Understanding a Complex Game Municipal Reimbursements

Understanding a Complex Game

 Generally speaking, the issue of municipal services—snow removal, paving, garbage collection, etc.—as they apply to HOAs is pretty cut-and-dry: municipalities receive money  directly from owners in the form of property taxes. HOAs budget for snow/ice  removal, and other similar services on an annual basis and then set the monthly  fees or levy special assessments on owners accordingly. Occasionally however,  questions do arise, and like any gray area where money and legal responsibility  converge, debate can quickly devolve into argument.  

 One recent example of this is the case of Mendham Knolls Condominium Association  in Mendham. Access to the condo grounds is achieved only via Boundary Oak Lane,  a 156-foot-long road that empties into the condominium’s parking area. Conflict arose over who was responsible for either maintaining  Boundary Oak Lane or paying to have it maintained—Mendham Knolls, or the Township of Mendham itself? That question eventually  pitted the HOA against the town, and landed the issue in court.  

 According to David Byrne, an attorney with the Lawrenceville-based law firm of  Stark & Stark, who represented the condo association in the case, the town of Mendham  argued that it was not obligated to provide either services or reimbursements  to the Mendham Knolls HOA because Boundary Oak Lane was really more of a  driveway— and the town doesn’t service private drives.  

 On the other hand, the condominium argued that Boundary Oak Lane is a road, and  thus eligible for services and/or reimbursements like any other road in the  township’s jurisdiction. The legal situation quickly turned sticky.  

 The Basics

 Before getting into how the conflict in Mendham worked out, it’s instructive to delve a little further into the laws in question in the case.  

 “New Jersey’s Municipal Services Act—or ‘the Act,’ as it’s often called— provides for certain services or reimbursement for the cost of services to a ‘qualified private community’ in the same fashion as the municipality provides these services on public roads  and streets,” says Byrne. The Municipal Services Act turned 18 in 2009, and today New Jersey  is still the only state in the U.S. with such a statute.  

 According to Byrne, only private communities deemed “qualified” are entitled to the benefits of the act. Qualified communities could be “a condo, HOA or the like, whose residents don’t receive any tax abatement or tax exemption related to its construction, and  where the cost of maintaining roads and streets and providing essential  services is paid for by a not-for-profit entity consisting exclusively of unit  owners within the community.” Byrne points out that the law excludes “apartment” buildings from this definition.  

 According to Byrne, “With the Act, the state legislature intended to help eliminate double payment  for some services which the residents of qualified private communities now pay  through property taxes and fees to their associations, and ‘to relieve condominium owners of the burden of paying twice for municipal  services.’ And that’s the light in which the act has been interpreted over its 18-year life.”  

 Case Studies

 Once the Municipal Services Act was ratified, New Jersey’s qualified private communities and its municipalities began a statewide joust  over the law’s true scope, and how it impacted each party’s rights and responsibilities.  

 According to Byrne, one such showdown occurred in the Township of Vernon. Great  Gorge Village, an HOA consisting of six separate condo communities, sued the  township for not providing or reimbursing for statutory services. For its part,  Vernon’s argument was not so much that it wasn’t obligated to provide the services, but rather that the Municipal Services Act  was more limited in scope than Great Gorge Village contended.  

 The township believed that its reimbursement duty was limited to the equivalent  cost to plow its own municipal roads, which were easier to plow than those in  Great Gorge Village. Since “on average, the municipal roads can be plowed more efficiently on a less costly  basis” than those in the condo development, the township argued that it should not  have to reimburse Great Gorge Village’s more expensive snow removal costs, but owed them only as much as the township  paid for its own road-plowing.  

 The Appellate Court disagreed, finding that a municipality must make  reimbursement so that it can provide condo communities the services—again, “in the same fashion” as those services are provided on the public roads and streets. In this  instance, even though Vernon’s roads outside of the Great Gorge Village association “were less difficult to plow,” than those inside the association, Vernon was not permitted to limit  reimbursement to the amount incurred for plowing its ordinary township roads.  

 Byrne also points out an important fact in the Vernon case: the Appellate Court  let stand the trial court’s decision that 6.38 miles worth of roads within the condo association were “used as a basic way to facilitate vehicular traffic.” Thus making them, in fact, roads—not driveways or parking lots, as the Township of Vernon contended.  

 Two years later, the Appellate Court addressed another longstanding dispute  between a private community and its municipality, this time between Freehold  and the Briarglen II Condominium.  

 For years, Freehold required developers to provide snow and ice removal services  in a new condo community until the township granted “acceptance” of the roads. Of course, Freehold—along with other municipalities—used such agreements in relation to residential communities that were not “qualified private communities.” In the case of Briarglen II and many other newer associations, developers  simply delegated their obligations for things like snow and ice removal service  to the qualified private communities they were creating. However, says Byrne,  Freehold itself decided when the roads in question would be “accepted,” thus essentially insulating itself from its obligations under the Act.  

