Court Opinion

ID: 9695185
Source: CourtListenerOpinion
Date Created: 2023-08-25 18:11:11.691382+00
Date Added: 2024-06-11T18:20:09.675403
License: Public Domain

GARIBALDI, Justice,
dissenting in part, concurring in part.
In Siller v. Hartz Mountain Assocs., 93 N.J. 370, 382, cert. den., 464 U.S. 961, 104 S.Ct. 395, 78 L.Ed.2d 337 (1983), we held that “[t]he association’s board of directors, trustees or other governing body have a fiduciary relationship to the unit owners, comparable to the obligation that a board of directors of a corporation owes to its stockholders.” Accord Papalexiou v. Tower West Condominium, 167 N.J.Super. 516 (Ch.Div.1979); Rywalt v. Writer Corp., 34 Colo.App. 334, 526 P.2d 316 (Ct. App.1974). By analogizing the role of a condominium association to that of a corporation’s Board of Directors, we concluded that the “business judgment” rule should be applied in reviewing condominium rulemaking.
Applying that rule in this case, I find that the Association acted within its authority and in good faith when promulgating *665the regulation that increased parking garage fees for tenants of nonresident owners. Hence, I dissent from so much of the Court’s judgment as holds that the parking garage regulation was invalid. However, I concur with so much of the Court’s judgment as holds that summary judgment was improperly granted with respect to plaintiff’s standing to challenge the one-year residency requirement.
I.
Ownership of a condominium differs in significant respects from other traditional forms of property ownership. Unlike the more traditional property owner, an owner of a condominium unit faces certain restrictions of ownership rights when entering into a condominium arrangement. In the condominium context, for instance, courts have consistently rejected individual unit owners’ challenges to condominium rulemaking when the challenged restrictions have been promulgated by the Association in order to benefit a majority of the condominium’s unit owners. Papalexiou, supra, 167 N.J.Super. 516 (right of Board of Directors to make special assessment against unit owners upheld); Ritchey v. Villa Nueva Condominium Ass’n, 81 Cal.App.3d 688, 146 Cal.Rptr. 695 (Ct.App.1978) (condominium by-laws restricting occupancy of unit to persons age eighteen or older upheld); Rywalt v. Writer Corp., supra, 526 P.2d 316 (Association authorized to construct tennis court on common property); Johnson v. Hobson, 505 A.2d 1313 (D.C.1986) (upheld regulation, under which unlicensed or unregistered cars could be towed from condominium lot); Juno by the Sea N. Condominium Ass’n v. Manfredonia, 397 So.2d 297 (Fla.Ct. App.1980) (parking regulation reasonable where prospective unit owners had notice of the assignment of parking spaces); Seagate Condominium Ass’n v. Duffy, 330 So.2d 484 (Fla.Dist. Ct.App.1976) (by-law amendment prohibiting leasing of units for any purpose other than a private dwelling for owner and immediate family upheld); Hidden Harbour Estates, Inc. v. Norman, 309 So.2d 180 (Fla.Dist.Ct.App.1975) (Board of Di*666rectors’ rule prohibiting the use of alcohol in the condominium clubhouse upheld); Franklin v. Spadafora, 388 Mass. 764, 447 N.E.2d 1244 (1983) (by-law amendment limiting to two the number of units in condominium owned by any one person upheld); Ryan v. Baptiste, 565 S.W.2d 196 (Mo.Ct.App.1978) (Board of Directors rule installing locks on exterior entryways upheld); Garrison Apts, Inc. v. Sabourin, 113 Misc.2d 674, 678-80, 449 N.Y.S.2d 629, 633-34 (Civ.Ct.1982) (condominium regulation establishing security patrol and providing for patrol service in lieu of $25.00 per month assessment not discriminatory to tenants physically unable to serve where service not mandated but an alternative to payment); River Terrace Condominium Ass’n v. Lewis, 33 Ohio App.3d 52, 514 N.E.2d 732 (App.1986) (association’s rule that all units had to be sprayed to exterminate cockroaches was upheld and unit owner was permanently enjoined from refusing access to her unit so that condominium association could spray to exterminate cockroaches); LeFebvre v. Osterndorf, 87 Wis.2d 525, 275 N.W.2d 154 (Ct.App.1979) (by-law requiring that no unit could be rented without prior written consent of Board of Directors upheld).
