Daily Development for Friday, September 7, 2001

Daily Development for Monday, September 24, 2001

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

CONDOMINIUMS; ASSOCIATIONS; DELEGATION: The power of a condominium association to delegate authority to an umbrella organization is limited to management and operation of common areas shared by all unit owners within the development, and there can be no delegation to the umbrella association of control over common elements uniquely available to the members of an individual condominium. A municipal land use board can't make such delegation a condition of site plan approval.

Fox v. Kings Grant Maintenance Assoc., Inc., 167 N.J. 208, 770 A.2d 707 (2001).

A developer submitted a proposal to construct fifteen sectionalized communities within a master planned development. The proposed development included community bicycle trails, recreational facilities, commercial centers, and open space. The municipal planning board authorized the proposed development on the condition that the developer establish an umbrella maintenance association. The maintenance association would be responsible for "the coordination and control of privately owned streets, walkways, recreation, and other facilities limited to all or some of the residents of the [development]" with a purpose "to provide overall management and control of the [development]."

The developer consented to this condition and formed a separate maintenance company to be responsible for "the maintenance, management, preservation, administration, upkeep and care of all common property." The municipality defined common property as "all property intended for common and beneficial use of Unit Owners within any Section of [the development] regardless of the form of ownership.

Common property shall also mean and refer to all lands, buildings, improvements and facilities including, without limitation, common elements as that term is defined in N.J.S.A. 46:8B-1."

The municipality further required that every sub-community within the development be deemed to have "irrevocably delegated" to the maintenance company all of its powers and duties for the maintenance, preservation, administration and operation of common property. The umbrella association's governance was through a group of delegates selected by the various constituent organizations. In practice the umbrella association controlled all decisions as to maintenance and operation of the common elements, and then, as to common elements unique to a particular member sub-community, would present that sub-community with the bill.

All units within the development were sold subject to the declaration so constituted. A dispute arose between the unit owners within one particular sub-community and the umbrella association. They objected to the level of control that the maintenance company was asserting over the sub-community and sued. Apparently the "triggering issue" had to do with questions of internal management, such as elections, but the overall complaint related to budgetary and operational control.

The maintenance company filed a cross-claim seeking authority to administer and control the sub-community's elections. The lower court held that the maintenance company, as an umbrella association, had the power to maintain and manage all common property; it did not, however, have the power to control the sub-community's elections. The Appellate Division affirmed.

The Supreme Court began its analysis by recognizing that a "condominium unit is a separate parcel of real property that the unit owner may deal with 'in the same manner as is otherwise permitted by law for any other parcel of real property'. However, condominium ownership is distinct from other forms of property ownership because, when an individual purchases a condominium unit, he or she simultaneously acquires a proportionate undivided interest in the community's common elements. "Thus, in a condominium, the common elements are not subject to partition and any purported conveyance or encumbrance of an undivided interest in the common elements made without the unit to which that interest is allocated is void."

The Court then held that "the Condominium Act does not authorize the creation of umbrella associations as an appropriate association structure nor does it provide any source of power for umbrella associations to exist and operate." It concluded that "control over the encumbrance or disposition of common property within a section is almost universally retained by the constituent association." The Court reasoned that "when unit owners are required to delegate the day-to-day management of their unique common elements to an umbrella association, they lose their statutory power to control their undivided interest in their common elements." The Court noted, though, that the delegation of limited powers to an umbrella association need not violate the Condominium Act. Here, the municipal planning board gave the maintenance company "powers far beyond the maintenance of facilities used in common by all unit owners within the development, and provided for a broader delegation of power than the coordination of privately owned streets, walkways, recreation, and other facilities," which, by their nature, would be within the power of an umbrella association. Consequently, the planning board's requirement that the individual constituent associations delegate control over their common areas to an umbrella association violated the Condominium Act.

Comment 1: Note that each unit owner implicitly accepted the contract creating the "umbrella organization" when that unit was purchased.

Although the court does have some concern with the clarity of the language in the Declaration establishing the regime, the real thrust of the opinion is that, no matter how clearly stated, broad delegation of authority over common elements unique to one sub-association violates the New Jersey Condominium Act.

The court cites Wayne Hyatt and the new Restatement of Servitudes for the principle that individual condominium communities are to be autonomous with regard to their individual common elements. It notes that the legislature was primarily concerned about the developer retaining too much control when it created the community, thus leading to later abuse of the budgetary process to enrich the developer. But there is no charge here that the developer was profiteering. In fact, the system was not set up voluntarily by the developer, but required by local planning agencies.

Comment 2: Although, in general, it must be said that condominium unit owners should be protected from developer overreaching, is there anything wrong with the association members, for good and sufficient reasons, making separate arrangements to handle their unique common elements? Perhaps the problem here was not that there was such a delegation, but that it was irrevocable so far as the individual sub-association was concerned. It was not a choice, it was an imposition.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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