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The New Jersey Condo Blog

Q&A: Board Member Confidentiality Agreements

01/09/2018 Martin Cabalar


By: Martin C. Cabalar

Q:     Can board members adopt a policy requiring all members of the Board to execute a confidentiality agreement?  

A:       While there is no New Jersey case law directly on point, the likely answer is that with respect to material that is confidential, the governing board of a common interest community may adopt a policy requiring that the right of a director or trustee to access confidential material will be conditioned upon the board member's execution of a confidentiality agreement.

The New Jersey Condominium Act and New Jersey Planned Real Estate Development Full Disclosure Act (PREDFDA), despite having vigorous open meeting requirements, recognize that certain discussions should be held in confidence. Specifically, the governing board, in the exercise of its powers and duties, may exclude or restrict attendance at those meetings, or those portion(s) of meetings, dealing with: (1) any matter, the disclosure of which, would constitute an unwarranted invasion of individual privacy; (2) any pending or anticipated litigation or contract negotiations; (3) any matters falling within the attorney-client privilege, to the extent that confidentiality is required in order for the attorney to exercise his ethical duties as a lawyer; or (4) any matter involving the employment, promotion, discipline or dismissal of a specific officer or employee of the association. See N.J.SA. 46:8B-13 and N.J.S.A45:22A-46(a). It is very likely that the reason for such provisions in the Condominium Act and PREDFDA are in recognition of the fact that to act within the best interest of the association (i.e. maintain a duty of loyalty) requires members of the governing board to exclude and restrict attendance at certain meetings in order to maintain the required fiduciary level of confidentiality. Thus, a governing board would be justified in denying a board member access to such confidential information or materials where that board member refused to sign a confidentiality agreement with respect thereto.

In fact, the Appellate Division in one New Jersey case did not appear to take issue with the association requiring its members to sign confidentiality agreements in order to obtain a list of all members of the association.  Instead, the court held that a one thousand dollar liquidated damages clause in the confidentiality agreement was unreasonable and invalid, but did not otherwise appear to take issue with the confidentiality agreement or the board’s requirement that members sign same. See Comm. for a Better Twin Rivers v. Twin Rivers Homeowners' Ass'n, 383 N.J. Super. 22, 60 (App. Div. 2006) rev'd on other grounds, 192 N.J. 344 (2007). Likewise, in a corporations cases from Delaware, the court there has held that the access to materials as a director may be conditioned on the execution of a confidentiality agreement. See e.g. Hollinger Int'l, Inc. v. Black, 844 A.2d 1022, 1092 (Del. Ch. 2004); Stroud v. Grace, 606 A.2d 75, 89-90 (Del. 1992).


In light of the aforementioned legal precedent, where a member refuses to sign a reasonable confidentiality agreement but continues to demand access to confidential information, the board of a common interest community would likely be justified in seeking a judgment declaring that the member’s access to materials be conditioned on his or her execution of a confidentiality agreement.  In addition, while the board likely cannot remove the member from the board, as most governing documents require a vote of the unit owners, the board may also be justified in calling upon the unit owners for a vote to remove the obstinate board member.

Q&A: Charging for Copies of Financial Documents

12/19/2017 Martin Cabalar

BY: MARTIN C. CABALAR

Question:       

Is there a limit how much we can charge to pull, provide and copy requested paperwork? Can we make a profit?

Answer:

Yes, there is a limit to the amount a condominium association can charge its residents to provide copies of records the association is required to keep open to inspection by its owners. In New Jersey, the charge cannot exceed an amount reasonably related to the association’s copying cost, which may include any additional administrative expense incurred. Therefore, unless your governing documents provide otherwise, the association may charge the cost for copying.

It is important to keep in mind that the New Jersey Condominium Act provides that associations shall be responsible for “the maintenance of accounting records in accordance with generally accepted accounting principles open to inspection by unit owners at reasonable times.” N.J.S.A. 46:8B-14(g) (emphasis added). The accounting records required to be open to inspection by unit owners include (1) a record of all receipts and expenditures and (2) an account for each unit setting forth any shares of common expenses or other charges due, the due dates thereof, the present balance due and any interest in common surplus. Thus, while the association may charge a fee reasonably related to the association’s copying cost to provide copies, the association must grant access to inspect the financial records required to be kept open to inspection without charge to the unit owners. Even if another party, such as the Association’s managing agent or accountant, charges the association a production fee, the association cannot charge the owner a fee to merely inspect these records.