Courts have used various standards to review condominium rulemaking. A few courts have reviewed such rulemaking according to constitutional standards. Most courts, however, have reviewed condominium rulemaking by likening the Association to an administrative agency. For a discussion of these various standards, see Note, “Judicial Review of Condominium Rulemaking,” 94 Harv.L.Rev. 647 (1981) (hereinafter Note, “Condominium Rulemaking”). As stated previously, however, this Court has concluded that the “business judgment” rule provides a more appropriate analytical framework for judicial review of condominium rulemaking. As the Appellate Division aptly noted below,
[a] two-pronged test has been established to determine whether the Association breached its fiduciary duty: (1) whether its action was authorized by statute or its own bylaws, and, if so, (2) whether the action was fraudulent, self-dealing or unconscionable. The scope of judicial review is limited to these two questions, which are issues of law. As long as the Association acted reasonably and in *667good faith the courts will not second guess its conduct. [214 N.J.Super. 408, 411 (1986) (citations omitted).]
For a variety of reasons the use of the “business judgment” rule remains preferable to either a constitutional form of analysis or a “reasonableness” analysis that likens a condominium association to an administrative agency. As one commentator has observed,
[use of the business judgment rule] focuses attention on the bad faith of the condominium association—not the only source of danger for unit owners, but certainly the most significant one____ [I]t also provides a clear basis for reviewing the procedure of condominium rulemaking; and it permit[s] condominium associations and their counsel to refer to the extensive case law concerning the application of the business judgment rule to corporate decision-making.
[Note, “Condominium Rulemaking,” supra, 94 Harv.L.Rev. at 666 (footnotes omitted).]
While the foregoing reasons lend support to our adoption of the “business judgment rule,” I am most persuaded that it is the correct standard because it prevents judicial intervention into the private and consensual affairs of condominium associations. This court has expressed a reluctance to interfere in the affairs of membership associations. See Falcone v. Middlesex County Medical Soc’y, 34 N.J. 582, 590 (1961). In condominium associations, the unit owners agree to be bound by the master deed and the association’s by-laws. Disputes between the association and unit owners should thus be settled through the mechanisms set forth in the condominium documents, not by the courts. Unnecessary judicial involvement of the sort the Court sanctions today may well result in more lawsuits brought by disgruntled unit owners against the Association and its Directors. Such a possibility may have a “chilling effect” on the participation of unit owners who serve without compensation as the Directors of the owners’ association.
These public policy considerations compel the conclusion that there is no justification for a change in the standard the Court adopted in Siller, supra, 93 N.J. 370 for review of condominium board actions. The limited judicial review of association action provided by the “business judgment” rule fosters the ability of *668private associations to manage their affairs without unnecessary judicial intervention and in a manner consistent with the condominium’s organizational documents. There is neither a need, nor a public policy justification, for deviation from the principle that this Court will not second guess the conduct of a board of directors in the absence of a showing which is tantamount to bad faith.
II.
Applying the “business judgment” rule to the facts in this case, I find that the regulation was reasonable and was adopted in good faith.
The powers of the Association arise from the Condominium Act, N.J.S.A. 46:8B-1 to 38 (the “Act”), and from the condominium master deed and by-laws. Each unit owner, when purchasing his or her unit, has the option of determining whether to sign the agreement and thus be bound by the master deed and by-laws. The amended offering and the master deed both expressly provide the Association with the discretion to set parking garage rentals. The amended offering plan contained the following provision:
The garage will be deemed a part of the Common Elements and will be operated and maintained by the Association which shall have the right to lease the operations thereof on such terms and conditions as it shall deem proper. Each Apartment Owner, upon application will be entitled to rent annually from the Association at least one garage space. Rentals for garage space will be established by the Association and shall be payable as the Association shall direct. The rental ... shall not be increased so long as Sponsor is in control of the Association, but the amount actually charged may thereafter vary, as determined and established by the Association. All revenue received by the Association from the garage operation shall be applied as provided by the Association’s By-Laws. (Emphasis Added.)
