Thanasoulis v. Winston Towers 200 Ass'n.

542 A.2d 900, 110 N.J. 650, 76 A.L.R. 4th 273, 1988 N.J. LEXIS 65

• Court: Supreme Court of New Jersey
• Decided: June 30, 1988
• Status: Published

Opinions

The opinion of the Court was delivered by

STEIN, J.

In this case we are required to reconcile the exercise of a condominium association’s managerial powers with the provisions of the Condominium Act, N.J.S.A. 46:8B-1 to -38 (the “Act”), and a condominium master deed. Specifically, the primary issue is whether a condominium association can charge nonresident unit owners higher monthly parking fees than it charges resident owners in order to retain the extra revenue for the association’s benefit. A second issue concerns an association regulation that prohibits a new purchaser of a condominium unit from renting the unit until after he or she has lived in the unit for one year. The trial court upheld both regulations and granted summary judgment in favor of the association. A divided Appellate Division panel affirmed, Thanasoulis v. Winston Tower 200 Ass’n, Inc., 214 N.J. Super. 408, (1986). We hold that in adopting the parking fee differential, the association exceeded the scope of its power as defined by the Act and the master deed, and that the regulation is therefore invalid. We also find that because there remain unresolved issues of material fact concerning plaintiff’s challenge to the one-year residency requirement, that question should not have been disposed of by summary judgment. We therefore reverse the judgment of the Appellate Division.

I

Plaintiff, Triantafyllos Thanasoulis, owns a condominium unit in the Winston Towers high-rise residential complex, located in Cliffside Park, New Jersey, which he presently leases to a tenant. The complex contains 614 apartment units and includes a multi-level parking garage with 903 spaces and a parking yard with 100 spaces. Defendant, Winston Towers 200 Association, Inc. (Association), is the association of unit owners created by the Winston Towers Master Deed.

The Association, through its elected Board of Directors (Board), is responsible for the administration and management of the Winston Towers common elements, which include the parking areas. Paragraph nine of the master deed deals with the parking facilities:

9. PARKING AND GARAGE FACILITIES: The parking and garage facilities within the Property shall be part of the Common Elements and, subject to the provisions of the By-Laws, will be operated by the Association which shall have the right to lease all or part of the operation thereof on such terms and conditions as it may determine. Each Unit Owner, upon application, will be entitled to rent annually at least one garage space. Rentals for garage space will be established by the Association and shall be payable as the Association shall direct. All revenue received by the Association from the garage operation shall be applied in accordance with the By-Laws. [Emphasis added.]

Plaintiff purchased his unit in December 1972 and resided there until February 1981. During this period, plaintiff exercised his right to lease a parking space at the condominium’s parking garage. The charges per month for parking spaces for all unit owners were $25 for a single indoor space, $40 for a tandem space, and $20 for an outdoor space.

In June 1981, the Board revised the parking charges. The rates for nonresident owners were increased to $75 for a single indoor space, $125 for a tandem space, and $50 for an outdoor space; the Association’s rationale was that the new rates reflected the “market value” of parking spaces in the community. Resident unit owners would continue to pay the original rates. The president of the Association stated that through this action the Association sought to prevent unit owners who rented their units from realizing profits from parking space rentals. The Board determined that a unit owner would be prohibited from renting his unit unless his tenant separately leased the unit’s parking space from the Association at the higher rates.¹ The trial court noted that the additional funds raised by the revised rates were added to the common expense fund, which financed the maintenance of all the common elements.

In October 1981, the Association adopted another rule that required incoming unit owners to occupy their units for at least one year before leasing them to third parties.

In February 1983, plaintiff leased his unit, for the first time, to a tenant for a two-year term.² To conform with the Board’s parking rule, plaintiff’s agreement with his tenant contained the following language:

Landlord [plaintiff] agrees that he will guarantee payment of rent due and owing under said parking lease in the event Tenant fails to pay same promptly.

It is understood and agreed that the Tenant should enter into a lease with Management for Parking Space: $75.00 for indoor parking; $125.00 for tandem parking and $50.00 for outdoor parking per month and that any additional security required by management shall be paid by Tenant.