Finally, while the Condominium Act is silent as to whether owners have a right to make copies, and New Jersey case law has not resolved this precise issue, the New Jersey Department of Community Affairs takes the position that the right of inspection includes the right to copies of those documents. Thus, we recommend that you allow members to make copies of financial records that are required to be open to inspection.

The Community Association Law Blog

New Year's Resolutions for Your Board

01/05/2018 Donna DiMaggio Berger
Historians believe that the ancient Babylonians were the first people to make New Year's resolutions approximately 4,000 years ago. During a religious festival known as Akitu which lasted for a lengthy 12 days, the Babylonians crowned a new king or reaffirmed their loyalty to the reigning king. They also made promises (precursors to modern day resolutions) to their gods regarding the repayment of their debts and believed that if they kept these promises, the gods would bestow favors upon them but if they did not, doom would follow.


We are in the midst of election season for most community associations.  Either the members are deciding to reaffirm their support for an existing board or they have decided to elect a new board.  Particularly at this time of year, many sitting boards find themselves unaware of where they truly stand with their members including whether or not the members believe that the board has kept its promises or abandoned same.  It's best not to wait until year's end to gauge how your board's decisions and priorities are being viewed by the members who elected you.


Here then are some resolutions your board might want to consider for 2018:

1.    Allow time at every Board meeting for a good and welfare discussion to allow those members present to "vent".  Many times, it will be the same malcontents, but, occasionally, you will hear from members with concerns you didn't expect.  I can hear the groans now from some of you regarding having additional time at meetings but you will find that the more frequent your meetings, the fewer times those meetings devolve into chaos.  Some "troublemakers" may not be troublemakers at all but rather are simply people who are looking to be heard; the fewer opportunities they have to express themselves typically results in a blow-up when the rare meeting does occur.

2.    If your meetings have never been well-run, decide to handle them differently in 2018.  If you have someone who constantly interrupts the meeting and will not listen to reason, begin videotaping your meetings, as many people will behave differently if they know their conduct is being preserved for posterity (or as evidence).  If the disruptive people are truly threatening, hire an off-duty police officer to maintain order. Also, consider adopting reasonable rules regarding participation at meetings before you need to enforce them.

3.    If your community is professionally managed, re-read your management agreement to further your understanding of what your manager can and should be doing. Board members should be policy makers, not day to day managers.  For items on which neither the manager nor the Board has the requisite expertise, consult with experts such as your attorney, accountant, engineer, etc.


4.    Stop hiring anyone based solely on price. First of all, if it seems too good to be true, it usually is. More importantly, remember that there are often other factors that impact price and, most importantly, the value of the services you are receiving.  It is easy for boards to get duped by a low price tag but the true yardstick should be the quality of service your Board and members receive for their assessment dollars.

5.    Attend a Division-approved class to get educated and share and hear best practices with leaders of other communities.  Even if you do not need to be certified to serve on your Board in 2018 because you've previously been certified, attending at least one class each year helps you be a better Board member.


6.    Adopt policies that take advantage of available technologies to streamline your association operations, as well as a Code of Conduct for your Board. Some of the strife related to board member squabbles occurs because there are typically no set boundaries and guidelines as to what each board member should be doing.


It is inevitable that you cannot please everyone.  The greatest leaders in history had their detractors.  What you can control is how you approach the role of serving on the Board (please see my emphasis on the word "serving"), how you and your fellow Board members communicate and work together and how you set and relentlessly and efficiently pursue the best interests of the community you serve.

In Defense of HOAs

12/04/2017 Donna DiMaggio Berger
HOAs certainly have their share of detractors.  Many HOAs operate a community of detached, single family homes which begs the question:  it's my house; it's my yard; other than the local building code, why should my HOA be able to restrict what I can do with them?  Does it really matter how I maintain my yard? Shouldn't the choice of exterior paint color be left up to me rather than the HOA board or an architectural control committee?  Shouldn't I be able to park whatever vehicle I want and park it wherever I want on my lot?  The answer to those questions depends on one's expectations and, unfortunately, sometimes people who prefer few or no restrictions find themselves living in communities with extensive rules and regulations.

