Daily Development for Friday, February 23, 2001

ASSOCIATIONS; DECLARATION; MODIFICATIONS: New Jersey court provides precedent to uphold a number of residentinitiated modifications to Declaration, even under "reasonableness" test.

Mulligan v. Panther Valley Property Owners Assoc., 2001 WL 128466 (N.J.Super.A.D. 2/16/01)

This is the second report on this case, reported first as the DD for Thursday, February 22, 2001, for the principle that courts will review unit owner voted changes in Declarations under the "reasonableness" test. This report discusses the various amendments that the court evaluated, and generally approved. In virtually every case, there is valuable food for thought for others dealing with similar changes in their own jurisdictions. In each case, also, there is virtually not precedent discussing such changes.

1. Residency Restrictions Prohibiting Sex Offenders:

The first change dealt with a restriction on residency within the Association of parties who were "Tier 3" sex offenders under New Jersey's famous Megan's Law. This is the most serious classification, and such individuals are persons who are regarded as posing a"high risk of reoffending," even though they are free because they have served their punishment for prior acts.

The trial court had upheld this amendment, but the court remanded, indicating that it wanted the trial court to provide a fuller record before it reached a final conclusion. It noted that the New Jersey Supreme Court had upheld Megan's law, but had expressed serious concern about "the ogre of vigilantism and harassment" that was implicit in such legislation. First, the court wanted to know how many other associations had adopted similar rules, although it did not indicate how it would view the answer. If many associations have similar rules, is this a favorable or unfavorable result from this association's standpoint? It's hard to know.

The second area in which the court required inquiry is even more provocative. It asked for more information about the degree to which the Association provided services to its residents that displaced or mirrored ordinary public services. It noted scholarly commentary that associations may be viewed as serving a function as a substitute for a city or town and thus might be treated as "quasigovernmental" in character for purposes of judicial review of their actions. Again, we are not told how such a conclusion might cut in this case, but there has never been a significant decision actually buying into the notion that associations are in fact to be judged by the standards applied to public agencies. Just the suggestion that a court might apply such a test is big news.

2. Inspection of Records:

The second amendment significantly restricted the ability of members to inspect the Association's records, although it did permit such inspection of recent records on reasonable notice and subject to various time, place and manner constraints. The court upheld this amendment "on its face," but commented that it would continue to respond to any charge that the association restricted access to its records "with an eye to self protection." Again, in this new era of unit owners pressing for more and more opportunities to "second guess" association leadership on a wide range of issues, the court's blanket approval of such a limitation on access to records, albeit with very scant analysis, is noteworthy.

3. Selection of Directors (Trustees):

Another amendment vested more power in the Board of Trustees to control the nomination of new members, although it permitted anyone to run for Trustee who produced a petition signed by ten percent of the unit owner voters. In fact, this "nomination by petition" provision was new with this amendment and the court viewed it as enhancing opportunities to get onto the board, and viewed the changes as reasonable.

4. Attorney's fees for Association:

Another amendment provided that in any lawsuit brought by the Association, or any counterclaim or thirdparty claim, against any owner to enforce any term or provision of the Association's various governing documents, the association could recover attorney's fees if it prevailed and could collect such fees through the assessment collection powers (presumably through a lien enforcement.)

Again, the court found this "one way" attorney's fee provision reasonable. Here is the court's entire policy analysis of that issue: "One of the foundations of a common interest community is a sharing of expenses for maintenance among the residents. If the community, however, is compelled to shoulder higher legal expenses because of the instransigence of a small number, we cannot consider it unfair or unreasonable for the Association to seek to lessen the burden on other members by seeking to have the uncooperative member contribute to the attorneys' fees required to vindicate the Associations' rights."

5. Recording of Notice of Violation:

The final amendment under review provided that the Association could file a "notice of violation" in the land records, apparently as a prelude to establish a lien claim for recovery of assessments or, presumably, attorney's fees. This could be done, in the interpretation of the trial court, without the association having any duty to notify the alleged offender in advance. The court here viewed that aspect of the recordation provision to be unreasonable, and struck this amendment down for that reason.

Comment: Whew!! A lot of stuff, but most of the editor's comments are interleafed with the discussion. In general, the editor views "one way" attorneys' fee provisions as unreasonable. But clearly they are in common use, and thus it is not surprising that the court upheld such a provision here. Nevertheless, association declarations are, in effect, consumer instruments, and one way attorneys' fee provisions favoring the heavyweight against the lightweight do seem a bit extreme. OK, OK, sometimes the unit owner is the heavyweight. But the editor proposes that this is the exception, not the rule.

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