The proposed Uniform Common Interest Ownership Act (UCIOA) statute contains restrictions on any community association that wants to be able to sue a developer for construction defects and will have a devastating impact on our construction litigation practice.

On February 23, 2006 the Uniform Common Interest Ownership Act (UCIOA) was voted out of The Housing Committee in the Assembly and sent to the Assembly floor for a full vote. The bill, known as A-798, is a sweeping bill that for the first time in New Jersey history would enact one law governing issues affecting all community associations in the State, including condominiums, homeowners, and cooperatives. On March 2, 2006, the bill was passed by the New Jersey Assembly by a vote of 55-14, with 6 abstentions. The bill will now go to the Senate for its consideration.

While the Bill was intended, in part, as a measure that would be helpful to owners of units in condominiums, cooperatives and single family home communities governed by a homeowner’s association, the Bill imposes preconditions on community associations needing to bring suit for construction and design deficiencies. In pertinent part, before any association can start an action for construction defects, the association has to provide written notice to the developer of its causes of action. The developer has 30 days to investigate, and 60 days to test to see if it agrees with the association’s description of the nature and cause of the deficiency. 60 days after the testing, the developer must provide a settlement offer. Within 30 days, the association has to provide at least 2 dates for a meeting. If there is no settlement, either party can demand arbitration; however, the arbitration is “non-binding”. Either party can cut off the arbitration at any time or prolong it (even if it intends to reject the results of the arbitration after forcing the other side to spend tens or hundreds of thousands of dollars on expert fees and counsel fees). The Association still cannot sue unless half of its members vote in favor at a meeting, with a 33% quorum– unless a lower amount is authorized in the by-laws (which is not typically the case) and unless each owner (even in a 500 unit condominium) gets, via mail, at the Association’s cost, a copy of: (1) a statement of claims and defects; (2) the developer’s settlement offer; (3) the arbitrator’s findings (if any); (4) a statement that the suit may not recover enough money; (5) a statement of the estimated litigation costs; (6) a copy of the lawyer’s fee agreement; (7) and anything else the Association thinks is important.