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Unauthorized Acts Of Board Cannot Be Challenged By Non-Owner Third Parties, Can Be Cured By Membership

By Jennifer L. Alexander, Esq. June 11, 2014 Posted in Community Association Law

The New Jersey Appellate Division, in Port Liberte II Condo Ass'n v. New Liberty Residential Urban Renewal Co., et al., recently released a decision that has been deemed to be a major win for both condo owners and associations alike. The Court found that the defendants, developers and contractors who were not homeowners, could not use the condo association bylaws that were intended to protect the unit owners' interests, to suppress those same interests. The Court also noted that the board's decision to file a lawsuit without taking a vote prior to the start of litigation (as required by the bylaws) can be affirmed retroactively by the members and could not be challenged by the defendants.

The Facts

In 2008, the condo association sued the developer and its contractors for certain construction defects that were estimated to cost over $30 million to fix. Years later, the developer and contractors moved to have the action dismissed because the association had not taken a community vote (as required by the association's bylaws which were written by the developer) to approve the filing of the suit.

Accordingly, in response to the defendants' motion, the association held two votes, one in 2009 and the other in 2011, during which time the membership indicated that they were in favor of the lawsuit. The association responded to the defendants' motion to dismiss, claiming that they, as non-owner third parties did not have standing to enforce the bylaws, and even if it is deemed that they did have standing, the original filing of the lawsuit was properly ratified by the owners. Ultimately, the trial court sided with the developer and contractors and dismissed the case; however, the association appealed and the Appellate Division reversed the trial court's erroneous decision.

The Findings of the Appellate Division

The Appellate Court found that the trial court had "misconstrued the bylaws--and disserved the unit owners' interests--in holding that the owners could not ratify the Association's action after the lawsuit was filed." The Court further noted that although an association's bylaws may require that the board obtain authorization to file a lawsuit, unauthorized actions of the board can be cured by ratification during a subsequent vote and will not be considered to be null and void.

Simply put, the bylaws were adopted for the benefit of the association members, and despite the fact that the owners formally approved an action by the association at a later time, that subsequent approval did not negate the action.

The Lesson to be Learned From the Case

Contractors and developers should take note--they will not be permitted to rely on the technicalities of a contract in order to get judgments in their favor from courts in cases where the outcome will not be fair or equitable to the other party.

Individuals who have questions about the Court's ruling and what it will mean for the members of a condo association should contact Griffin Alexander, P.C. right away to discuss their rights under the law.

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