Plaintiff filed suit in the Chancery Division, seeking to invalidate both rules.³ The court granted defendant’s motion for summary judgment. It found that although the differential parking charges discriminated against nonresident unit owners, such discrimination was not an illegal exercise of the Association’s power. The court similarly disposed of plaintiff’s challenge to the one-year residency requirement oii the basis of a colloquy with counsel that apparently persuaded the trial court that plaintiff had been given notice of the residency requirement at the time he purchased his unit.

The Appellate Division’s affirmance was “substantially for the reasons expressed by” the trial court. 214 N.J.Super. at 412. According to the majority, the scope of judicial review of condominium association decisions is limited to a two-pronged test: “(1) whether [an association’s] action was authorized by statute or its own bylaws and, if so, (2) whether the action was fradulent, self-dealing or unconscionable.” Id. at 411. The court assumed, without extended discussion, that the Association’s action was properly authorized, and concluded that the first prong had been satisfied. In addition, the court accepted the trial court’s finding that the parking rate differential “was reasonable and was adopted in good faith,” and ruled that the Association’s action was valid under the second prong of the test as well. The majority opinion did not address the one-year residency requirement issue.

The dissenting judge would have invalidated the revised parking fee schedule. Judge Cohen observed that the Association had “improperly converted to the use of all unit owners a property right granted by the master deed to individual unit owners.” Id. at 471. After analyzing several sections of the Act, Judge Cohen concluded that “an association may not selectively create a class of individual owners and deprive them of valuable elements of unit ownership.” 214 N.J. Super at 424. Concerning the residency requirement, Judge Cohen viewed the trial court’s ruling on that issue as turning on the question of plaintiff’s standing to challenge the rule. Judge Cohen expressed the view that plaintiff had been denied the opportunity to show that he had standing to challenge the residency requirement and that summary judgment in favor of defendant on that issue should not have been granted. Id. at 425.

By virtue of the dissent, plaintiff appealed as of right to this Court. R. 2:2-l(a).

II

In Siller v. Hartz Mountain Ass’n, 93 N.J. 370 (1983), we noted some of the unique aspects of condominium ownership. We observed that “[t]he individual condominium purchaser owns his unit together with an undivided interest in common elements.” Id. at 375. In addition, we explained that this ownership interest constitutes a separate parcel of real property that the owner may deal with as he would any parcel of real property. Ibid.

One aspect of condominium ownership that distinguishes it from other types of property interests, however, is the role of the condominium association. An association is comprised exclusively of the unit owners who, through their individual deeds, automatically become members. In essence, an association is responsible for the governance of the common areas and facilities used by the owners of the condominium units. It is a representative body that acts on behalf of the unit owners. Its powers derive from its by-laws, the master deed, and applicable statutory provisions. An association may enter into contracts, bring suit and be sued. The most significant responsibility of an association is the management and maintenance of the common areas of the condominium complex. See generally W. Smith, New Jersey Condominium Law § 2:4, at 10-11 (1985) (generally defining and describing condominium associations); W.S. Hyatt, Condominium and Homeowner Association Practice: Community Association Law, 6-7 (1978) (same).

We have not had occasion previously to consider in depth the appropriate standard of judicial review of actions by condominium associations. In Siller, supra, 93 N.J. 370, however, we recognized certain basic principles: first, that acts of an association “should be properly authorized;” and second, that the association’s management has a “fiduciary relationship to the unit owners, comparable to the obligation that a board of directors of a corporation owes its stockholders,” and that “[fjraud, self-dealing or unconscionable conduct at the very least should be subject to exposure and relief.” Id. at 382.

We need not elaborate on these principles here because, in our view, the validity of the parking fee regulation depends on whether its adoption was within the Association’s authority as defined by the Act and the Winston Towers master deed. We agree with the dissent below that “[t]here may be some cases in which differences in judicial approaches to condominium self-government will lead to different results. This case is not one of them.” 214 N.J.Super. at 424.⁴

Our discussion focuses on certain provisions of the Act and the Winston Towers master deed. A condominium is created by the recording of a master deed. N.J.S.A. 46:8B-8. The Act requires the master deed to contain certain information. N.J.S. A. 46:8B-9. Each unit of the condominium must be separately described and identified. N.J.S.A. 46:8B-9(e). The Act defines “unit” as “a part of the condominium property designed or intended for any type of independent use,” including “the proportionate undivided interest in the common elements * * * assigned thereto in the master deed * * *.” N.J.S.A. 46:8B-3o. (Emphasis added.) “Common Elements” means the land described in the master deed, and includes “yards, gardens, walkways, parking areas and driveways * * *, unless reserved or limited by the master deed.” N.J.S.A. 46:8B-3d. (Emphasis added.) The Winston Towers master deed provides that the “common elements shall consist of all parts of the property other than the Apartment Units, including the items set forth in the Condominium Act,” and specifies that the “parking and garage facilities within the Property shall be part of the Common Elements.” The master deed also provides that each apartment owner is “entitled to rent annually from the Association at least one garage space.”