While some people are quick to criticize HOAs and even call for the dismantling of their regulatory framework, there are significant benefits that a mandatory homeowners' association can provide.

In my hometown of Plantation, Florida, an ongoing controversy exists in terms of a holiday light display on a residential cul de sac which is not part of a mandatory community association. When I first visited the attraction, I marveled at the grand scale of the display: a large Ferris wheel in the middle of the lawn with adorable teddy bear passengers, an outdoor movie screen playing holiday classics, thousands upon thousands of lights and law decorations and masses of people milling around and gawking like me.  My second thought was "I really would not want to live on this street."

This nationally recognized holiday display takes place on an otherwise quiet cul de sac with fewer than a dozen homes and only one street that provides access to the residents and their guests and visitors.  The push and pull between the owners who host the display and their neighbors has, not surprisingly, played out in the media.  Several of the neighbors have been vociferous about the negative impact their neighbor's activity is having on them.  They claim that the lights, noise, garbage left on their lawns by visitors, weeks of set-up and removal of the display as well as the pedestrian and vehicular traffic over the span of many weeks all contribute to the diminution in their quiet enjoyment of their homes and their ability to celebrate the holidays on their terms.  They also fear that the display could hinder the ability of emergency vehicles to render assistance in their neighborhood while the display's visitors are clogging the streets.

There is little doubt that a holiday display on this scale would not be permitted in a mandatory homeowners' association and this is only one example of activity than an HOA could and arguably should regulate.  Every set of Association governing documents contains a clause that prohibits activity that interferes with the peaceful possession and enjoyment of the other homes in the community.   In this case, the governing documents could be amended to add specific guidelines regarding holiday displays and exterior alterations to a residence.  No HOA documents would permit any type of display which could be classified as a nuisance or which would bring a nightly influx of non-residents into he community.

A violation of the governing documents such as this holiday display would have resulted in fines and, if those fines exceeded $1,000, they could have become  lien on the property and possibly foreclosed.  Whether you believe that a massive holiday display in a residential area is a nuisance or a blessing, the tools available to a private residential community enforcing its private restrictions are undeniable and they can and should work to the benefit of other lot owners.

Detractors of mandatory HOAs may argue that the local city or county can regulate the use of residential property and enforce Code violations.  Well, that may be true in theory but in practice the local authority sets minimum standards, whereas your community may want higher standards of aesthetics.  Also, the local authority is often reluctant to become embroiled in these kinds of situations and, even when they do take action, they may not be as successful as an HOA would.  In the case at hand, the City of Plantation sued the display's owners and lost.  The City filed a nuisance lawsuit based on alleged traffic issues and the judge ruled against the City. Curiously, the nuisance impact on the neighbors was not addressed in that lawsuit.  In the end, this case illustrates how a private community could more effectively enforce private restrictions as opposed to relying on municipal Code enforcement.

What other advantages can an HOA provide?  Residents in an HOA benefit from the services and amenities that sharing expenses can provide, such as security services, recreational amenities like pools, exercise rooms, tennis courts and more. Lastly, highly functioning HOAs can foster a strong neighborhood connection.  In the case of the besieged cul de sac, that neighborly connection arose not because things were going well but because they were going very wrong.

Construction Law Authority

Review of Legislation continues – Part 5

08/02/2017 Joseph Adams

2017 Legislation Changes Financial Reporting Requirements

Today’s column is the final installment of our annual review of legislation affecting Florida community associations.

In prior columns, we reviewed Senate Bill 398 dealing with “estoppel certificates,” and House Bill 1237 which only applies to condominiums and contains changes to the statute including board member term limits, the use of debit cards, recalls, mandatory websites for certain associations, suspension of voting rights, year-end financial reporting, the imposition of criminal penalties pertaining to certain conduct involving condominium elections and finances, and changes to the “conflict of interest” provisions of the statutes. Both SB 398 and HB 1237 became effective July 1, 2017.