 According to the township’s interpretation of the Act, a municipality is not legally obligated to provide  services or reimbursement “until…the roads meet all municipal standards.” Briarglen II argued that the limitation applied only to a municipality’s provision of services—not to its reimbursement obligations.  

 According to Byrne, the Appellate Court considered the state legislature’s intent when creating the Act—to “help eliminate double payment for services”—to resolve this statutory interpretation problem. “The legislative intent, together with the canons of statutory construction,  compelled an interpretation by which a municipality is not freed from its  reimbursement obligation,” says Byrne, “even when the road in question has not been accepted for public use, or does not  ‘meet municipal standards.’”  

 The court next addressed Freehold’s attempt to pass the obligation to provide services under the Act to the  association’s developer. The court rejected Freehold’s attempted delegation as the “legislative purpose would be frustrated if municipalities were permitted to  contract away their statutory duty to either provide or reimburse qualified  private communities for the enumerate services.”  

 Another case of particular interest to lawyers representing developers,  municipalities and private communities is the Supreme Court’s decision, six years after Briarglen II, validating the Borough of Oakland’s attempt to shift its financial liabilities under the Act to a residential  developer under a development agreement containing an indemnification clause.  The issue arose when Oakland did not provide the large Ramapo River Reserve  homeowners association with, nor reimburse it for, the services contemplated by  the Act. Prior to the sale of the first home in the Ramapo River Reserve  development, Oakland and Baker Residential, LP entered into a development  agreement requiring Baker—until “such time as” it completed “all of the roadways, and the Borough has accepted the same”—to be responsible for maintaining the roads and keeping them snow- and  debris-free. The development agreement also obligated Baker to “defend, save, indemnify and hold harmless the Borough …from any all claims, actions .... charges, debts .... and counsel fees .... from  the .... performance of the terms hereof ...”  

 By 2002, Ramapo River Reserve filed a suit against Oakland seeking damages for  the municipal services not provided, and an order compelling Oakland to comply  with the Act going forward. Oakland counter-filed, denying liability under the  Act, and seeking payment from Baker Residential for any damages Oakland might  have to pay Ramapo River Reserve.  

 The trial court ultimately ruled that Oakland had in fact violated the Act by  neither providing snow/ice removal services to the association nor reimbursing  the association for its costs incurred to provide those services to its  residents itself. For its part, Baker Residential filed a cross-motion to  invalidate the relevant portion of the development agreement. The trial court,  later affirmed by the Appellate Court, granted Baker’s motion, invalidating that portion of the development agreement by which Baker  could have been obligated to perform Oakland’s obligations under the Act. According to Byrne, both decisions were largely  based on the judgment in the Briarglen II suit.  

 Impact on HOAs

 So what happened in the Mendham Knolls case this summer? “The court first found that the applicable road-related standards were those in  place currently—not at the time of the road’s original construction,” says Byrne. “It ruled that Mendham must comply with the Act with respect to Boundary Oak  Lane.”  

 “Mendham will now remove the snow and ice from Boundary Oak Lane, as well as  reimburse Mendham Knolls’ related street lighting costs,” Byrne continued. “This will certainly help the community balance its budget in upcoming years  without having to resort to assessments.”  

 While the Mendham Knolls case didn’t set any official precedents—“at least not in the sense that other judges have an obligation to do the same  thing,” Byrne says, but it is useful. “It’s another example of the way to interpret the law, which is to the benefit of  the private community. That recent victory won’t have any precedential value, but I can use it both formally and informally  with other trial court judges as ‘persuasive’ authority. The bottom line is, condominiums and associations must assert their  rights under the Act even in the face of often dismissive municipalities.”   

 David Byrne, Esq. is an attorney shareholder with the Lawrenceville-based law  firm of Stark & Stark, and Hannah Fons is associate editor of The New Jersey Cooperator.

 

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2 Comments

  • Thank you for this article! I'm trying to find out if the Municipal Services Act also requires a municipality to resurface a road and repair/replace storm drains as part of street "maintenance." I haven't been able to find anything that specifies that the municipality must do that, even though our property taxes are the same as the rest of the town. I was hoping this article would specify that Mendham was required to repave the road but it's not mentioned here. Has this issue come up and if so, what was the decision?
  • I currently live in a Condo Association where our Monthly Condo Fees include Paving of Roads, Snow and Ice Removal. The Condominiums are located in Mantua NJ. The Township does pick up our Trash from specific locations within the Community. How do I find out, for sure, if our RE taxes are reduced for not receiving these Service's? If I am paying RE Taxes to the Township/County, etc., in my Condo Association Fees why should our Condo Community have to pay the same taxes to the County/State.