SENATE, No. 340
STATE OF NEW JERSEY
Introduced Pending Technical Review by Legislative Counsel
PRE-FILED FOR INTRODUCTION IN THE 1996 SESSION
By Senator BAER
An Act concerning warranties for planned real estate developments, amending and supplementing P.L.1977, c.419.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. Section 1 of P.L.1977, c.419 (C.45:22A-21) is amended to read as follows:
1. This act shall be known and may be cited as "The Planned Real Estate Development [Full Disclosure] Act."
(cf: P.L.1977, c.419, s.1)
2. Section 3 of P.L.1977, c.419 (C.45:22A-23) is amended to read as follows:
3. As used in this act unless the context clearly indicates otherwise:
a. "Disposition" means any sales, contract, lease, assignment, or other transaction concerning planned real estate development.
b. "Developer" or "subdivider" means any person who disposes or offers to dispose of any lot, parcel, unit, or interest in a planned real estate development.
c. "Offer" means any inducement, solicitation, advertisement, or attempt to encourage a person to acquire a unit, parcel, lot, or interest in a planned real estate development.
d. "Purchaser" or "owner" means any person or persons who acquires a legal or equitable interest in a unit, lot, or parcel in a planned real estate development, and shall be deemed to include a prospective purchaser or owner.
e. "State" means the State of New Jersey.
f. "Commissioner" means the Commissioner of Community Affairs.
g. "Person" shall be defined as in R.S.1:1-2.
h. "Planned real estate development" or "development" means any real property situated within the State, whether contiguous or not, which consist of or will consist of, separately owned areas, irrespective of form, be it lots, parcels, units, or interest, and which are offered or disposed of pursuant to a common promotional plan, and providing for common or shared elements or interests in real property. This definition shall specifically include, but shall not be limited to, property subject to the "Condominium Act" (P.L.1969, c.257, C.46:8B-1 et seq.), any form of homeowners' association, any housing cooperative or to any community trust or other trust device.
This definition shall be construed liberally to effectuate the purposes of this act.
i. "Common promotional plan" means any offer for the disposition of lots, parcels, units or interests of real property by a single person or group of persons acting in concert, where such lots, parcels, units or interests are contiguous, or are known, designated or advertised as a common entity or by a common name.
j. "Advertising" means and includes the publication or causing to be published of any information offering for disposition or for the purpose of causing or inducing any other person to purchase an interest in a planned real estate development, including the land sales contract to be used and any photographs or drawings or artist's representations of physical conditions or facilities on the property existing or to exist by means of any:
(1) Newspaper or periodical;
(2) Radio or television broadcast;
(3) Written or printed or photographic matter;
(4) Billboards or signs;
(5) Display of model houses or units;
(6) Material used in connection with the disposition or offer of the development by radio, television, telephone or any other electronic means; or
(7) Material used by developers or their agents to induce prospective purchasers to visit the development, particularly vacation certificates which require the holders of such certificates to attend or submit to a sales presentation by a developer or his agents.
"Advertising" does not mean and shall not be deemed to include: Stockholder communications such as annual reports and interim financial reports, proxy materials, registration statements, securities prospectuses, applications for listing securities on stock exchanges, and the like; all communications addressed to and relating to the account of any person who has previously executed a contract for the purchase of the subdivider's lands except when directed to the sale of additional lands.
k. "Nonbinding reservation aggreement" means an aggreement between the developer and a purchaser and which may be cancelled without penalty by either party upon written notice at any time prior to the formation of a contract for the disposition of any lot, parcel, unit or interest in a planned real estate development.
l. "Blanket encumbrance" means a trust deed, mortage, judgment, or any other lien or encumbrance, including option or contract to sell or a trust agreement, affecting a development or affecting more than one lot, unit, parcel, or interest therein, but does not include any lien or other encumbrance arising as the result of the imposition of any tax assessment by any public authority.
m. "Conversion" means any change with respect to a real estate development or subdivision, apartment complex or other entity concerned with the ownership, use management of real property which would make such entity a planned real estate development.
n. "Association" means an association for the management of common elements and facilities, organized pursuant to section 1 of P.L.1993, c.30 (C.45:22A-43[(now pending in the Legislature as this bill]).
o. "Executive board" means the executive board of an association, as provided for in section 3 of P.L.1993, c.30 (C.45:22A-45[(now pending in the Legislature as this act]).
p. "Unit" means any lot, parcel, unit or interest in a planned real estate development that is, or is intended to be, a separately owned area thereof.
q. "Application for registration" means the filing required section 7 of P.L.1977, c.419 (C.45:22A-27).
r. "Common elements" shall have the same meaning as set forth in subsection d. of section 3 of P.L.1969, c.257 (C.46:8B-3).
s. "Common entity" means the entity responsible for the administration of a planned real estate development.
t. "Control by the converter" shall refer to the converter's appointment of a majority of the directors or trustees of the common entity's executive board. If no executive board exists, it shall mean ownership by the converter of those units, lots, shares or other interests in a converted planned real estate development to which a majority of the voting rights are appurtenant.
u. "Conversion date" means the date on which the conversion becomes effective for the purposes of this 1994 amendatory and supplementary act, which shall be the date on which the master deed or deed transferring the property to a cooperative corporation or association is filed.
v. "Conversion value" means the aggregate of the purchase prices of all the units, lots, shares or other interest in a converted planned real estate development in the first good faith sale thereof by the converter or the fair market value of those units, lots, shares or other interests if there has been no good faith sale by the converter.
w. "Converted planned real estate development" means any real property which became a planned real estate development through conversion.
x. "Converter" means any developer, property owner or other person who effects a conversion.
y. "Major building components" means common walls other than exterior or load bearing walls, windows, doors, steps, stairways, driveways, fire escapes, site improvements, accessory structures or other parts of a converted planned real estate development that are not part of a residential dwelling unit and that are not part of the structural systems or major common systems.
z. "Major common systems" means the common heating system, common central air conditioning system, common water heating system, common electrical system, common plumbing system, common fire protection system, common security and communications system, common ventilating system, common solid waste disposal system, elevator system, any component part thereof or any component of the common roofs other than a structural component.
aa. "Structural defect" means any condition of the structural system or a component thereof of a residential structure containing more than one residential dwelling unit and located within a converted planned real estate development resulting in damage to that structural system
or component thereof, including damage due to subsidence, expansion or lateral movement of the soil, excluding movement caused by flood or earthquake, which impairs its load bearing function and which vitally impairs or is imminently likely to vitally impair use of the residential structure or a portion thereof for residential purposes.
bb. "Structural system" means the exterior walls and other parts of the load bearing system of a structure containing more than one residential dwelling unit located within a converted planned real estate development which are the responsibility of the common entity.
cc. "Warranty date" means, for a condominium, the date of the first bona fide conveyance of a dwelling unit by the converter after the conversion date; for a cooperative, the date of the first bona fide transfer of stock or membership in the cooperative corporation after the conversion date; and for any other type of converted planned real estate development, the date of the conveyance of the first unit, lot, shares or other interest after the conversion date.
(cf: P.L.1993, c.30, s.7)
3. (New section) The following warranties shall apply to converted planned real estate developments:
a. Major building components shall be and remain functional and free from material defects for a period of one year following the warranty date.
b. The major common systems shall be and remain functional and free from material defects for a period of two years following the warranty date.
c. the structural system shall be and remain free from structural defects for a period of three years following the warranty date.
d. Any work affecting the common elements or any portion of a converted planned real estate development for which the common entity is responsible which is performed by the converter as a result of its written commitment set forth in the public offering statement shall be free from defects caused by faulty workmanship or defective materials for a period of one year following, the warranty date if the work affects the major building components, a period of two years if the work affects the major common systems and a period of three years if the work affects the structural system, except that if all or a portion of the work to be performed by the converter is not completed by the warranty date, the warranty period shall not commence for that portion of the incomplete work until its completion. Any improvement commitment set forth in a public offering statement pursuant to this subsection shall include a written commitment to complete the improvement no later than three years following the warranty date. In the event that fixtures or appliances are included in the converter's improvement commitment, the fixtures and appliances shall not by virtue of any provision of P.L. , c. (C. ) (now pending in the Legislature as this bill) be deemed to have a warranty in excess of the length and scope of the warranty offered by the manufacturer.
4. (New section) A converter shall be liable to a common entity during the time when the warranties prescribed by section 3 of P.L. , c. (C. ) (now pending in the Legislature as this bill) are applicable to the converted planned real estate development for the repair of any defect therein which is covered by the warranties in accordance with their terms and conditions and for the replacement of those defective elements or components which cannot be effectively repaired.