The final piece of legislation we will review is House Bill 6027, which applies to condominium, cooperative, and homeowners’ associations. This law also became effective July 1, 2017.

HB 6027 deletes the year-end financial reporting exemption for associations that operate fewer than 50 units or parcels. Under previous law, these associations were not required to prepare a year-end annual financial report based on revenues, but rather, could prepare a report of cash receipts and expenditures.

Now, all associations must prepare a financial report based on annual revenues, regardless of the number of units or parcels. As a reminder, the following thresholds are contained in the law:

  • An association with total annual revenues of $150,000 or more, but less than $300,000, must prepare compiled financial statements.
  • An association with total annual revenues of at least $300,000, but less than $500,000, must prepare reviewed financial statements.
  • An association with total annual revenues of $500,000 or more shall prepare audited financial statements.
  • An association with total annual revenues of less than $150,000 is only required to prepare a report of case receipts and expenditures.

Further, for condominium and cooperative associations, HB 6027 also deleted the limitation on the number of times an association can waive its financial reporting requirements. Previously, condominium and cooperative associations could not waive the statutorily required financial reports for more than three consecutive years. This provision has now been deleted, although there is a bit of a glitch in the statutes since HB 6027 removed the provision, while HB 1237, which also amended these sections, left them intact. It remains to be seen how the official version of the Florida Statutes, which is due to be released in the next couple of months, will address this conflict.

This concludes our review of legislation that was enacted this year. It is also worthwhile to note that one Bill affecting condominiums that the Legislature approved was vetoed by Governor Scott.  House Bill 653 contained a number of provisions that affected community associations, many of them similar to the provisions of HB 1237 concerning condominium associations, which we have previously discussed.

HB 653 also addressed the obligation of certain high-rise buildings to retrofit fire sprinklers and/or an “engineered life safety system.” HB 653 allowed high-rise condominium buildings to opt out of the obligation to retrofit an engineered life safety system (usually required when the building has opted out of a full sprinkler retrofit) upon approval of two-thirds of all voting interests. In vetoing HB 653, Governor Scott noted the recent deadly apartment building fire in London, England, and stated his view that life safety concerns outweigh the cost burden placed on some condominium associations.

The post Review of Legislation continues – Part 5 appeared first on Florida Condo & HOA Law Blog.

Community Association Legislative Guide, 2017

07/31/2017 Yeline Goin

CALL’s Florida Community Association Legislative Guide 2017 (“Guide”) is now available online.

The 2017 Legislative Session ended with several bills passing that will have a significant effect on community associations: HB 1237, Relating to Condominiums; SB 398, Relating to Estoppel Certificates, and HB 6027, Relating to Financial Reporting. In addition to these three bills, there were over 25 other bills filed which sought to amend the Condominium Act, the Cooperative Act, and/or the Homeowners’ Association Act. Most of the bills did not pass, but the many bills that were filed show that legislators are interested in community association legislation and how it impacts their constituents. There was, of course, one bill that did pass the House and Senate but was vetoed by Governor Scott – HB 653, which would have allowed older high rises to opt out of an engineered life safety system (ELSS). We address that issue in-depth in the Guide.

The 2017 Guide features the following:

  • An overview letter from me
  • A special report from Ellyn Setnor Bogdanoff, Esq., former State Senator who led our targeting lobbying effort to pass the ELSS legislation, addressing the Governor’s veto and outlining our thoughts about how to approach the 2018 Session
  • A summary of the community association bills that were signed into law
  • A summary of the community association bills that did not pass
  • A list of actions we recommend that you, as a community association board member, should take to comply with all of the new laws
  • A letter from Donna DiMaggio Berger, a shareholder with the firm and CALL’s Founding Executive Director
  • A list of upcoming CALL events and community association classes

The post Community Association Legislative Guide, 2017 appeared first on Florida Condo & HOA Law Blog.

Florida Condo & HOA Law Blog

Review of Legislation continues – Part 5

08/02/2017 Joseph Adams

2017 Legislation Changes Financial Reporting Requirements

Today’s column is the final installment of our annual review of legislation affecting Florida community associations.

