NJ and IN courts rule on duties of homeowners, condo associations
By Deborah Goonan, Independent American Communities
When you purchased your house, condo, or co-op apartment, you were probably sold on the idea of a low-maintenance lifestyle, enticing amenities, or lush common green spaces.
But I often hear from homeowners and residents that the common areas are not properly maintained by their associations.
Some common examples:
Common green areas not mown, or allowed to become weed-infested
Play equipment is broken or unsafe for children
Pools turn green, or water leaks out of the pool, often forcing closure due to health code violations
Trash and recycling are not picked up on a fixed schedule, and debris overflows the dumpsters
Plumbing, roof, or window leaks are not addressed in a timely manner, resulting in moisture damage and mold
Parking areas or private roads are riddled with deep cracks and potholes that are never repaired
Storm water and/or private sewage treatment systems back up and flood streets and basements when it rains
Sidewalks, parking areas, or stairways are not clear of obstacles and trip hazards, and are, therefore, unsafe
Most homeowners and residents assume that, since they are paying assessments, they are entitled to receive good service. But that’s not necessarily the case.
In fact, case law has established that association members are obligated to pay their assessments No Matter What — even if the association fails in its obligation to maintain and repair common areas. (See Spanish Court Two Condominium Ass’n v. Carlson, 2014 IL 115342.)
As a result of the landmark Spanish Court ruling, homeowners have lost bargaining power — they cannot legally withhold assessment payments in order to motivate their association’s governing board to maintain or repair common property.
Furthermore, the Morgan Superior Court in Indiana recently ruled that exculpatory clauses in HOA governing documents are sufficient to relieve the association of any and all liability for damages caused by its failure to abide by its side of the contract.
An Exculpatory Clause is a sort of “get out of jail free” card for HOAs, as explained here by Investopedia:
What is an ‘Exculpatory Clause’
An exculpatory clause is a contract provision that relieves one party of liability if damages are caused during the execution of the contract. The party that issues the exculpatory clause is typically the one seeking to be relieved of the potential liability. For example, a venue may print an exculpatory clause on tickets it sells for a concert indicating that it is not responsible for personal injury caused by employees or others during the show.
BREAKING DOWN ‘Exculpatory Clause’
While exculpatory clauses are typically upheld, they can be challenged and overturned in court. The court can determine that the clause is unreasonable if both parties in the contract do not have equal bargaining power or if the clause eliminates liability for negligence.
Read more: Exculpatory Clause
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Therefore, if the governing documents of the association — written by attorneys for original landowners and developers — contain exculpatory clauses that state that the HOA has no liability for its own failure to perform its duties, then homeowners and residents have no legal recourse if they suffer personal injury or their private property is damaged by poor or non-existent maintenance of common property.
The Indiana lawsuit involved two homeowners who complained that their HOA failed to properly manage storm water runoff in the community, causing property damage.
After Morgan Superior Court ruled in favor of the HOA, homeowners appealed, hoping to overturn the decision by ruling an exculpatory clause in their governing documents unreasonable, and therefore, unenforceable.
However, in a shocking decision, the Court of Appeals of Indiana concluded that HOAs do not hold unequal bargaining power over owners and residents, because, they reasoned, the homeowners could have chosen to purchase a home somewhere else.
In addition, the Court of Appeals decided that it’s not in the public interest to forbid exculpatory clauses that relieve HOAs of liability for failure to uphold the covenants and restrictions (contract), citing the fact that HOA board leaders are volunteers.
Judgment for Morgan County HOA upheld in drainage dispute
January 26, 2018 Olivia Covington
An exculpatory clause in the covenants of a Morgan County subdivision protects the local homeowners’ association from a complaint for damages filed by three residents, the Indiana Court of Appeals has ruled.
As part of the covenants and restrictions of Foxcliff Estates in Martinsville, the HOA was charged with the upkeep of common areas and with enforcement of the subdivision’s restrictions. But an exculpatory clause further held the HOA could not be held liable for damages “of any kind to any person for failure to either abide by, enforce or carry out any of the Restrictions.”
The Morgan Superior Court entered summary judgment in favor of the HOA, agreeing the exculpatory clause barred the complaint. The Indiana Court of Appeals upheld that decision Friday, with Judge Terry Crone writing that none of the recognized exceptions to enforceable exculpatory clauses applied to the case.
The first exception, unequal bargaining power, did not apply here because there was no evidence of a “great disparity” between the homeowners’ bargaining power and that of the HOA, Crone said. Unlike a residential tenant dealing with a landlord, a homeowner has numerous options when choosing to purchase a home, including the option of moving somewhere with a different set of covenants, he said.
Further, the court dismissed the argument that the exculpatory clause was in an “inconspicuous location” making it unconscionable, the second exception. Finally, “(n)either the operation of the HOA nor the private services that it provides to the residents of Foxcliff Estates are matters of public concern or indispensable necessities,” the court said, defeating the third exception.
Robert A. McAdams, Quinn Whitney and Vonda Whitney v. Foxcliff Estates Community Association, Inc.; Foxcliff Estates Community Association, Inc. v. Paul Harnishveger, Mary Harnishveger, et al., 55A04-1707-PL-1707.
…we find no compelling reason to declare the exculpatory clause void.5 This is based in large part on two overarching observations that we have already touched upon. First, the nature of this contract is one governing the relationship of residents of a subdivision to an association made up of other residents. The residents have essentially agreed to insulate themselves from liability to themselves. Second, there is no evidence of unequal or unfair bargaining. In other words, there is no public policy impediment to the parties agreeing that the not-for profit HOA, a volunteer entity comprised of other Foxcliff Estates residents, cannot be sued for damages “for failure either to abide by, enforce or carry out any of the Restrictions.” Appellants’ App. Vol. 4 at 56. The exculpatory clause is not contrary to any declared public policy of our State.6
By contrast, a ruling in the New Jersey Appellate Division finds that the condominium association does have a duty to maintain and repair the common areas, particularly with regard matters affecting health and safety.
In this case, a condominium resident was injured after he fell down a stairway that lacked one of its railings.
Because the condo association documents did not include any exculpatory clause that would relieve the association of liability, the court ruled in favor of the injured resident.
NEW JERSEY CONDOMINIUM ACT ESTABLISHES ASSOCIATION’S DUTY TO RESIDENTS
Publisher: Day Pitney Advisory
January 16, 2018
Day Pitney Author(s) Katharine A. Coffey Peter J. Wolfson Catherine A. Nolan
In a December 29 decision, the New Jersey Appellate Division has held that not only does a condominium association have a statutory duty to maintain the common areas of the condominium, but also that this duty includes the identification and correction of dangerous conditions. Further, this duty extends to residents regardless of whether they are characterized as licensees or invitees.
Notably, although the act permits a condominium association to adopt a bylaw prohibiting residents from suing the association for negligence, there was no such bylaw in this case.
Condominium associations which are not shielded by a bylaw prohibiting residents from bringing a negligence action must be aware of the consequences of this case. Generally, adopting such a bylaw is advisable.
The lesson for home buyers: before purchase, review all governing documents, such as covenants, restrictions, and bylaws, thoroughly, and be on the lookout for exculpatory clauses.
Current homeowners should also be wary of their association’s willingness to amend governing documents to adopt exculpatory clauses, in order to avoid liability for future damages. If a developer or investor group currently controls the association by holding a clear majority of voting interests, it will be quite easy to add exculpatory clauses after the fact, despite the wishes of association members that hold too few voting interests to block such an amendment.