When Do Condominium Associations Have Standing To Sue Under The Consumer Fraud Act?

by: Peter J. Gallagher

In a recent decision, the Appellate Division restated and clarified the rules regarding when a condominium association has standing to sue a developer. In Belmont Condominium Association v. Geibel, an association sued the sponsor/developer/contractor of the Belmont, a seven-story, thirty-four unit condominium in Hoboken, asserting common law fraud and negligence claims along with statutory claims under both the New Jersey Consumer Fraud Act (“CFA”) and The Planned Real Estate Development Full Disclosure Act (“PREDFDA”). The claims arose out of the allegedly faulty construction of the Belmont, and certain pre-construction statements from the developer, including that it had “overseen the building and renovation of Over 400 Single Family & Condominium Homes.” (Although largely irrelevant to the issues addressed by the Appellate Division, it turned out that the Belmont was actually the first building that the developer’s owner and general manager had ever constructed.) As it relates to the faulty construction, the association alleged that the building was “plagued by water leaks” almost immediately after construction was complete. These leaks impacted both the individual units and the common elements. After years of repairs that did not correct the problem, the association sued the developer. The association argued that construction defects were the cause of the water filtration, while the developer blamed the problems on poor and inadequate maintenance.

Among other things, the developer in Belmont argued that the association lacked standing to bring claims under the CFA. At the outset, the Appellate Division observed that New Jersey courts take a liberal approach to standing, and have historically given wide recognition to suits by condominium associations. It then analyzed the language of the New Jersey Condominium Act (“NJCA”) to determine whether the association had standing. As it related to claims arising out of damage to the common elements, the Appellate Division held that the association had standing to sue because the NJCA vests condominium associations with the “exclusive right”(emphasis in original) to sue a developer for defects pertaining to the common elements, and generally prohibits individual unit owners from doing so.

The Appellate Division rejected the developer’s argument that the association lacked standing because it could not demonstrate reliance by the original purchasers on any of the alleged misstatements. On this point, the Appellate Division noted that reliance is not an element required to sustain a claim under the CFA. The Appellate Division also rejected the developer’s argument that the association could only recover damages for the unit owners who actually sustained damage as a result of the developer’s alleged misrepresentations. The Appellate Division held that because the NJCA allows associations to sue for damages to the common areas sustained by “any or all” of the unit owners, it was entitled to recover all of the damages necessary to repair any damages, not a prorated amount based on the number of unit owners who identified damages.

However, the Appellate Division held that the association lacked standing to sue for damages to the individual units because the NJCA only vests it with authority to sue or be sued in connection with damages to common elements. In Belmont, the damages associated with individual units all related to the windows, which the Appellate Division held were “personal to the unit owners,” and therefore not part of the Belmont’s common elements. On this point, the Appellate Division reviewed the definition of common elements contained in both the NJCA and the master deed for the Belmont, neither of which identified windows as common elements. Once the Appellate Division concluded that the windows were unit elements, not common elements, its decision on standing was a simple one because it had already concluded that an association has standing to sue for damage to common elements, but lacks standing to sue for unit elements.

Reducing the Cost of Going Where No Man Has Gone Before

by: Katharine A. Muscalino

Under existing Board of Public Utilities Rules, developers seeking to build in undeveloped areas have been forced to bear the full cost of utility extension, while developers building in more developed, metropolitan areas, have enjoyed the benefit of sharing the expense of utility extension with existing ratepayers in the area. The rule was designed to encourage smart growth and reduce sprawl. The result was that developers in rural and less developed areas of New Jersey were facing massive, if not prohibitive, infrastructure expenses.

After getting an $8 million bill for utility extension for a 555 home development in Howell, one developer sued the BPU, challenging its authority to adopt such a rule, codifying disparate treatment of developers based on the existing development and infrastructure in a given area. The Appellate Division ultimately ruled that such a rule, treating development in some areas of the state differently than others at the developer’s expense, is beyond the state agency’s statutory authority.

In response to the Appellate Division’s opinion, the BPU has introduced a new rule, still in draft, that would allow developers to share the cost of utility extension over the entire ratepayer base. The new rule will make large-scale development in rural areas possible, and offers the possibility of utility service to both new and existing homeowners and businesses in these areas. The details of the new rule’s implementation will be discussed at the BPU’s meeting on Tuesday, October 18, 2011, including what portion of the extension costs should continue to borne by the developer and whether the developer should pay a deposit for the extension. Developers with plan to build in areas that are not served by existing infrastructure, or in rural areas may want to consider attending the meeting or contacting a BPU stakeholder to express support for the proposed rule. The meeting is expected to draw critics of the proposed rule who argue that it will lead to sprawl, compromise smart growth, and endanger scarce resources. To review a copy of the draft rule, click here.

