NJ Coalition of Lake Associations: Structural Integrity Act Updates
The NJ Coalition of Lake Associations is affected by the Structural Integrity Act, signed into law on January 8, 2024, in response to building collapses. The legislation mandates capital reserve studies for associations to ensure adequate funding for asset repairs and replacements.
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NJ COALITION OF NJ COALITION OF LAKE ASSOCIATIONS LAKE ASSOCIATIONS CASE AND STATUTE CASE AND STATUTE UPDATE UPDATE
2 STRUCTURAL INTEGRITY ACT NJSA52:27D-119 et seq., NJSA 45:22A-21 et seq. January 8, 2024 signed into law by Governor Murphy; Response to the devastating collapse of the multi-story Surfside residential building in Florida in 2021. Effective immediately. Goals of the legislation: increased safety, and to reduce the need for special assessments and borrowing by fully funding reserves.
There are two components to the legislation, only one of which will affect your community association. The first component amends the Uniform Construction Code Act and deals with inspections and maintenance schedules for multi-unit buildings, affecting only those residential buildings that fall within the definition of covered building . However, there is a specific exemption in the law for single family homes. APPLICABILITY TO LAKE ASSOCIATIONS The second part amends the Planned Real Estate Development Full Disclosure Act and applies to all associations covered by PREDFDA.
The legislation requires all common interest communities, through their associations, to undertake and fund a capital reserve study to determine the adequacy of the association s capital reserves for necessary or anticipated replacement or repair of capital assets. RESERVE STUDIES RESERVE STUDIES AND FUNDING AND FUNDING There are no exemptions noted in this section of the legislation, except for the very narrow one mentioned below. Associations with capital assets of less than $25,000.00 are exempt from compliance. However, since capital assets are considered land, buildings, machinery, etc., and would almost certainly include dams, recreational facilities, clubhouses, vacant lots, etc., it will likely be almost impossible for an association to fit within this category.
5 RESERVE STUDIES RESERVE STUDIES The reserve study must be conducted by a reserve specialist credentialed through the Community Associations Institute or a licensed engineer or architect. Purpose: to ensure that the association has adequate reserve funds available to repair or replace the capital assets located on the common elements and facilities that the association is obligated to maintain without need to create a special assessment or loan obligation, except that in those cases in which a capital asset reaches the end of its established useful life earlier than predicted by the reserve study.
6 CONTENT OF RESERVE STUDY The study must include information concerning the following: Capital reserve fund balance; o Income and expenses; o Analysis of the condition of the common area improvements; o Anticipated costs of repair or replacement of the common area o improvements; Estimate of costs of future reserve studies and updates; o Proposed 30-year funding plan; and o Any other information deemed necessary. o
7 DEADLINE DEADLINE Any association which has not undertaken a reserve study within the five years prior to the effective date must do so within one year of the effective date of the legislation (or no later than January 8, 2025).
8 FUNDING RESERVES RESERVES In other words, in the event that an association does not have adequate funding and the increase in the budget will result in an increase of 10% or more of the previous year s assessment, the deficiency must be made adequate within the earlier of 10 years or that date by which the association s reserves are predicted to fall below zero. If the deficiency in funding of the Association s reserves is less than 10% of the previous year s assessment, it must be made up within 2 years. If the reserve study indicates a shortfall in reserves of less than 10%, the association must correct that shortfall within two years of the date of the study. However, if the shortfall is more than 10%, the correction can occur over ten years.
9 COMPLIANCE COMPLIANCE It is important to note that Board members have the fiduciary responsibility, and now the legal obligation, to ensure that these reserve studies are undertaken in a timely manner, and to adequately fund the reserves, as recommended by those studies. Another important issue to be noted concerns mortgage lending. Anecdotally, some attorneys who represent community associations have become aware that Fannie Mae and Freddie Mac have refused to underwrite loans for buyers in communities that have underfunded reserves. This is only likely to become more widespread under this new legislation.
10 PLANNED REAL ESTATE DEVELOPMENT FULL DISCLOSURE ACT LITIGATION UPDATE Background: PREDFDA amended in 2017, regulations introduced in 2020, immediately subject to challenge by NJ Community Association Institute (CAI)
11 APPELLATE DIVISION APPELLATE DIVISION DECISION DECISION IN THE MATTER OF THE CHALLENGE OF THE COMMUNITY ASSOCIATIONS INSTITUTE NEW JERSEY CHAPTER, INC., TO AMENDMENTS TO N.J.A.C. 5:26. SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO. A-2241-21 February 23, 2024
12 COURT APPROVED COURT APPROVED PublicTallying of Votes and Maintaining Anonymity in Elections. N.J.A.C. 5:26-8.9(h) Thirty-Day Notice to Members Not in Good Standing.N.J.A.C. 5:26-8.9(l)(1)(v) Electronic Record of Meeting Minutes. N.J.A.C. 5:26- 8.12(f)(6)
13 COURT REJECTED COURT REJECTED Requirement to Reserve an Executive Board Seat for Affordable Housing Members.N.J.A.C. 5:26-8.10(a)(2) Requirement for Open-Session Board Votes. N.J.A.C. 5:26- 8.12(e)(1)- Requirement Mandating Both a Proxy Ballot and an Absentee Ballot for Bylaw Amendment Votes. N.J.A.C. 5:26-8.13(f)(4)
CONTACT Eileen Born, Esq. Dolan and Dolan, PA 973-383-1600 eborn@dolanlaw.com