Both paragraphs four and nine of the master deed are consistent with the above provision. Paragraph four of the master deed provides that
[use] of the Common Elements and the rights of the Unit Owner with respect thereto shall be subject to and governed by the ... rules and regulations of the Association. The Association shall have the authority to lease or rent or *669grant licenses or concessions with respect to the garage____ (Emphasis added)
Paragraph nine is also instructive. It provides as follows:
PARKING AND GARAGE FACILITIES: The parking and garage facilities within the Property shall be part of the Common Elements and, subject to the provisions of the By-Laws, will be operated by the Association which shall have the right to lease all or part of the operation thereof on such terms and 'conditions as it may determine. Each Unit Owner, upon application, will be entitled to rent annually at least one garage space. Rentals for garage space will be established by the Association and shall be payable as the Association shall direct. All revenue received by the Association from the garage operation shall be applied in accordance with the By-Laws. (Emphasis added.)
Thus, under the amended offering plan and the master deed, parking and garage space were always treated differently from the other common elements, a factor the Court fails to recognize. Further proof of this difference is that a unit owner always entered into a lease with the Association for use of the parking facilities. Typical of such a lease was plaintiffs parking lease with the Association, dated September 7, 1979. That lease provided for an annual term, and read in pertinent part as follows:
3. In the event that the tenants shall either fail to make timely payment of rent or shall intentionally or negligently damage the parking space or otherwise violate any duly adopted rules, regulations and/or policies of Landlord, then the Landlord may cancel this Agreement without any liability for so doing upon five (5) days written notice____
4. The Landlord shall have the right to change or modify the rental per annum, thereby modifying the equal monthly installments payable by the Tenants, by giving written notice to the Tenants sixty (60) days prior to said rental modification becoming effective. In the event the Tenants do not agree to said rental modification, the Tenants may terminate this Agreement by giving written notice of their intention to terminate thirty (30) days prior to said rental modification becoming effective.
5. This Agreement cannot be assigned or sublet by the Tenant. After the condominium unit is sold the buyer has the right of first refusal on one of the seller’s parking space(s) whether a single space or a tandem space. In such event, buyer will be required to enter into a lease with the Landlord for same.
6. This Agreement shall be deemed to be automatically renewed at the expiration of the term hereof for successive one (1) year periods; provided that either party hereto may terminate this Agreement by giving written notice of its intention not to renew to the other party thirty (30) days prior to the expiration date of the term hereof.
*67014. If the tenant fails to pay the aforesaid rentals ... the Landlord can, at his option and by giving appropriate written notice, TOW THE TENANT’S CAR FROM THE AFORESAID PARKING SPACE OR ANY OTHER PLACE WITHIN THE GARAGE PREMISES.... (Emphasis added.)
In 1981 the Association became aware that certain nonresident owners were charging their tenants parking fees that exceeded the fees charged to the owners by the Association. Accordingly, on June 2, 1981, the Board of Directors unanimously adopted a new schedule of charges for garage rentals that charged higher monthly fees to those occupants of the building who were not unit owners (tenants of nonresident owners). These rates were fixed according to the fair rental value of parking garage spaces in the prevailing Cliffside Park-Fort Lee market. At the same time, the Board of Directors crafted the parking garage rent increase to avoid any hardship, to provide for a transitional period, and to insure that ultimately, if the parking garage facility produced revenues, such revenues would be for the unit owners generally, rather than for specific individuals.
As expressed by the president of the Association, the new parking fee schedules were adopted for the following reasons:
As a result of the non-resident Unit Owner’s attempt to commercially exploit the below-market parking rental fee charged by the Association, profits from the parking garage rentals were flowing to individual Unit Owners, instead of the Association, and its members, generally. The economic benefits of owning and operating the parking garage do not run to any individual Unit Owner, but rather to the Association for the good and welfare of all Unit Owners, as is clearly set forth in the Amended Offering Statement, Master Deed and ByLaws.
The Association also adopted the regulation to ensure building security by retaining control of the parking garage and regulate its use. The Association believed that unless regulations were imposed regarding control of parking spaces, nothing would prevent owners or tenants from subletting their parking spaces to individuals not residing in the building. Were such rentals to occur, the Association reasoned, it would be impossible to ensure building security for residents of the complex.
Given these facts, I conclude that the Association had the right to promulgate the parking regulation as authorized by the *671condominium documents themselves, thus satisfying the first prong of the “business judgment” rule requiring us to determine whether the Association’s action was authorized and correctly adopted.1
I focus, therefore, on the second part of the analysis, namely, whether the action establishing the parking garage increases was fraudulent, self-dealing, or unconscionable. I agree with the trial court’s finding, affirmed by the Appellate Division, that “the increased fee was reasonable and was adopted in good faith.” Thanasoulis, supra, 214 N.J.Super. at 412. There is no evidence in the record that the Association, in adopting its regulations, did not act in good faith for the benefit of all unit owners. Moreover, the Board has the right to determine who may park in the parking lot as a proper means of ensuring security within the complex. No one can doubt that the security of the condominium complex is a legitimate concern of the Association. Unlike the majority, I find under the “business judgment” rule that this reason alone is sufficient to sustain the regulation.
