The Pros and Cons (and laws) of Seashore Condo Living

Despite the recession’s negative effects on the economy, the majority of the last decade has seen a building explosion in the region. And if you live or own property on one of the shore area’s resort communities, you probably live near (or in) a duplex, complex, or high rise condominium.
For many, constructing or buying one of these structures was a win-win. Demolish or remodel an outdated building to sell one or more brand new or “like new” units offering luxuries expected of a resort property: bedrooms with private baths, central air, deluxe kitchens, etc. But while each property brought a number of benefits, it also brings greater responsibilities to the owner in the eyes of the State of New Jersey.
The “Condominium Act” became law in 1969 and provided that condo owners are not owners of separate properties, per se, but members of a union of sorts that governs the management of a whole property and each member owns a percentage of that property. The Act provides for condominium association member entitlements, such as voting rights, but also dictates that certain expenditures or activities fall under the association’s oversight.
“Things like insurance, building maintenance and landscaping are just some of the things that need to be handled by an association, even in a duplex situation,” says attorney Jeffrey P. Barnes of Stefankiewicz & Barnes in North Wildwood, who represents a number of area condominium associations as well as individual unit owners when in dispute with an association. “Some owners think they can add a deck or change the siding color, but generally speaking they legally cannot. The reality is this: everything outside of the confines of your designated unit, with a few exceptions depending on the Master Deed, is called a ‘common element.’ In order to make changes to a common element, you must get the express approval of the association.”
While Barnes concedes that some owners can “do it on a handshake,” he cautions that owners should always be mindful of their legal responsibility and the ramifications of not complying with the association’s Master Deed, By-Laws, Amendments and Rules and Regulations. “Technically,” he warns, “your neighbor can make you take that deck down [without the appropriate approval].”
More often than not, in a duplex situation, there are no conflicts. But for larger properties, things get complicated. Especially when individual owners find they have little or no control over issues affecting their share of the property.
When Dave Reeve of Bucks County, Pennsylvania, bought a condominium in a 90-unit high rise in North Wildwood two years ago for his own enjoyment and to rent whenever possible he found that “what I expected to purchase and what I got were two different things.”
“Initially, things appeared O.K. until I realized that my unit had no independent utility metering, something that was on the offering statement but obviously wasn’t the case.” The high-rise was actually a former hotel that had been purchased by a developer for remodel and conversion to condominiums for sale. As a hotel, one utility bill for one owner is normal. But a single bill split between multiple owners based on square foot percentages and not actual consumption is certainly not an equitable division.
“After I bought it, I got a notice that said that the conversion to independent metering was ‘in process,’” explains Reeve. “For the next 12 months, this was still in process. As it turned out, it never was – they just sold them that way, and I think the offering statement is still the same.” It was only after Reeve and other owners retained an attorney that the developer finally agreed to bring in an electrician to provide an estimate for refitting the units for individual metering.
Often, in condominium ownership, it is in the turnover of a finished building by developer to owners where problems occur. “There is what’s called a ‘transitional period,’” explains Barnes, “when the developer is supposed to supply owners with specific information to help them begin operating as their own association. But often, that doesn’t happen or the information supplied is not adequate. And other things don’t happen, too, that are violations of the Condominium Act. For example, when a developer builds a 10-unit complex but only sells 5 units, they are still supposed to set aside monthly fees for each of those units as if they were the owners, but often that doesn’t happen.”
Indeed, that is one of the issues now faced by Dave Reeve’s association, when at a recent association meeting, owners cited an association by-law that says any owner late in paying fees into the reserve account would be fined additional levies. The developer, who still owns a majority of the units and is responsible for paying fees for each, claimed they did not have the funds.
“This was supposed to be an ‘in and out’ deal for them,” muses Reeve. “You know, ‘We’ll buy into this property, flip it and get out with our money.’ But now they’re stuck with all these units and no money to pay the fees, and from the owners’ perspective, that’s 60% of the funds going in to our reserve account, so if there’s no money in there, there’s no capital to pay bills or repairs that come up.”
But beyond being good common sense, having a reserve bank account for such surprises is the law. “What this means,” explains Barnes, “is you say, ‘OK, the roof, the siding, the windows, whatever, is going to last ‘X’ years, and it will cost ‘Y’ amount of dollars to replace it. You come up with the total number, figure in inflation, then divide it by units and years and each unit pays into a separate reserve account. An overwhelming amount of condominium associations don’t do this. When this whole building boom was going on, people didn’t want the extra expense of condo fees and sellers and builders didn’t want to advertise fees that were too high, fearing it would scare away buyers.” But buying a condominium unit with no reserve, warns Barnes, is “signing up for a huge assessment down the line.