Plaintiffs unit deed contained his unit designation as set forth in the master deed and a statement of his proportionate undivided interest in the common elements. A unit deed “shall have the same force and effect in regard to such unit as would be given to a like instrument pertaining to other real property * * *.” N.J.S.A. 46:8B-10. Further, “each unit shall constitute a separate parcel of real property which may be dealt with by the owner thereof in the same manner as is otherwise permitted by law for any other parcel of real property.” N.J.S.A. 46:8B-4; see also Siller v. Hartz Mountain Ass’n, supra, 93 N.J. at 375 (“unit owner, having a fee simple title, enjoys exclusive ownership of his individual apartment or unit, while retaining an undivided interest as a tenant in common in the common facilities * * *.”).

The Act specifically characterizes the nature of plaintiffs property rights in his portion of the common elements:

The proportionate undivided interest in the common elements assigned to each unit shall be inseparable from such unit, and any conveyance, lease, devise or other disposition or mortgage or other encumbrance of any unit shall extend to and include such proportionate undivided interest in the common elements, whether or not expressly referred to in the instrument effecting the same. The common elements shall remain undivided and shall not be the object of an action for partition or division. The right of any unit owner to the use of the common elements shall be a right in common with all other unit owners (except to the extent that the master deed provides for limited common elements) to use such common elements in accordance with the reasonable purposes for which they are intended without encroaching upon the lawful rights of the other unit owners. [N.J.S.A. 46:8B-6 (emphasis added).]

Thus, the Act explicitly guarantees that the right of a unit owner to the use of common elements is indivisible from the owner’s interest in the condominium itself.

Each condominium unit owner is proportionately liable for “common expenses,” which include “expenses declared common by provisions of [the Act] or by the master deed * * N.J.S.A. 46:8B-3e. These common expenses are charged to unit owners according to the percentage of their respective undivided interests in the common elements as determined by the master deed. N.J.S.A. 46:8B-17. Paragraph five of the Winston Towers master deed, in pertinent part, provides:

5. COMMON EXPENSES: Each Unit Owner shall be required to pay his proportionate share of the expenses of maintenance, repair, replacement, administration and operation of the Common Elements, including the fees, charges and expenses payable with respect to the Additional Recreational Facilities Agreement herein referred to which expenses are hereinafter referred to collectively as “Common Expenses”. Suck proportionate share shall be the same as the proportionate, undivided interest of the Unit Owner in the Common Elements as set forth in Exhibit C hereof. [Emphasis added.]

Thus, both the Act and the Winston Towers master deed mandate that the expense of common elements, such as the parking garage, be allocated proportionately among unit owners; neither authorizes a distinction in this regard between resident and nonresident owners.

A condominium association is responsible for the administration and management of the condominium. N.J.S.A. 46:8B-12. N.J.S.A. 46:8B-15 specifically enumerates some of the Association’s powers, which are qualified by the master deed, by-laws, and other provisions of the Act. Chief among them for purposes of this case is the power of the Association to “lease or license the use of common elements in a manner not inconsistent with the rights of unit owners." N.J.S.A. 46:8B-15(c) (emphasis added.)

Finally, the Act provides that a master deed may be amended or supplemented only “in the manner set forth therein.” N.J.S. A. 46:8B-11. Further, no amendment to the master deed can “change a unit” unless that unit owner consents to the change. Ibid. Amendments to the Winston Tower master deed must be approved by “unit owners owning not less than Seventy-Five (75%) percent in the aggregate of the total ownership interest in the Common Elements.”