5. (New section) No application for registration for a converted planned real estate development shall be accepted for filing by the agency unless the converter is registered as enrolled in the converted planned real estate development warranty security fund plan established by section 7 of P.L. , c. (C. ) (now pending in the Legislature as this bill). The agency shall provide application forms and prescribe the information to be included therein. Each application shall be accompanied by a reasonable fee, prescribed by the agency. Upon receipt of the foregoing, the agency shall issue a certificate of registration of enrollment in the warranty security fund plan. Each certificate of registration of enrollment shall be valid for a period of two years from the date of issue and may be renewed for additional two-year periods. A converter shall maintain its registration in the warranty security fund plan for so long as it owns one or more units, lots, shares, or other interests in any converted planned real estate development that is subject to the provisions of P.L. , c. (C. ) (now pending in the Legislature as this bill) and holds it or them for sale in its ordinary course of business and until all of the warranties prescribed herein for any development converted by the converter have expired and all claims have been determined and all awards made.
6. (New section) The agency may:
a. Upon the complaint of an aggrieved person, conduct investigations into the allegations made against any converter required to be registered as enrolled in the converted planned real estate development warranty security fund established by section 7 of P.L. , c. (C. ) (now pending in the Legislature as this bill). In pursuit of these investigations, the agency shall be authorized to hold hearings in accordance with the provisions of the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.) applicable to contested cases, to subpena witnesses and compel their attendance, to require the production of books, papers, records or documents, to administer oaths or affirmations to witnesses, to inspect those relevant books, papers, records or documents of the converter at his place of business during business hours, and to conduct inspections of conversion sites;
b. Deny, suspend or revoke any certificate of registration of enrollment issued pursuant to P.L. , c. (C. ) (now pending in the Legislature as this bill), after affording the registrant or applicant the opportunity for a hearing in accordance with the provisions of the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.) applicable to contested cases, if the registrant or applicant has:
(1) Willfully made a misstatement of a material fact in his application for registration of enrollment or any renewal thereof under the provisions of this 1986 amendatory and supplementary act;
(2) Willfully committed fraud in conection with a conversion;
(3) Acted in a grossly negligent manner in connection with a conversion;
(4) Willfully violated any applicable State law or regulation to a substantial degree;
(5) Failed to continue his participation in the warranty security fund plan after proper notice from the agency in writing by certified mail; or
(6) Violated any provision of P.L. , c. (C. ) (now pending in the Legislature as this bill) or any rule or regulation adopted pursuant thereto, after proper notice from the agency in writing by certified mail.
7. (New section) a. There is established a converted planned real estate development warranty security fund to be maintained by the State Treasurer and administered by the agency. The purpose of the fund is to provide moneys sufficient to pay the portion of successful claims against converters for warranted defects in converted planned real estate developments required by subsection c. of this section in any instance where the converter cannot or fails to satisfy a valid claim for a warranted defect. The fund contributions payable by converters shall be 1% of the sales price of the unit, lot, shares or other interests in the converted planned real estate development or, in the absence of a good faith sale, the fair market value of that unit, lot, share or other interest at the time of conveyance. The fund contributions shall be due and payable to the agency within 10 calendar days of the conveyance of the unit, lot, shares, or other interest. The agency shall issue a certificate of payment with respect to each unit, lot, shares or other interest upon its receipt of payment of the appropriate fund contribution. Any conveyance of a unit, lot, shares, or other interests in a converted planned real estate development for which the required fund contribution is not paid within the specified time period shall be a violation of P.L. , c. (C. ) (now pending in the Legislature as this bill). Amounts paid by converters to the agency as fund contributions hereunder shall be forwarded to the State Treasurer and shall be accounted for and credited by him to the converted planned real estate development warranty security fund.
b. The State Treasurer shall hold, manage and, through the Division of Investment, invest and reinvest moneys in the fund and credit all income earned thereon to the fund in the same manner as provided by law for the investment of pension and retirement funds administered by the State. The agency shall keep the State Treasurer advised of anticipated cash demands for payment of claims against the fund.
