Articles Posted by Blake C. Width

On June 24, 2021, the New Jersey General Assembly unanimously passed bipartisan legislation to limit liability for planned real estate developments due to the spread of COVID-19, should they decide to reopen amenities like pools and fitness centers, as long as sign requirements at the entrances to the common areas are observed.

“This is a win for those homeowners associations that chose to keep communal areas closed in 2020 due to liability concerns relating to Covid-19,” said Assemblyman Brian Bergen, R-Morris, a sponsor of the Assembly version of the bill.

“My bill will allow them to open those areas at their discretion while protecting them from lawsuits should any residents or guests be exposed to or come down with the disease,” Bergen said. “Condominium and townhome residents can get back into their shared pools and gyms.”

The New Jersey Appellate Division’s decision in Greenbriar Oceanaire Community Association, Inc. v. U.S. Home Corporation, issued on November 16, 2017, determined that a Homeowners Association was not required to arbitrate any disputes with a developer, and, when faced with a motion to compel arbitration, was permitted to file an amended complaint separating out those claims that are not subject to the arbitration agreement.

The association involved in the dispute is responsible for the common areas, administration, and management of a 1425-unit residential community in Waretown, New Jersey. The defendant, U.S. Home Corporation d/b/a Lennar Corporation, was the sponsor and developer of the project, who ultimately transferred management to the association. In its June 2015 complaint, which was twice amended, the association, on behalf of itself and its members, being the homeowners bound to arbitration clauses, asserted numerous causes of action, including: design and manufacturing defects that the association claims constituted violations of applicable building codes and warranties, as well as various violations of the Planned Real Estate Development Full Disclosure Act (PREDFDA), and the developer’s breach of its fiduciary duties.

In light of the arbitration agreement contained in the developer’s contracts with the association’s homeowners, the developer moved to compel arbitration. By the time the motion was considered, the parties settled the design and construction claims. As a result, the question for the motion judge was whether the remaining claims, including those arising under the PREDFDA, and the fiduciary duty claims, were asserted on behalf of the homeowners and therefore subject to the homeowners’ promise to arbitrate with the developer, or whether the claims should be viewed as belonging only to the association, which never agreed to arbitrate any disputes with the developer. By way of his oral decision, the motion judge agreed with the developer’s view and entered an order compelling arbitration, and later denied a motion to vacate the order compelling arbitration.

The April 13, 2017, decision of the appellate division in Mill Pointe Condominium Association v. Rizvi, sought to address a condominium association’s efforts to obtain rental income, during the pendency of a foreclosure lawsuit involving an empty condominium unit. By way of background, the association had obtained a judgment against the unit owner who had failed to pay both his residential loan mortgage payments and common expense assessments, and then filed a motion before the Law Division seeking the appointment of a rent receiver, during the pendency of the mortgage lender’s foreclosure lawsuit. The association’s proposed remedy would apply the rent payments to the outstanding judgment in its favor leading up to the foreclosure. The Law Division judge denied the association’s motion, which was opposed by the mortgage lender on the basis that the commencement of a leasehold with a third-party tenant would interfere with the completion of the foreclosure suit, and that it would force the lender to become a landlord. Unfortunately, the Appellate Division was unable to rule on this issue, which became moot because the foreclosure judgment was granted before the court could address the issues. It’s important to note, however, that the court found that the association had “raised interesting and novel legal issues that could have widespread importance.” The court went so far as to recommend that future appellants file a motion to accelerate the appeal, advising the court of the time factors involved.

While the guidance from the Appellate Division in Mill Pointe Condominium Association is certainly no guaranty that another appellate panel will favorably view an association’s request for the appointment of a rent receiver in order to obtain rental income from an otherwise vacant condominium unit, it certainly presents an indication that the court is interested in investigating the possibility of a remedy for similarly situated associations facing lengthy foreclosures.

There are positive and negative considerations involved in the appointment of a rent receiver, even without the potential for contested litigation with a mortgage lender, as was the case in Mill Pointe. Generally speaking, the appointment of a rent receiver by a condominium association is more typical in the context of a foreclosure action commenced on the association’s behalf. On the positive side, rent receivers are able to collect income and apply it to monthly assessments, fees, and arrears owed on a condominium unit as set forth in the order of appointment, and they have a responsibility to avoid waste and disrepair. On the negative side, rent receivers are court-appointed professionals who are answerable only to the court, and do not take direction from the association, once appointed. Furthermore, a rent receiver is only permitted to remain in place for a limited amount of time, from the date of appointment, to the conclusion of the foreclosure case. In order to gain the most benefit, smart associations will consider moving for the appointment of a rent receiver in conjunction with initiating foreclosure proceedings.

The New Jersey Appellate Division’s decision in Matejek v. Watson, issued on March 3, 2017, compelled the owners of condominium units to share in the cost of environmental investigation under the New Jersey Spill Compensation and Control Act (the Spill Act), without proving liability. This remedy, not previously available to private parties, will likely give rise to an increase in Spill Act litigation due to this advantage over the Comprehensive Environmental Response, Cleanup and Liability Act (CERCLA), which is the federal counterpoint to the Spill Act.

The environmental contamination in Matejek v. Watson dates from 2006, when oil was discovered on the surface of a tributary to Royce Brook in Hillsborough. In response, New Jersey Department of Environmental Protection (NJDEP) removed underground storage tanks from each of five adjoining condominium units that were near the location of the tributary. Other than visiting the site a few months after the removal of the underground tanks in order to confirm the absence of oil in the tributary, the NJDEP took no further action and its file remained open, leaving, as the trial judge later found, a cloud on the title to all five units, given that the presence of the oil would have to be disclosed if any of the properties were to be sold.

Seven years after the removal of the tanks, the owners of one of the impacted condominium units sued the owners of the other four units under the Spill Act, in order to require the owners of the impacted units to participate in and equally share in an investigation, and if necessary, remediation of the property. The Association was joined to the lawsuit in order to compel access to any portions of the common elements required for investigation, testing or remediation.