Ill

Because the Winston Towers master deed made the parking facilities part of the common elements, plaintiffs ownership interest in his unit included the exclusive use of his apartment unit, a proportionate undivided interest in the common elements, and the right to rent a parking space. N.J.S.A. 46:8B-6. This property interest is inseparable from the balance of plaintiffs unit, and his lease with his tenant “extended to and included” the parking space. Ibid. By substituting itself as the lessor of plaintiffs parking space and thereby severing plaintiffs property right to his parking space, defendant exceeded its authority under the Act, which permits it only to “lease or license the use of the common elements in a manner not inconsistent with the rights of unit owners.” N.J.S.A. 46:8B-15(c).⁵

Defendant asserts that pursuant to the master deed the Association possesses broad discretionary control over the garage and the authority to change the parking-garage rentals. Concededly, defendant can establish reasonable rules and regulations concerning the size of the spaces, speed limits in the garage, and other rules necessary to maintain order and safety in the area. But while it possesses the discretionary power to establish rental rates, the Association cannot expropriate the economic value of plaintiffs parking space for its own use. As a unit owner, plaintiff has the right to lease his unit, which includes his parking space and his interest in the common elements. The economic reality of the new regulation is that the Association has effectively confiscated for its own use the value of plaintiffs parking space.⁶

Moreover, the Association is prohibited by the Act from discriminating against plaintiff because he is a nonresident owner. Under the Act, plaintiff is only proportionately liable for his share of the common expenses, N.J.S.A. 46:8B-3e, determined on the basis of plaintiffs proportionate undivided interest in the common elements. N.J.S.A. 46:8B-9(g). Another vice of the parking fee regulation is that the higher fees paid by nonresident owners necessarily reduce the common-elements charge apportioned among all owners. In effect, defendant has' required plaintiff, through his tenant, to contribute three times more money to the common-expense fund for parking privileges than do other unit owners who do not rent their units. The result is that plaintiff is compelled to bear a disproportionate share of the common expenses.

Defendant contends that a primary purpose of the new rule is to make less burdensome the common expenses shared by all unit owners. However, defendant’s argument proves too much. Any reduction in the burden of common expenses resulting from the Board’s action comes at the expense of one class of unit owners—those who rent their units.

Defendant also contends that the parking garage exists for the benefit of all unit owners and any profit made by renting spaces should belong to all unit owners. This argument was persuasively refuted by Judge Cohen’s dissent in the Appellate Division. He stated:

The argument ignores the fact that the right to rent a space is guaranteed to each owner just as is the right to exclusive use of the apartment unit itself. The owner’s profit on renting the apartment is not subject to confiscation by the Association, and neither is the owner’s profit on subleasing garage use to the unit tenant. They are both profits gained by leasing the whole of the owner’s bundle of rights to another person. It should not matter whether the apartment is leased for $1925 per month and the garage space for $75, or if the apartment costs $2000 per month and parking is afforded with no extra cost. [214 N.J. Super. at 421-22 (Cohen, J.A.D., dissenting).]

Obviously, the Association could not charge tenants of nonresident owners a surcharge for the use of some component of the unit, such as the right to use a unit’s storage area, on the theory that the unit owner is deriving some profit from renting that part of his unit. Yet, because the Act and master deed accord plaintiff’s parking space the same status as any other component of his property interest in the unit, that is precisely what the Association has done in this case.

The Association also seeks to justify its regulation as a security measure designed to prevent unit owners and their tenants from subletting their parking spaces to people not residing in the building. Security of the condominium complex is obviously a legitimate concern of the Association. In our view, however, the regulation at issue cannot be sustained on this basis. There are other methods by which the Association can secure the parking facilities, such as requiring permits and employing security personnel, without encroaching on the rights of unit owners under the Act and master deed.

The Association’s action violates another provision of the Act. The revised schedule of parking space charges was adopted by the Association’s Board of Directors. The Board’s resolution, specifically referring to paragraph eighteen of the master deed, which established the procedure unit owners had to follow to rent their units, declared that no leases of units would be approved without a provision requiring the owner’s tenant to lease the parking space directly from the Association at the increased rental rates. The effect of the Board’s action was to supersede paragraph eighteen of the master deed. Because the Board’s resolution was adopted without the approval of seventy-five percent of the unit owners, it was an unauthorized exercise of power by the Board. See N.J.S.A. 46:8B-11.