In prior columns, we reviewed Senate Bill 398 dealing with “estoppel certificates,” and House Bill 1237 which only applies to condominiums and contains changes to the statute including board member term limits, the use of debit cards, recalls, mandatory websites for certain associations, suspension of voting rights, year-end financial reporting, the imposition of criminal penalties pertaining to certain conduct involving condominium elections and finances, and changes to the “conflict of interest” provisions of the statutes. Both SB 398 and HB 1237 became effective July 1, 2017.

The final piece of legislation we will review is House Bill 6027, which applies to condominium, cooperative, and homeowners’ associations. This law also became effective July 1, 2017.

HB 6027 deletes the year-end financial reporting exemption for associations that operate fewer than 50 units or parcels. Under previous law, these associations were not required to prepare a year-end annual financial report based on revenues, but rather, could prepare a report of cash receipts and expenditures.

Now, all associations must prepare a financial report based on annual revenues, regardless of the number of units or parcels. As a reminder, the following thresholds are contained in the law:

  • An association with total annual revenues of $150,000 or more, but less than $300,000, must prepare compiled financial statements.
  • An association with total annual revenues of at least $300,000, but less than $500,000, must prepare reviewed financial statements.
  • An association with total annual revenues of $500,000 or more shall prepare audited financial statements.
  • An association with total annual revenues of less than $150,000 is only required to prepare a report of case receipts and expenditures.

Further, for condominium and cooperative associations, HB 6027 also deleted the limitation on the number of times an association can waive its financial reporting requirements. Previously, condominium and cooperative associations could not waive the statutorily required financial reports for more than three consecutive years. This provision has now been deleted, although there is a bit of a glitch in the statutes since HB 6027 removed the provision, while HB 1237, which also amended these sections, left them intact. It remains to be seen how the official version of the Florida Statutes, which is due to be released in the next couple of months, will address this conflict.

This concludes our review of legislation that was enacted this year. It is also worthwhile to note that one Bill affecting condominiums that the Legislature approved was vetoed by Governor Scott.  House Bill 653 contained a number of provisions that affected community associations, many of them similar to the provisions of HB 1237 concerning condominium associations, which we have previously discussed.

HB 653 also addressed the obligation of certain high-rise buildings to retrofit fire sprinklers and/or an “engineered life safety system.” HB 653 allowed high-rise condominium buildings to opt out of the obligation to retrofit an engineered life safety system (usually required when the building has opted out of a full sprinkler retrofit) upon approval of two-thirds of all voting interests. In vetoing HB 653, Governor Scott noted the recent deadly apartment building fire in London, England, and stated his view that life safety concerns outweigh the cost burden placed on some condominium associations.

The post Review of Legislation continues – Part 5 appeared first on Florida Condo & HOA Law Blog.

Community Association Legislative Guide, 2017

07/31/2017 Yeline Goin

CALL’s Florida Community Association Legislative Guide 2017 (“Guide”) is now available online.

The 2017 Legislative Session ended with several bills passing that will have a significant effect on community associations: HB 1237, Relating to Condominiums; SB 398, Relating to Estoppel Certificates, and HB 6027, Relating to Financial Reporting. In addition to these three bills, there were over 25 other bills filed which sought to amend the Condominium Act, the Cooperative Act, and/or the Homeowners’ Association Act. Most of the bills did not pass, but the many bills that were filed show that legislators are interested in community association legislation and how it impacts their constituents. There was, of course, one bill that did pass the House and Senate but was vetoed by Governor Scott – HB 653, which would have allowed older high rises to opt out of an engineered life safety system (ELSS). We address that issue in-depth in the Guide.

The 2017 Guide features the following:

  • An overview letter from me
  • A special report from Ellyn Setnor Bogdanoff, Esq., former State Senator who led our targeting lobbying effort to pass the ELSS legislation, addressing the Governor’s veto and outlining our thoughts about how to approach the 2018 Session
  • A summary of the community association bills that were signed into law
  • A summary of the community association bills that did not pass
  • A list of actions we recommend that you, as a community association board member, should take to comply with all of the new laws
  • A letter from Donna DiMaggio Berger, a shareholder with the firm and CALL’s Founding Executive Director
  • A list of upcoming CALL events and community association classes

The post Community Association Legislative Guide, 2017 appeared first on Florida Condo & HOA Law Blog.