c. Prior to making a claim against the fund for warranted defects the common entity or any unit owner acting on behalf of the common entity pursuant to section 8 of P.L. , c. (C. ) (now pending in the Legislature as this bill) shall notify the converter of those defects and allow a reasonable period of time for them to be remedied. If the defect is not remedied within a reasonable time or if the remedy is not satisfactory to the claimant a claim may be filed against the fund in the form and manner prescribed by the agency. The agency shall investigate each claim to determine the validity thereof, and the amount of the award that shall be made thereon, and shall hold a hearing if requested by either party, in accordance with the provisions of the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.) applicable to contested cases. Reasonable hearing fees shall be assessed against the unsuccessful party. The amount of the award shall be sufficient to cover the reasonable costs necessary to remedy any defects covered under the warranties, except that the total amount of awards from the fund for any one converted planned real estate development shall not exceed 5% of the conversion value of that development. All claims shall first be reviewed through a conciliation procedure by the agency or, if mutually acceptable to the parties, by arbitration, and in the event the converter agrees to undertake remedial action as a result of conciliation or if the claimant is found to be in the right as a result of arbitration, then the converter shall be required to perform in accordance with the terms of the conciliation or arbitration results. If a converter is unable or willfully refuses to perform, then an amount sufficient to remedy the defect shall be paid from the fund to the common entity subject to the limitations contained in this subsection. In those cases, the converter shall be regarded as having violated this 1986 amendatory and supplementary act and the agency may then proceed against the converter in accordance with section 6 of P.L. , c. (C. ) (now pending in the Legislature as this bill). Upon certification from the agency of the amount of an award, the State Treasurer shall make payment to the claimant from the fund.
d. The agency may provide for whatever surcharges it deems necessary for the purpose of the fund against those converters registered as enrolled in the fund who are responsible for a significant number of awards against the fund. The agency may also suspend or revoke the registration of enrollment, issued pursuant to P.L. , c. (C. ) (now pending in the Legislature as this bill), of any converter who is responsible for an excessive number of awards against the fund after a hearing in accordance with the provisions of the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.) applicable to contested cases. At no time shall the State be required to contribute any moneys to the fund, nor shall the State have any liability to any person having any right to or claim against the fund over and above the amount therein.
e. After the expiration of the warranties prescribed herein for a particular converted planned real estate development and after all claims have been determined and all awards made, and after all units, lots, shares or other interests in the converted planned real estate development have been conveyed by the converter, and the converter is no longer holding any units, lots, shares, or other interests in the converted planned real estate development for sale in its regular course of business, a converter may apply to the agency and shall receive upon application a refund of 50% of all fund contributions paid for units, lots, shares or other interests in that development less any awards paid from the fund in satisfaction of successful claims against the converter. Such set-offs shall be nonrecurring.
8. (New section) a. Nothing contained herein shall affect any rights or remedies available to a unit owner for claims due to defects in or damages to the owner's unit, or for common element claims on behalf of the common entity where the common entity fails to exercise the remedies available, including claims made during the time that the common entity is subject to control by the converter.
b. Nothing contained herein shall affect rights or remedies otherwise available to a common entity for any claim due to a defect in or damage to the common elements, except that any procedure initiated by the common entity to enforce a remedy against the warranty security fund established pursuant to P.L. , c. (C. ) (now pending in the Legislature as this bill) shall constitute an election which shall bar the common entity from all other remedies regarding the claim other than such remedies as may be required to recover the costs of correcting warranted defects exceeding 5% of the conversion value of the development. Nothing contained herein shall be deemed to limit the common entity's rights of appeal as applicable to the remedy elected.
9. (New section) In addition to other rules and regulations promulgated to effectuate the purposes of P.L. , c. (C. ) (now pending in the Legislature as this bill), the agency shall promulgate rules and regulations to establish procedures for the implementation and processing of claims against the converted planned real estate development warranty security fund provided for in section 7 of P.L. , c. (C. ) (now pending in the Legislature as this bill) and to establish forms of warranties provided for in section 3 of P.L. , c. (C. ) (now pending in the Legislature as this bill) that meet adequate standards of reliability, workability and fairness. The rules and regulations shall include procedures designed to ensure unit owners adequate standing where the common entity may not represent their interests because it is subject to control by the converter.
10. This act shall take effect 180 calendar days following the date of its enactment or the date on which the agency adopts the rules and regulations promulgated pursuant to the authority contained herein, whichever is later, and shall not apply to any proposed converted planned real estate development for which an application for registration was filed with the agency before the effective date of this act.
STATEMENT
This bill sets warranty periods during which a condominium or cooperative converter is liable to the common entity of a condominium or cooperative development. It also establishes a converted planned real estate development warranty security fund which would have the purpose of providing sufficient funds to pay certain claims by common entities against converters unable or unwilling to satisfy claims for warranted defects. The fund, administered by the Department of Community Affairs, would be supported by payments from the converters equal to 1% of the sales prices of development units plus surcharges levied on converters who are responsible for significant awards against the fund.
The bill does not affect claims made by unit owners regarding defects in their units or claims made by common entities which do not elect to seek recoveries from the fund.
Sets warranty periods for converted planned real estate developments and creates a State-operated warranty security fund to pay certain claims against converters.