Articles Posted in UCIOA

This is part 16 of Randy Sawyer’s 16 Part series on UCIOA. You can read previous posts here.

Section 88, subsection (g)
88(g) – In the event that no settlement agreement and releases are executed with respect to any phase of completed common elements or improvements during the period of declarant control of the executive board of the association, any statutes of limitation or repose applicable to such phase shall be extended for a period of one year after the assumption of control of the executive board by unit owners other than the declarant. In addition, the declarant controlled board shall not be obligated to commence suit for any such claims during its period of control.

This provision of Section 88 seeks to limit the statute of limitations on construction defect claims to one year following the transition of control of the Association from the developer to the independent unit owners. Under current law, the independent unit owners get six years from the date of transition for statutes of limitations and ten years from the date of transition under the state statute of repose (at a minimum as to claims against the developer). This provision, therefore, severely limits current legal rights. There is no benefit here to anyone other than the developer. This provision would allow a developer to conceal the existence of defects during the entire time it controls the Association, which could be several years, then turn over control to the independent unit owners. Then, if the independent unit owners do not discover the defects or act upon them within one year of getting control, they could possibly lose the claim entirely.
This provision also completely eliminates the well settled fiduciary duty that board members appointed by the developer to the developer-controlled Association have to ferret out defects and deal with them, be it by lawsuit or otherwise. In other words, they have no liability whatsoever for burying their heads in the sand.

This is part 15 of Randy Sawyer’s 16 Part series on UCIOA. You can read previous posts here.

Section 88, subsection (f)

§88(f) – If no settlement agreement is approved by the committee within 180 days after the committee’s receipt of the declarant’s request for inspection, the parties shall be obligated to proceed to mediation within 30 days thereafter in accordance with the rules of the American Arbitration Association. If no settlement is reached through mediation within 15 days after commencement of same, then the parties shall promptly proceed to non﷓binding arbitration of any remaining issues in accordance with the rules of the American Arbitration Association, and such mediation and non﷓binding arbitration shall be conditions precedent to any litigation of the warranty and construction defect claims against the declarant, which shall also require the approval of a majority of the unit owners other than the declarant. All professional fees and expenses reasonably incurred by the association with regard to the mediation or arbitration, or both, shall be borne by the non﷓declarant unit owners and paid by the association promptly upon the receipt of written authorization of the committee.

The language of subsection (f) of Section 88 has a number of glaring problems. They are discussed separately below:
If no settlement agreement is approved by the committee within 180 days after the committee’s receipt of the declarant’s request for inspection, the parties shall be obligated to proceed to mediation within 30 days thereafter in accordance with the rules of the American Arbitration Association.

The 180 day limit imposed by this section, when taken with the 150 day period for the committee to complete its inspections and provide the developer with a report, basically means that the committee has only 30 days in which to decide whether to settle a common element claim or they will be obligated in get involved in mediation under the rules of the American Arbitration Association, another potentially costly endeavor.
If no settlement is reached through mediation within 15 days after commencement of same, then the parties shall promptly proceed to non﷓binding arbitration of any remaining issues in accordance with the rules of the American Arbitration Association . . . .

This provision is also remarkable. It requires the “parties” to go into non-binding arbitration if no settlement is reached over the common elements. Presumably, the “parties” are the developer and the independent unit owners on the committee created by Section 88. As discussed in detail above with reference to Section 87, arbitration under the American Arbitration Association rules is a long, costly, burdensome process. How are the outnumbered unit owners, who may number only a handful, to pay for this costly process? In addition, Section 88 gives the developer the power to force multiple arbitrations over each common element as it is completed. This gives the developer the ability to bleed the independent unit owners dry with multiple, costly arbitration procedures. The pressure on the independent unit owners to accept cheap settlements of common element claims will be tremendous. Again, this is clearly intentional.
. . . and such mediation and non﷓binding arbitration shall be conditions precedent to any litigation of the warranty and construction defect claims against the declarant, which shall also require the approval of a majority of the unit owners other than the declarant.

