Homeowners associations and co-ops alike are governed by a set of specific documents that lay out the administrative structure of the community, its rules and regulations, and protocols for decision-making. The certificate of incorporation, the declaration of covenants, conditions and restrictions (CC&R), the master deed, bylaws, rules and regulations—as well as the proprietary lease, in the case of co-ops—are the fundamental documents that govern condo and co-op buildings. In many ways this foundational paperwork acts as a contract between managers, boards, and unit owners, certifying that all parties will conduct themselves in a certain manner and adhere to certain regulatory expectations.

For the most part, these documents are drafted to stand the test of time—but from time to time however, buildings and HOAs may need to re-examine their documents and rules to make sure they’re kept current, fair, enforceable, and relevant to the community they serve.

The Master Deed

If you live in a co-op and want to see changes occur, it won’t be easy, but it is possible. You just need to have strong numbers in favor of your position.

According to Gemma Giantomasi, an associate with the law firm of Genova Burns Giantomasi Webster in Newark, who works on the firm’s real estate team, the criteria for changing a governing document for a condo or co-op will be set forth in the document itself. “However, when drafting these provisions it is important to consider protecting the interests of the unit owners or shareholders, while at the same time providing the flexibility to meet needs for change,” she says. “For example, if a change is going to adversely impact unit owners or shareholders, the consent of said unit owners or shareholders should be required in order for the change to be implemented.”

“The association would be required to have a vote by the owners as stated in the current governing documents; this could be a majority vote, or another percentage required such as two-thirds, etc.,” adds Marie D. Mirra, president of CAI-NJ and a CPA with Mirra & Associates, CPAs, LLC, located in Hillsborough. “Once the required votes are obtained, legal counsel would need to be engaged in order to amend the documents.”

John Schepisi, an attorney and founder of the law firm Schepisi & McLaughlin in Englewood Cliffs explains that when a condo community is formed, the master deed will have attached to it the proposed bylaws, the certificate of incorporation and the rules and regulations, which is then recorded with the registrar or country court. “That’s why they are so hard to amend,” he says. “It requires a supermajority of the ownership of a condo equal to 67 percent or more. That tends to be tough to get. Same is true with a co-op. When they were created, most of them put in at that same 2/3 number to make a change.”

When the community in question is a co-op, Giantomasi concurs that the master declaration as required under the Cooperative Recording Act is the most difficult governing document to change. The terms of the master declaration set forth the requirements of amending such documents (N.J.S. 46:8D010). However, pursuant to N.J.S. 46:8D-10, if an amendment affects any co-op unit, the shareholder that occupies the unit and the holders of any recorded liens encumbering the unit must join in the execution of the amendment or execute a consent to said amendment.

“Therefore, if an amendment to the master declaration were to affect all co-op units, an amendment to same would require unanimous consent of all shareholders and all lien holders of record,” she says. “Furthermore, any amendments would have to be recorded with the county register where the property is located.”

Just like in a co-op, the master deed is the most difficult governing document to change when it comes to condos. While the Condo Act provides flexibility for choosing a method of amendment, typically a master deed requires approval of 2/3 of all unit owners in order to amend something.

“Additionally, unless expressly set forth otherwise in the master deed, no amendment may be made that changes a unit without the written consent or joint execution of the amendment by both the unit owner and any holder of a mortgage affecting the unit,” Giantomasi says. “Any amendments must also be recorded with the county register where the property is located.”

Schepisi has even seen some communities require up to 80 percent of the vote for changes to occur, and he feels that it’s smart sometimes to make changes so difficult. “Many people buy into a community for the rest of their lives and don’t want things changed because radicals take control of the board,” he says. “If that much of a majority wants something changed, it’s probably a good idea and there’s a solid reason behind it.”

One reason that master deeds get changed, Schepisi says, is because a condo may decide to age-restrict ownership or go the opposite route and open up an age-restricted community to everyone. Other changes can occur because of zoning laws.

Changes Are Possible

The rules and regulations of a condominium and the house rules of a co-op are likely the easiest to change. Still, the requirements for amending the governing documents for both will be set forth in the documents themselves, so the procedures varies from community to community. However, most commonly unit owner or shareholder votes are required to make any changes.

For example, the power of a condo board to adopt, distribute, amend and enforce rules and regulations is required by law in New Jersey, unless otherwise stated in another governing document.

“In order to be valid and enforceable, rules and regulations must be adopted by a formal vote of the board and distributed to all unit owners,” Giantomasi says. “Enactment or amendment of such rules and regulations typically occur by the passage and publication of board resolutions. Amendments to rules and regulations do not need to be recorded. It must be noted that the aforementioned rule-making powers of the board are subject to the right of a majority of unit owners to change any such rules.”

While the rules and regulations are least important from a legal standpoint, Schepisi says they are most important when it comes to quality of life issues.

According to Giantomasi, the percentage of affirmative votes needed to make any changes widely varies. “In my condo practice, I often find that amendments to bylaws require at least a 51 percent affirmative vote of unit owners for amendments and master deeds require a 67 percent affirmative vote of unit owners for amendments,” she says. “Further, as set forth above, in a co-op if an amendment affects any co-op unit, the shareholder that occupies the unit and the holders of any recorded liens encumbering the unit must join in the execution of the amendment or execute a consent to it.”

Also, unless expressly set forth otherwise in the master deed of a condominium, no amendment may be made that changes a unit without the written consent or joint execution of the amendment by both the unit owner and any holder of a mortgage affecting the unit.

If a proposed amendment or new bylaw is rejected by a majority of residents, or doesn’t receive the necessary support to be ratified, a board can resubmit the recommended change again at a later date.

The Reasons Why

A condo or co-op board may wish to change a governing document for a variety of reasons, including addressing issues that reflect the true nature of the community and would therefore have an impact on the quality of life of the unit owners (condo) or shareholders (co-op). These quality of life issues may include transient use of the units, noise, odors, pets, signage, and renovations.

Changes are also necessary to clarify previously drafted provisions or to correct any inconsistencies in the governing documents or to reflect changes in the law. With changes to bylaws, sometimes they need a majority vote by the board of directors or board of managers, but most often it requires a simple majority by the unit owners. For rules and regulations, the board of directors or board of managers can vote without the owners’ consent in most cases. Reasons Schepisi has seen for changes include amending the number of years a president can hold office, disallowing smoking, and adding things about solicitations or stuffing in-house mailboxes.

Mirra’s firm currently services over 400 associations in all aspects of audit and accounting matters and in doing so, one of the most common reasons she has seen associations amend their governing documents is for a change in escrow deposits (if applicable) and/or working capital contributions.

“Escrow deposits do not apply to every association. However, if required by an association’s governing documents, escrow deposits represent fees collected at closing which are transferable between the buyer and seller and may be used by the association in the event of default in non-payment of maintenance fees,” she says. “These deposits are recorded as a liability on the balance sheet of the association. Therefore, we have worked with numerous associations in having them amend their documents to eliminate the escrow deposit, and simultaneously increase the working capital contribution so that it generates additional income to the association.”

In New Jersey, it is required to notify all shareholders or unit owners in writing at least 10 days before a vote is scheduled to be held, or else a vote can be challenged.

Staying Current

Mirra advises that it is of the utmost importance to speak with both the association’s auditor and legal counsel to understand the specific details that any change in the governing documents will bring about. It’s also important that a board stays on top of new laws and communicates regularly with residents and unit owners about what they are thinking.     

While there is no requirement for how often a condo or co-op board should re-examine or reassess its governing documents, in order for a board to best serve its community, it should reassess and examine its governing documents on an annual basis to ensure that they reflect the needs, wants, and best practices of the community.    

Keith Loria is a freelance writer and a frequent contributor to The New Jersey Cooperator.