When a new unit owner moves into a condo development, he or she usually receives a welcome packet that contains all the governing documents, such as the declaration of covenants, conditions and restrictions, the bylaws and the house rules.
Before he or she signs a contract, the potential unit owner should not only read but understand the association's master deed, declaration of covenants and restrictions, bylaws and rules. Particularly for someone who has lived most of his or her life in a single-family home, all these rules can take getting used to.
But beyond all the printed-out rules, what does an owner have a right to know, especially as far as finances and accessing financial records are concerned? And how do an owner's rights and the association's rights balance out against each other?
A condo owner is entitled to inspect his association's accounting records, which must receive a record of all receipts and expenditures, by making an appointment with the office. At many annual meetings, there is an accountant present who explains financial information.
Making Reasonable Requests
The right of unit owners to make "reasonable requests" to see the association's accounting records is spelled out Section 46:8B-14(g) of the New Jersey Condominium Act, according to attorney Dennis Estis of Greenbaum, Rowe, Smith & Davis, LLP, and one of the authors of the book New Jersey Condominium & Community Association Law.
This same section also says that the association is responsible for maintaining accounting records, "in accordance with generally accepted accounting records." If the association refuses to let a unit owner inspect these records at reasonable times, that owner has the right to contact the Department of Community Affairs (DCA), which enforces provisions of the act. On top of this, most condos and co-ops have financial disclosure-related provisions in their bylaws, adds attorney David Byrne, with the law firm of Stark & Stark in Lawrenceville.
One example of a condo association that makes a point of financial openness is Fox Hills in Rockaway Township, a gated community designed for seniors. According to Jim Dunn, an owner who has been involved in the association at Fox Hills, "We go out of our way to post the minutes, and we have public quarterly reports. I was a former councilman in the 1970s, and we patterned our operations here under the same guidelines that municipalities have to follow. We have a pretty open board. Based on my experience, the board has an obligation to disclose all expenditures, since its operating budget is supported by ownership dues," Dunn adds. "Certainly large capital purchases—we do all of ours by resolution."
What Is Spelled Out, Under Which Laws
At least many, if not most of these matters—at least for condos—are spelled out in the aforementioned, wide-ranging Condominium Act. The act defines the relationship between the owners and the association, distinguishes between individual units and common elements, addresses issues of taxes, liens and damages, and prohibits certain objectionable provisions from being included in leases or bylaws, among other things, says Sam Darcy, a spokesman for the DCA. The DCA enforces the act.
Another law, the Planned Real Estate Development Full Disclosure Act (PREDFDA) regulates the sale by developers of units in common-interest communities—whether they are condos, cooperatives or fee simple developments. The 1993 amendments to the act establish requirements for associations, such as the authority to assert tort claims for the community, election of the executive board, bylaws, meetings, collection of assessments and other items.
As for co-ops, there is a Cooperative Recording Act, but cooperative housing buildings and developments are otherwise governed under corporate law. One of the reasons for the proposed Uniform Common Interest Ownership Act (UCIOA) legislation would be to establish statutory requirements applicable to all forms of common-interest communities, including both condos and co-ops. And that's where the issue of inspecting financial records and a unit owner's right to know comes in.
UCIOA, according to Darcy, would extend a unit owner's right of inspection, which is now limited to "accounting records" and is applicable to condos only, to include "all records of the association required to be maintained," other than those that would violate the privacy of a unit owner.
It also would specifically allow for duplicate copies of documents, even spelling out the cost (not more than 20 cents a page, with no additional charge for up to one hour a week of inspection and copying).
However, at the time of this writing, UCIOA, in the words of Byrne, was "bottlenecked in the Senate" just as it was last year, partially because of the existence of a competing bill—called the Owners' Rights in Common Interest Development Act, or the Turner-Rice bill—and many people doubt that it will pass.
Your Existence Is Not Your Own
Out of all these regulations, laws and rules, experts agree one concept is most important for all unit owners in all types of planned unit developments, whether condo, co-op or other to understand.
That is that by just buying into the development, the unit owner is giving up some rights—he or she simply doesn't have the same level of freedom as they would expect living in a single-family home.
As Byrne puts it, "Your existence as an owner is not your own. Your way of life is subject to rules and covenants - and the desires and needs of your neighbors."
In addition to understanding and following rules, adds Darcy, unit owners "should recognize their responsibility to assist in the running of the community by paying their assessments in a timely manner, voting in elections and, if possible, serving on committees and being willing to serve on the board." Of course, at least for the last two items, this is easier said than done.
A Two-Way Street
As we've mentioned before, condo unit owners have a right to look at accounting records—including records of receipts and expenditures—as well as accounts for individual units. If they so desire, they can do this on a periodic basis.
However, looking at financial records is a two-way street. Yes, the development has the right to show it, but at reasonable times, says Estis. In other words, waking up the board president at midnight and demanding to see the records just doesn't cut it.
Furthermore, says Estis, the unit owner can't "harass" the association, and the association has the right to make sure that the owner's intention isn't to use this information for commercial gain.
For example, if one owner has a computer repair or consulting service as a sideline, he or she can't get the unit owners' e-mail addresses and other personal information from the association, and then send them all e-mails advertising the computer consulting service. (Of course, if this particular unit owner is very adept with computers and the Internet, he'll probably find a way to obtain the same information from other sources, but that's another story.)
In general, the powers and rights of a condominium association are also spelled out in the Condominium Act. Among the rights associations have, says Dunn, speaking from the perspective of an active association member, are the right to levy dues and the right to levy fines for violations of the rules, regulations and bylaws.
Also, says Darcy, the 1993 amendments to PREDFDA provide that "[Any association] may, subject to the instruments under which it was created, `do all that it is generally entitled to do under the laws applicable to its form of organization,' which include the general corporation laws."
One more thing: does an association, if it so desires, have the right to publicize owners who are behind in their maintenance fees, even though this would surely embarrass the owner who is in arrears?
Yes, agree those experts polled for this article—although there are restrictions, and although many associations would decline to do so. (Interestingly, the UCIOA bill expressly states that delinquencies of more than 120 days in payment of common expenses "shall not be deemed to be a private matter," according to Darcy.)
According to Byrne, "The Fair Debt Collection Practices Act contains provisions governing a debt collector's `publication' of a debt, and management companies are considered debt collections."
However, associations have to make sure the information is accurate. Also, says Byrne, "a board seeking to publish the arrears must make sure that there is some bylaw authority for it, and that the decision to do it is made in good faith. No association should do this without consultation with counsel," he adds.
Raanan Geberer is a freelance writer living in New York City.