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The Owners of the Manor Homes of Whittingham v. Whittingham Home Owners Association, Inc.

367 N.J. Super. 314, 842 A.2d 853 (App. Div. 2004)

CONDOMINIUMS; MEASUREMENT—Where no formula for measuring the size of a condominium unit appears in a master deed, a condominium’s board may use any reasonable approach and its method may differ from that originally used by the developer.

A condominium homeowners association’s Declaration of Covenants, Conditions and Restrictions provided for collection of maintenance assessments . These maintenance assessments covered both fixed and variable expenses. The fixed expenses were allocated on an equal basis to all homes. The variable expenses including exterior maintenance, repairs, and insurance were calculated according to a formula based on the proportion of a unit’s “square footage” to the aggregate “square footage” of all the units. The term “square footage,” was not defined in the declaration. When the association was controlled by the developer, the units were measured from the outside foundation walls. Once the unit owners assumed control of the association, its board decided to remeasure the units using the interior square footage of each unit. As a result, the variable expense maintenance assessment for some units increased. Some owners questioned the remeasurement, arguing that the new method did not conform to the previous calculations. The board responded that the “square footage” measurement should reflect only the living space within each unit. The aggrieved owners brought suit, seeking a refund for the difference between the assessment under new method versus what it would have been under the original method.

The Condominium Act gives a condominium association the power to make common expense assessments. The by-laws of the association provided that the board had sole discretion to determine the assessments. The Declaration also stated that “[t]he assessment ... [should] be equal to that fraction of the total assessment for such purposes in the Community, the numerator of which is the square footage for the particular model of Home affected and the denominator of which is the aggregate of such square footage for all Homes within the Property.” To the dismay of the complaining unit owners, the Court disagreed that the old method of measuring was the only “correct” method. It held that the statutory language suggested that there could be more than one correct method of calculation, and that a board is given broad discretion in determining the method to use.

A court can only intervene when an association’s board’s discretion is exercised unreasonably or arbitrarily. In making that determination, a court applies the business judgment rule to determine whether an association has breached its fiduciary duty. The two prongs of this rule require a court to determine whether an association’s actions were authorized by statute or by its own by-laws or master deed, and if so, whether the action was fraudulent, self-dealing or unconscionable. Here, the Condominium Act authorized the board’s action, and the Court found nothing in the record showing that the new assessments were fraudulent or unreasonable. There was no allegation that the measurement of the interior space was inaccurate, nor did the Court find evidence that the association or the board had benefitted from the remeasuring. As a result, the Court affirmed the decision of the lower court and held that the board was empowered to change the method of calculating the maintenance assessments.

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