Victory For Commercial Affordable Housing

by: Katharine A. Muscalino

Private commercial developers have struggled to install affordable housing in New Jersey’s municipalities for decades, facing opposition from communities, local governments, and the municipal zoning boards. The Appellate Division has just eased the burden of private developers by holding, for the first time explicitly, that affordable housing built by a commercial developer (as opposed to a non-profit or public entity) qualifies as an “inherently beneficial use” in Conifer Realty LLC v. Township of Middle Zoning Board of Adjustment (September 9, 2011). By being categorized as an inherently beneficial use, commercial affordable housing is subject to a less stringent standard for obtaining use variance relief. In support of this holding, the Appellate division noted that the courts have previously recognized that affordable housing is an inherently beneficial use in a “variety of circumstances” and that housing needs are “clearly related to the general welfare under the zoning laws.”

The Appellate Division found that the zoning board construed previous opinions holding that affordable housing is an inherently beneficial use too narrowly. The board had maintained that because all existing caselaw had addressed affordable housing constructed by public of non-profit entities, a commercial developer’s affordable housing could not qualify as an inherently beneficial use. The Court directed that in analyzing whether a proposed use is inherently beneficial, “the focus of the inquiry is whether the proposal furthers the general welfare, not whether the undertaking is one that is not-for-profit or a commercial enterprise.”

In addition to remanding the application to the Board for consideration under the less stringent inherently beneficial use standard (the Sica test), the Appellate Division found the Board’s concerns regarding the negative criteria to be arbitrary, capricious, and unreasonable. The Appellate Division noted that the Board’s rejection of the application, base on density and environmental concerns, was contradicted by the Township’s Fair Share plan, which included the project, minimized the environmental impact, and promised to amend the zoning and density for the project.

Is Your Driveway A Principal Use?

by: Greg Ricciardi

According to the New Jersey Supreme Court, in certain circumstances the answer is yes. On June 16, 2011, the Court held that a driveway is a principal use where, pursuant to local zoning, the driveway does not meet the definition of an accessory use. Moreover, depending on the circumstances, you may need difficult to obtain and costly variances to get your driveway approved. How could this happen?

The answer lies in the curious case of Nuckey v. Borough of Little Ferry Planning Bd. These are the facts. A developer owns multiple lots and wants to build a hotel. One of the lots has no highway access. To remedy this issue, the developer proposes to build a driveway on an adjacent lot that would continue across the corner of another lot owned by the same principals as the developer. This proposed driveway would provide the needed highway access for the hotel. Sounds like a simple accessory use right? Herein lies the rub.

Continue reading “Is Your Driveway A Principal Use?” →

HUD Is A Dud According To Washington Post Investigative Report

by: Peter J. Gallagher

According to a recently concluded, year long study by the Washington Post, HUD is dysfunctional. The paper — which reported its findings in an article last week entitled "A Trail Of Stalled Or Abandoned HUD Projects" — " looked at "every major project currently funded under the [HOME Investment Partnerships Program], analyzing a database of 5,100 projects worth $3.2 billion, studying more than 600 satellite images and collecting information from 165 housing agencies nationwide." The study concluded that HUD "delivers billions of dollars to local housing agencies with few rules, safeguards or even a reliable way to track projects." This, in turn, has led to "widespread misspending and delays" in the program, which was developed more than 20 years ago to deliver decent housing to the working poor.

While the article focuses primarily on the conditions in Washington D.C., it also discusses more systemic problems, and uses an example from Newark, New Jersey in this regard. The article notes that two partially completed duplexes sit empty in a Newark neighborhood "blighted by boarded-up homes lost to foreclosure." While the city paid nearly $400,000 to build the houses, the developer delayed for more than 10 years, and ultimately folded and never finished the project. The money has not been repaid. In response to the Post's investigation, HUD claimed that it did not need a a more robust enforcement effort to correct problems like these, and indicated that it is "focused more than ever on delayed projects and recouping money," and that the situation "will get cleaned up.”