Not only does Section 88 allow the developer to force multiple inspections and negotiations for each and every common element as it is completed, the Section requires that the independent unit owners, many of whom have likely just moved into the development, to get involved in both mediation and arbitration. Then, if the unit owners somehow weather all of that with their resolve intact, they still have to have a majority vote of the independent unit owners before any litigation is commenced. This entire process is incredibly burdensome which, again, appears to be intentional. And, since the developer can force this process for every common element as it is completed, the unit owners will be asked to vote again and again on issues that, by themselves, may not seem sufficient to get involved in costly litigation but, if they were able to consider them all together, might be enough to warrant litigation. By forcing each issue to be evaluated and voted on separately, the developer can avoid the cumulative affect of many improperly constructed items.
All professional fees and expenses reasonably incurred by the association with regard to the mediation or arbitration, or both, shall be borne by the non﷓declarant unit owners and paid by the association promptly upon the receipt of written authorization of the committee.

Again, where is this money coming from for all of this? Given the developer’s ability to force multiple procedures under Section 88 over multiple common elements, neither the Association nor the independent unit owners will have the funds necessary to pay for the expenses of the inspections, mediations and arbitrations. This will be especially true if there are only a small percentage of units in the development owned by independent unit owners.

This is part 14 of Randy Sawyer’s 16 Part series on UCIOA. You can read previous posts here.

Section 88, subsection (e)

§88(e) – If a settlement agreement is finalized between the committee and the declarant, the declarant controlled executive board shall have the authority to execute such an agreement and to release the declarant from all liability with respect to the completed common elements and improvements, subject to such terms and conditions as may be acceptable to the committee. Any such settlement agreement and release shall be legally binding upon the association and the unit owners, provided that its form is approved by the independent legal counsel retained by the committee on behalf of the association.
This provision is remarkable and reveals the true intent of the builder’s lobby for inclusion of Section 88 into UCIOA. Subsection (e) of Section 88 reveals that Section 88 in its entirety is intended to give developers the ability to force early inspections and negotiations over common elements long before transition occurs so that the developer can pressure unprepared and financially hampered independent unit owners into settling claims and giving the developer a release. This provision is the developers’ weapon to avoid costly litigation, which to date has been the only true protection for hapless consumers who are damaged by shoddy builders.
This provision actually grants the developer controlled board the power to bind the Association to a settlement agreement releasing the developer from liability for construction defects in common elements. In short, it allows the developer to give itself a release and indemnification from the Association before transition even occurs. Never has there been a clearer conflict of interest. The last sentence is also quite suspect. Why is the legal counsel for the independent unit owner committee only allowed to approve the “form” of the agreement and release as opposed to its content?

This is part 13 of Randy Sawyer’s 16 Part series on UCIOA. You can read previous posts here.

Section 88, subsection (d)

§88(d) – Within 120 days after the association’s receipt of any request for inspection of any phase of the completed common elements or other improvements, the committee shall cause its engineering consultant to inspect the particular completed improvements and render a written evaluation of same to the committee. A copy of the final report, following the committee’s review of the initial evaluation, shall be furnished to the declarant within 30 days after the committee’s receipt of the report. Thereafter, the committee, or its designated representatives, and the declarant shall conduct one or more joint inspections of the common elements and other improvements covered by the declarant’s request and pursue good faith negotiations to resolve any warranty or construction defect claims against the declarant. All fees and related expenses incurred by the committee for engineering and legal consultants shall be paid promptly by the association from available designated funds upon receipt of the committee’s written authorization to make such payments.

