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Court Permits Condo Association to Pursue Contractors for Common Area Damage Absent Unit Owner Approval

In Port Liberte II Condominium Association v. New Liberty Residential Urban Renewal Company, the NJ Appellate Division reinstated a condominium association’s multi-million dollar lawsuit over construction defects, holding that the contractors sued by the Association lacked standing to enforce a bylaw requiring unit owners to approve the litigation before it is filed. The Court further held that the trial court had misconstrued the bylaws in holding that the owners could not ratify the Association’s action after the lawsuit was filed.

The Port Liberte II Condominium Association consists of 225 units in Jersey City and was completed in 2004. In 2008, the Association filed suit against numerous contractors after discovering construction defects during the transition period. Due to the Statute of Limitations, the Association filed the lawsuit without first obtaining the approval of the unit owners as required under the Association’s bylaws. The Association attempted to negotiate a settlement with the contractors, but after that failed the Association sought and obtained approval of the unit owners in a meeting held in 2009.

In May 2011, the contractors filed a summary judgment motion seeking to dismiss the complaint on the grounds that the Association had not properly obtained the unit owners’ authorization before filing the lawsuit. The trial judge granted the motion, holding that the Association lacked standing to file the lawsuit.

On October 24, 2011, the Association held another meeting of the unit owners, for the purpose of ratifying the filing of the lawsuit. After the members approved the ratification, the Association moved to reinstate the complaint. The trial court denied the motion on the grounds that the lack of standing could not be cured. In addition, the trial court also dismissed a second lawsuit which was also the subject of the 2011 ratification vote by the unit owners on the grounds that the Association lacked standing to file it.

On appeal, the Court found that precluding the Association from filing suit on the grounds that it lacked standing violated the Condominium Act, which authorizes a condominium association to file suit against third parties for damage to common areas. Furthermore, the Court said that the Association correctly remedied the lack of authorization by having unit owners approve the filing of the suit. Finally, the Court held that that the interests of the defendant contractors were adverse to the unit owners, so that “letting them enforce the unit owners’ interests would be akin to letting the proverbial fox protect the interests of the chickens.”

At Lieberman & Blecher our attorneys are skilled in many facets of Condominium and Homeowner Association representation, such as collections matters, liability issues, and association formation. Our firm also serves as general counsel for multiple Community Associations; if your association is in need of assistance with legal issues, please don’t hesitate to contact our office to discuss how we can help.

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