Further, the Board’s action in revising the parking rates constituted a “change in a unit” contrary to N.J.S.A. 46:8B-11, which prohibits “changes in a unit” without the consent of the unit owner. The Act does not define the phrase “change in a unit,” but we assume that the legislative intent was that a unit owner should retain essentially the same property rights originally deeded to him for as long as he owns his unit, unless he affirmatively consents to their being altered. A parking space in a 614-unit condominium complex that is situated in a congested area is obviously a vital component of the unit. The revised parking rules have the effect of confiscating a portion of the property interest he acquired when he purchased his unit, thereby denying plaintiff the economic value of a portion of his unit. The revised rules, therefore, did constitute a “change” in plaintiff’s unit in contravention of the Act.

Plaintiff purchased a property interest that included a proportionate undivided interest in the parking facilities, and the right to rent a parking space. That property interest was permanent and inseparable from his unit and could be altered only through the specific procedures contained in the Act and the master deed. Accordingly, defendant exceeded its authority, and the revised parking fee schedule is invalid.

Our reading of the trial court’s disposition of plaintiff’s challenge to the residency requirement reveals that the court did not properly focus on the essence of plaintiff’s argument. The regulation was adopted nine years after plaintiff purchased his unit. The critical issue is not whether plaintiff or a new purchaser received notice of the regulation prior to purchasing the unit. Rather, plaintiff argues that the regulation affects the marketability and value of his unit because it discourages prospective buyers who are interested in purchasing his unit for investment purposes. The record contains no evidence relating to whether the regulation affects plaintiff in this manner. We agree, therefore, with Judge Cohen that there remained unresolved issues of material fact concerning the threshold matter of plaintiff’s standing to challenge this regulation. If plaintiff is able to establish that this regulation affects the alienability of his property to the extent that he has “sufficient stake and real adverseness” necessary to confer standing, Crescent Park Tenants Ass’n v. Realty Equity Corp. of N.Y., 58 N.J. 98, 107 (1971), he may challenge its validity. Therefore, the grant of summary judgment in favor of defendant was improper.

The judgment of the Appellate Division is reversed and the matter is remanded to the Chancery Division for proceedings consistent with this opinion.

1 The minutes of the Board meeting at which the rule was adopted stated:

Rental application forms shall be amended to include the new rates. After August 1, no apartment lease will be approved by the Board, submitted for approval as provided by paragraph 18 of the Master Deed, unless the increased garage rental rate is specified in any such lease or rental arrangement. Such apartment leases shall specify that the garage rent security deposit and the garage rental itself be paid directly to the Association. All such apartment leasing arrangements shall additionally include a provision that the unit owner (the landlord) will be responsible to the Association for payment of the garage rent should the rentor fail to do so.

2 The Appellate Division assumed that prior to the new rule "[p]laintiffs practice was to lease an indoor parking space for $25 a month for which he charged his tenant $75 per month." 214 N.J.Super. at 411. Plaintiff has never rented his parking space for $75, nor does the record reflect a desire on his part to do so. The reason plaintiffs lease with his tenant stipulates that the tenant will separately lease the parking space from the Association is that without such a provision the Association would not have allowed plaintiff to rent his unit.

3 PlaintifPs motion to have this action certified as a class action was denied, without prejudice, by the trial court. In his brief to this court, plaintiff "continues to reiterate his application" for class-action certification. As an appeal as of right by virtue of a dissent in the Appellate Division, R. 2:2-l(a)(2), the only issues before this Court are those that were the subject of the dissent. Accord Brandenburg v. Brandenburg, 83 N.J. 198 (1980). Judge Cohen did not address the class-action question, so the issue is not before us.

4 Our dissenting colleague is of a view that the principles we discussed in Siller are implicated in this case. See post at 664. However, the issue here is a condominium association's power to alter the property rights of unit owners guaranteed by the Act and the master deed. We do not reach the question of what the appropriate standard of review would be in a case involving an Association's exercise of its authority in a manner consistent with the Act and the master deed.

5 The Association acknowledged plaintiffs ownership of the parking interest by making him responsible to the Association for payment of the garage rent should his tenant fail to pay. See supra at 654.

6 The Association notes that the market value of a parking space is $75. Therefore, unit owners who use their spaces, and pay the Association's $25 fee, realize an economic benefit of $50. Through the new rule, the Association expropriates this economic benefit from nonresident unit owners solely because they rent their units.