The language of subsection (d) of Section 88 should greatly concern anyone who has any involvement in
complex construction matters, since persons with such experience know that 120 days is a wholly insufficient time period for a quality engineer or inspector to complete inspections and the preparation of a written report. This is another example of the time pressure written into this statute. Since latent defects may surface years later, it will likely lead to an already financially burdened Association to have to pay for multiple reports on the same issues.
This provision also requires the committee of independent (supposedly) unit owners to provide the developer with the inspection report within 30 days of receiving the report from the engineer. This 30 day period combined with the 120 days for the inspection and preparation of the report means that the developer can force the issue and receive a final report within 150 days of demanding that a common element be evaluated. This short time period gives the developer the ability to time his demands so that each common element that is completed is evaluated before it is exposed to a rainy season, or a freeze/thaw cycle of winter to spring. In other words, the developer can time its demands that common elements be inspected by making the demand during a stretch of good weather, thereby forcing the inspections to be done during the hot summer months when there is little rain fall to expose leaks in, for example, roofs or windows. This, again, appears to be intentional.
The language “the committee, or its designated representatives, and the declarant shall conduct one or more joint inspections of the common elements and other improvements covered by the declarant’s request and pursue good faith negotiations to resolve any warranty or construction defect claims against the declarant,” is a perfect example of the one-sided nature of this statute. Here, at the conclusion of the common element inspection process controlled by the developer, the Association is obligated by statute to negotiate the claims “in good faith.” Why was this language included here but not in the process outlined in Section 87 where the developer is obligated to make a settlement proposal after receiving a notice of a claim from the Association?
The language “[a]ll fees and related expenses incurred by the committee for engineering and legal consultants shall be paid promptly by the association from available designated . . .” requires the Association to pay all expenses incurred by the independent (supposedly) committee in dealing with the developer’s demand to inspect and negotiate common element claims. Where, however, is that money going to come from? The developer could institute this process very early in the Association’s existence when it has little money. This is another example of the financial pressure that UCIOA gives to the developer to use as a weapon against the Association.

This is part 12 of Randy Sawyer’s 16 Part series on UCIOA. You can read previous posts here.

Section 88, subsection (b)


88(b)
– If the committee authorized in subsection a. of this section is established and there has been substantial completion of the common elements and public improvements in any phase of the common interest community which are not covered by the performance or maintenance guarantees posted with any governmental agencies having jurisdiction, the committee shall, at the declarant’s request, cause such common elements and improvements to be inspected and evaluated for compliance with the declarant’s warranty and construction obligations, with the assistance of qualified independent engineering and legal consultants selected by the committee. The fees for such consultants shall be paid from funds contributed at closing for such purposes by unit owners other than the declarant or by regular or special common expense assessments, or by both; provided, however, that the declarant shall have the option to supplement such funds to the extent that it deems appropriate.

The language of subsection (b) of Section 88 has a number of glaring problems. They are discussed separately below:
If the committee authorized in subsection a. of this section is established and there has been substantial completion of the common elements and public improvements in any phase of the common interest community . . . .

The phrase “substantial completion” is not defined. What is substantial completion? Typically, when dealing with a completed residential structure the date of substantial completion is measured from the date that the governing municipality issues a certificate of occupancy for the structure. Here, UCIOA gives the developer the power to force inspections over each common elements as it is constructed, such as roofs, sidewalks, siding, etc. How, then, will the date of “substantial completion” be determined? The statute offers no guidance.
If the committee authorized in subsection a. of this section is established and there has been substantial completion of the common elements and public improvements in any phase of the common interest community . . . .

The language “in any phase” in this section apparently gives the developer the ability to force the process of inspections and mediations over common elements throughout a condominium project as each one is completed. This means that the developer, presumably, has the ability to force a small number of independent unit owners to go through the expense and burden of this inspection, mediation and arbitration process, multiple times as each of numerous common elements within the project are completed. The burden on the unit owners, and the pressure to resolve each common element matter quickly as new ones arise, will be tremendous. This appears intentional from the statute.
. . . the committee shall, at the declarant’s request, cause such common elements and improvements to be inspected and evaluated for compliance with the declarant’s warranty and construction obligations, with the assistance of qualified independent engineering and legal consultants selected by the committee. The fees for such consultants shall be paid from funds contributed at closing for such purposes by unit owners other than the declarant or by regular or special common expense assessments, or by both . . . .

This provision provides that the independent unit owners have to pay for the engineers necessary to
conduct inspections of common elements when “requested” by the developer. The problem is there may only be
a few unit owners within the condominium development at the time the developer makes its “request.” That is a
significant financial burden to be placed upon a small number of unit owners who just moved into the
development. The unit owners will have no choice, however, because the institution of the process is controlled
by the developer. The practical result of this provision is that the unit owners will be forced to either hire less
expensive, less qualified engineers and inspectors, or simply cave in and accept whatever the developer if willing
to offer.
The fees for such consultants shall be paid from funds contributed at closing for such purposes by unit owners other than the declarant or by regular or special common expense assessments, or by both; provided, however, that the declarant shall have the option to supplement such funds to the extent that it deems appropriate.