I find, as did both the trial court and the Appellate Division, that the Association did not engage in any self-dealing, fraud, or unconscionable conduct that would support a finding of *672breach of fiduciary duty. The Association's actions were not self-interested, but rather were taken for the benefit and good of the entire condominium community. Absent a finding to the contrary, the “business judgment” rule requires that the Association’s actions be given due deference. If the plaintiff, or any other unit owner, feels aggrieved with the actions of the Board, remedies are readily available through the Association’s bylaws to effectuate a change, namely, by persuading either the Board, or a sufficient number of unit owners, that the regulations are inappropriate or ill-advised. It is precisely for this reason that the “business judgment” rule has evolved, giving substantial deference to the actions of a condominium Board of Directors.
I reject the further contention that the parking garage fee regulation2 “improperly converted to the use of all unit owners a property right granted by the master deed to individual unit owners.” Thanasoulis, supra, 214 N.J.Super. at 417. There are two reasons that the action of the Board in revising the parking rates does not constitute a “change in a unit,” in contravention of N.J.S.A. 46:8B-113. First, the amended offering, master deed, and plaintiff’s lease with the Association all specifically provided that the parking fees would be set, modified, and adopted by the Association. Accordingly, there was *673no change in the master deed or by-laws. The Association simply acted pursuant to the actual authority vested in the Board by the Act and master deed. Secondly, there is no change in the property rights of any party to this action by virtue of the parking rental changes. The Association continues to be the owner of all common elements, including the parking garage, and it has the right to fix parking garage rates. Plaintiff continues to be entitled to one parking garage space. His lease agreement with his tenant expressly provides that his tenant, the occupant of the building, will sign a parking garage lease directly with the Association. In short, there has been no “change” to the plaintiffs unit within the contemplation of N.J.S.A. 46:8B-11.
My application of the “business judgment” rule to the parking-garage regulation leads to the conclusion that the Association acted properly within the scope of its authority in promulgating the regulation, that adoption of the regulation was procedurally correct, and that the Association did not breach its fiduciary duty to the unit owners.
Justices HANDLER and POLLOCK join in this opinion.
For reversal and remandment—Chief Justice WILENTZ and Justices CLIFFORD, O’HEARN and STEIN—4.
For affirmance in part, and reversal in part—Justices HANDLER, POLLOCK and GARIBALDI—3.

The majority concludes that in the course of adopting the new parking fee schedule, the Association unilaterally amended paragraph eighteen of the master deed without obtaining approval of seventy-five percent of the unit owners. Accordingly, the Court finds that the Association’s exercise of power was unauthorized. N.J.S.A. 46:8B-11. The Court’s conclusion that paragraph eighteen was amended is plainly erroneous. Paragraph eighteen, which establishes the procedure unit owners are to follow in order to sell or lease their units, instructs potential lessors or sellers to provide the Association’s Board of Directors with certain information, including "a copy of the offer, the name and address of the person(s) to whom the proposed sale, lease or transfer is to be made, and such other information ...as may be required by the Board of Directors." (Emphasis added). The Association's declaration that no leases of units would be approved without a provision requiring the owner’s tenant to lease the parking space directly from the Association at the increased rates thus falls squarely within the Association’s authority as prescribed by paragraph eighteen.

The dissenting opinion below incorrectly refers to the parking space fee increase as a by-law amendment. 214 N.J.Super. at 413. The action of the Board in question is not a by-law amendment. Rather, pursuant to the authority vested in the board by the Act, master deed and the lease between the plaintiff and the association, the Association simply changed the amount of rental charged for parking garage spaces. There was no change in the master deed or by-laws.

N.J.S.A. 46:8B-11 (Supp.1987) provides, in pertinent part, as follows:
The Master Deed may be amended or supplemented in the manner set forth therein unless otherwise provided therein. Unless otherwise provided therein, no amendment shall change a unit unless the owner of record thereof and the holders of record of any liens thereon shall join in the execution of the amendment or execute a consent thereto with the formalities of a deed...: