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.