This provision is outrageous. It gives the developer the authority to pay for the engineers or inspectors
hired by the independent unit owners to inspect the common elements. That means that the developer will have
an influence over the choice of engineer or inspector that is used and the outcome of the inspections. This is a
significant conflict of interest. And, since the developer has the ability under this provision to force these
inspections when there are only a few independent unit owners in the development, the unit owners will almost
always be amenable to allowing the developer to pay for the inspections. Again, this is improper influence by
the developer over the outcome of the inspections.

This is part 11 of Randy Sawyer’s 16 Part series on UCIOA. You can read previous posts here.

Hopefully by now this series of blogs on the pending UCIOA legislation in New Jersey explains the reasoning behind my chosen title “UCIOA – A wolf in sheep’s clothing.” Although many of the provisions of UCIOA arguably advance the stated goal of the legislation’s sponsors to protect community association’s rights, Section 87 of this lengthy Act was clearly not added for the benefit of community associations. Rather, Section 87, as well as the subsequent Section 88 discussed in the following parts of this series, were more likely written into the proposed law as concessions to the powerful state lobby of the developers and builders in New Jersey, since these are the only parties that seem to benefit from these sections.

Section 88, subsection (a)

§88(a) – During the period of declarant control after the initial election of unit owner board members other than the declarant, the executive board of the association may, upon the request of any board member, authorize an independent committee of at least five unit owners other than the declarant to evaluate, compromise and enforce by any lawful means as provided in this section any claims involving the common elements or any other improvements in the common interest community which the association is obligated to maintain. Only members of the executive board elected by the unit owners other than the declarant and other unit owners appointed by those independent members shall serve on the committee, and the committee’s decisions shall be free of any control by the declarant or any member of the executive board or officer appointed by the declarant. Any vacancies on the committee shall be filled by the independent board members within 30 days, and in the case of any tie votes by such board members, by the vote of the unit owners other than the declarant within 60 days after the vacancy occurs.

The language in subsection (a) of Section 88 that is the most troubling is the first sentence that permits the creation by the Sponsor-controlled Board of an “independent committee” to “evaluate, compromise and enforce by any lawful means as provided in this section any claims involving the common elements or any other improvements in the common interest community which the association is obligated to maintain.” This language essentially gives the developer the power, during the time that it controls the Association and when there are only a few independent unit owners on the Board (as few as two), to force inspections and settlement discussions over the condition of the common elements. Since the “executive board” is controlled by the developer, the developer will be the one deciding if and when to force inspections of the common elements. Since the developer knows that defects may take some time to manifest themselves in construction, it will most certainly use this provision to force inspections of every common element in a condominium project as each one is completed. The developer, moreover, has the ability to do this when there are very few independent unit owners in the development, taking advantage of the fact that they are outnumbered and have possibly not been in the development long enough to realize the severity of the issues.
In addition, this language completely ignores a common reality in the condominium world where developers often sell units in a condominium to friends and family members. These individuals, commonly referred to as insiders, can be appointed to the committee being authorized by subsection (a) of Section 88 and will be in a position to influence the inspection process in favor of the developer, which they will most certainly do as a result of their skewed loyalties. These insiders should not be allowed to influence settlements over common elements with the developer, but under UCIOA they would have the ability to do so.
Section 88(a) also has several troubling ambiguities. First, what exactly does “compromise” mean? Presumably this means settle with the developer any issues. Given the fact that the developer is the one who controls the executive board during this time, the developer can control which issues are “compromised.” This is a considerable conflict of interest. In addition, the language “enforce by any lawful means as provided in this section” is unclear. What “lawful means as provided in this section” are being referenced? Lastly, the reference to evaluating or compromising “any claims involving common elements” is confusing. If the developer is controlling the Board, what “claims” would be made and by who? Is the developer going to make a claim against itself? If so, doesn’t that present a conflict of interest? The Courts will be tied up with litigation for years attempting to straighten out the meaning of these ambiguities.

