residents of the community be members of the Association; (3) PREDFDA does not require a specific nomination procedure for board members; and (4) the Association’s nominating procedure was fair and reasonable under the Act.

On appeal, the Appellate Division agreed that the 1993 PREDFDA amendments were to be applied retroactively to the community, even though the community was already in existence before the original statute was enacted. It noted the legislative history suggested that the amendments were intended to result in consistency of management and to safeguard the interests of owners or occupants in planned communities. The Court noted that applying the amendments prospectively, but not retroactively, would deny these protections to residents of communities that were developed before PREDFDA was originally enacted. The Court the rejected the Association’s argument that it was not a planned community within the meaning of the statute because the statute required a “common promotional plan” by individuals or groups “acting in concert.”

The Association argued that the original developer went bankrupt and sold its interests to multiple developers who never “acted in concert” because they did not follow the original plan and actually built different styles of homes. However, the Court noted that the homes were still sold subject to the declaration of rights and were sold pursuant to a common promotional plan. Further, even though the Association owned the parks and other common areas and the residents did not have an interest in the common elements, the residents paid assessments for the upkeep of the parks, pools, and other common areas. Thus, the Court found sufficient attributes to satisfy the statute’s requirement that a planned community provide for shared elements or interests in real property.

The Court agreed with the lower court’s finding that PREDFDA did not require that all residents be members of the Association, and that the declaration only required that the Association be governed by the residents or their representatives. The Court noted that the Association was governed by trustees, persons elected by the members, and the current president of the Owner’s Group. The Court found these persons to be the representatives of the non-member residents as required by the declaration. It refused to impose a requirement that all residents be permitted to be members of the Association.

The Court also rejected the residents’ claim that the Association’s nominating procedure, which allowed residents to pick from candidates nominated by the trustees, was not a “fair and reasonable” method as required by the Act. The Court found that, while the nominating procedure was not the most democratic, the Act only requires that a nominating procedure be fair and reasonable. In this instance, the Court noted that the residents were represented within the Association, since the President of the Owner’s Group (to which all residents could belong) was a member of the Association’s board. Further, any resident could apply for nomination to one of the six seats on the Association’s board that were elected by all residents.

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