This is part 10 of Randy Sawyer’s 16 Part series on UCIOA. You can read previous posts here.

Section 87, subsection (k)

’87(k) – If the association fails to comply with any of the provisions of this section, such failure may be asserted by declarant as a procedural deficiency. Upon a judicial determination that the association failed to comply with the provisions set forth in this section, the association’s complaint shall be stayed for an appropriate period of time to permit the association to cure any non﷓compliance.

This provision allows the developer to exploit a technical non-compliance with any of the provisions of Section 87, or use any of the ambiguities previously discussed in parts 1 through 9 of this series, to argue there was non-compliance even though there was none, and file a motion to dismiss a subsequently filed lawsuit by the Association. If successful in that motion, the developer could force the Association to go all the way back to square one and do it all over again.
At a minimum, this section should have been written to require that the Developer assert this procedural deficiency in a pre-Answer motion or be considered to have waived the defense. Otherwise, the Developer can allow the Association to invest considerable resources in the litigation and then bring such a motion which, if granted, could send the Association back to square one, crippling its financial footing and its ability to keep the unit owners united.

This is part 9 of Randy Sawyer’s 16 Part series on UCIOA. You can read previous posts here.

Section 87, subsection (i)


’87(i)
– The executive board shall, at least 10 days prior to the meeting referenced in subsection h. of this section, distribute to each member of the association the following written materials:

(1) a statement of the association’s claim against the declarant, specifying all construction defects and other claims which comprise the cause of action;

(2) a copy of the settlement offer and any other written responses to the claim provided by the declarant;

(3) if the declarant and association participated in an arbitration procedure pursuant to subsection f. of this section, a copy of the arbitrator’s findings along with the association’s and declarant’s response to such findings, if any;

(4) a statement that the recovery of damages through litigation may not result in the receipt of sufficient funds to pay all damages or repair costs as estimated by the association’s experts;

(5) an estimate of the minimum and maximum costs to the association to prosecute the litigation and a statement that such costs may not be recovered in the litigation;

(6) a description of the agreement with the attorney whom the association contemplates retaining to prosecute the litigation; and
(7) such other information as the association deems appropriate or as the declarant may have provided to the association in connection with its distribution to its members.

This section could not have been made more burdensome if the drafters tried.
First, the cost to the Association to comply with this provision could be staggering. For a larger condominium, this provision could require thousands of pages of copies that could cost the Association tens of thousands of dollars. Second, the requirements in subsections (i)(4) and (i)(5) are clearly intended to frighten unit owners and influence them not to agree to the litigation. The question arises, why are subsections (i)(4) and (i)(5) in the negative? Why can=t the statements say that the litigation Amay recover sufficient funds to repair all the damages,@ or Athe costs of the litigation may be recovered.@ The only entity that benefits from a negative spin on these statements is the developer.
Subsection (i)(7) is also problematic. This provision allows the developer to disseminate whatever propaganda it wants to the unit owners. In addition, the developer can force the Association to disseminate what information the developer desires. In other words, if the developer gives the Association something it wants disseminated to the unit owners, and the Association refuses to send it out, this provision would allow the developer to move to dismiss a lawsuit later-filed by the Association for the Association=s failure to comply with UCIOA.
The last and most obvious problem with this section is that it takes all control over the litigation decision away from the Board and gives it to the unit owners. It has been a long-standing, well-settled principle in New Jersey that under PREDFDA and the New Jersey Condominium Act, a Board of an Association has a fiduciary duty to act in the best interests of the unit owners. That duty includes the decision of whether or not the Association should pursue litigation. Here, that authority is completely nullified.

This is part 8 of Randy Sawyer’s 16 Part series on UCIOA. You can read previous posts here.

Section 87, subsection (h)


’87(h)
– If the association does not accept the declarant’s settlement offer, or if either the association or the declarant does not accept the arbitrator’s determination, then the association may commence any legal action the association deems appropriate, provided that prior to the filing of any complaint commencing a legal action against the declarant, a majority of the association’s non﷓declarant members present, in person or by proxy at a meeting of the association where a quorum is present, shall approve the commencement of a lawsuit. The quorum for a meeting of the members of the association for the purposes set forth in this subsection shall be 33 percent of all members of the association qualified to vote, unless the declaration or bylaws shall provide for a lesser quorum requirement. For purposes of determining a quorum, membership interests allocated to declarant units will not be considered in determining a quorum.

The language of subsection (h) of Section 87 has a number of glaring problems. They are discussed separately below:
If the association does not accept the declarant’s settlement offer, or if either the association or the declarant does not accept the arbitrator’s determination, then the association may commence any legal action the association deems appropriate, provided that prior to the filing of any complaint commencing a legal action against the declarant, a majority of the association’s non﷓declarant members present, in person or by proxy at a meeting of the association where a quorum is present, shall approve the commencement of a lawsuit.

This provision effectively takes all decision-making authority away from the Board of the Association, which has a fiduciary duty under PREDFDA, the New Jersey Condominium Act, and common law, and gives it to the unit owners. The obvious benefit to the developer from this provision is that the developer is betting that the Atoo many chefs in the kitchen@ syndrome will control. In other words, the developer knows that it is more difficult to get a large number of people to agree upon an undertaking then just a handful. No matter how strong the merits of the Association=s claims are, and no matter how in the right the Association is, there will always be a number of unit owners that want to bury their heads in the sand and not get involved in a lawsuit. The developers know this. The result is that it will be extremely difficult to educate enough unit owners of the severity of the Association=s claims to get a majority to vote in favor of litigation.

The quorum for a meeting of the members of the association for the purposes set forth in this subsection shall be 33 percent of all members of the association qualified to vote, unless the declaration or bylaws shall provide for a lesser quorum requirement.

The quorum of unit owners necessary to hold a vote on litigation is set here at 33 percent, unless the declaration or bylaws provide a lesser quorum. The developer is the one who drafts the declaration and bylaws, so there will never be a lesser percentage for a quorum. It will likely be very difficult in some instances to get a quorum of 33 percent of unit owners to come to a meeting.
For purposes of determining a quorum, membership interests allocated to declarant units will not be considered in determining a quorum.

This language completely ignores a common reality in the condominium world that our firm experiences on a regular basis. Developers often sell units in a condominium to friends and family members. These individuals may not be employees of the developer, but they always support the developer – usually because the developer sold them their unit on favorable terms. These individuals, commonly referred to as insiders, should not be allowed to influence a vote on whether litigation against the developer should be commenced, but under UCIOA they would have the ability to possibly derail such litigation. This provision does nothing to address this reality.

This is part 7 of Randy Sawyer’s 16 Part series on UCIOA. You can read previous posts here.

Section 87, subsection (g)

’87(g)
– At any time subsequent to the tolling of the statute of limitations, as set forth in the declarant’s reply, the declarant may give written notice terminating the tolling of the statute of limitations. Upon delivery of the termination notice, the association shall be relieved of its obligation to arbitrate under subsection f. of this section, but, provided declarant has satisfied its obligations under subsections b. and d. of this subsection, the association shall be required to satisfy its obligations under subsections h. and I. of this section. The tolling of any applicable statutes of limitation shall terminate 180 days following the commencement of the tolling, unless extended by mutual written agreement.

This provision of Section 87 of UCIOA is troubling. It gives the developer, and only the developer, the control over the tolling of the statutes of limitations. This means that the developer can issue a reply to the Association’s notice of a claim, agree therein to toll the statutes of limitations, then conduct its inspection. Once its inspections are completed, the developer can then terminate the tolling of the statute of limitations, which will relieve the Association of having to arbitrate over its claims, but will not relieve it of having to go through the voting process with its unit owners. This simply allows the developer to limit the tolling of the statute of limitations to the time it takes for the developer to conduct its inspections. The statutes of limitations then begin to run while the Association goes through the burdensome process of getting unit owner approval for a suit. There is no discernible benefit to Associations from this provision.

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