“‘Uh oh, roof’s gone, we need a new one. Let’s see, that’s one hundred grand divided by ten units – everyone buck up.’” He adds that if the legality itself were not enough of an incentive, an association’s established reserve account can make for an attractive feature for owners who eventually intend to sell their units. Even more so, the potential expense from not maintaining one can cost the association way more than just the repair itself.
“Carol Ann,” a 44 year old single mother of two who lives in Southern New Jersey and who wishes to remain anonymous because of pending litigation, has always enjoyed visiting the shore and recently upgraded units in a 200+ unit beachfront complex in Ocean City, a swap with another unit owner she had known for over 20 years. Her two-bedroom unit was bursting at the seams with an active 4 year old, 17 year old, her fiancé and herself, so when she was approached by an owner of one of the association’s five three bedroom units to work out a trade, she agreed. After all, she loved the location, the idea of a larger condominium, and had never had any upkeep problems to speak of for her monthly maintenance fee…until she began renovations of the new unit.
“My contractor was doing work one day in November [of 2009] after that bad storm and the flooding, and he called and told me my tiles were lifting and water was coming in everywhere. I came down the next day and we started opening up walls and found there was mold everywhere. There’s a window in my baby’s room where we pulled off the sheetrock and found it was completely rotted out. What’s worse is that the baby had been sick, and we couldn’t figure out what it was. Now we’re wondering if it was the mold.”
Looking into the matter further, all signs pointed in one direction: up. “All of the leaks were coming from the main building’s roof, which apparently needs to be replaced,” says Carol Ann, “but there’s no money [in the reserve account] to do that, so the board has just had it patched over and over. So now there’s mold, there are foul odors, and the leaks are destroying things I can’t even fix without the association’s OK – my outside wall, some floors, the cement ceiling on the patio – because they’re all common elements.”
To make matters worse, it was also discovered that an addition was built on the unit by the previous owner without the necessary approvals and permits, “so it has to completely come down.”
In discussing the issue with other owners, Carol Ann claims the general consensus is that if the reserve fee needs to be raised, so be it. But, to her, the lack of reserve funds for the roof replacement is causing more problems than any fee increase would cause, including “open hostility” from members of the association board, her family’s distress at not being able to enjoy their home at the shore, and the potential of even more money outlaid on both sides if the matter heads to court.
But even with the cautionary tales and unfortunate occurrences that some owners encounter, there are, in actuality, very simple steps an association can take to lay the groundwork for a clean operation.
“The first things you need to do,” says Barnes, “are to take steps to set up a nonprofit organization with its own tax ID number and open up the proper bank accounts for operations and reserves. Elect trustees and officials, create an operating and reserve budget, set your meeting schedule and maintain comprehensive meeting minutes. Then, you manage your property, just as you would your own home, but in this case as a group. Insurance goes up, repairs need to be done, and you stay on top of people to make sure everyone is paying their fees.”
Often, the answer for some associations is a management company. Steve Pearl, a real estate developer who splits his time between homes in North Wildwood and New York, has seen it all. He has owned investment condos for rent, bought a motel for conversion to condos, and currently resides in a high rise condominium, where he serves as his association’s president.
“We have a management company and we have a guard at the door and we have people that walk around to make sure everything’s the way it’s supposed to be,” says Pearl. “On the flip side,” he continues, “another condo I’m involved in, it has only 12 units, they have the same rules and regulations, but no management company, so if someone is breaking the rules, there’s no way to stop it, unless an owner steps up and says, ‘Hey, you can’t do that.’ But no one wants to make waves or have an argument, so in a situation like that, everyone does whatever they want, whenever they want, and there’s no one to enforce the rules.”
He cites renters as some of the big rule benders. “You have some people spend $1500 or whatever for a week at the shore and they see that as a license to do whatever they want and they don’t care because they’re there to have a good time. Someone is in the pool at 7 o’clock but it closes at 6, someone’s hanging towels where they’re not allowed to, someone’s parking where they shouldn’t be, they brought a dog and we don’t allow pets, they’re grilling on the deck, whatever. That’s where the management company is a good thing because their job sometimes is to be the ‘condo police.’”
But whether a management company is an expense the association can afford or not, the management itself is something that is always the ultimate responsibility of the board. And to some boards, that in and of itself can be complicated.
“I had a client who called me on behalf of his association,” remembers Barnes. “‘Look,’ he said, ‘We have a lot of blue collar guys here, some retirees, some others who work full time. We wanted a place at the shore, we didn’t want a bunch of meetings!’”
“I said to him, ‘Operating like a business doesn’t mean you’re going to be bogged down with the same day-to-day hassles of a typical business owner. Just like anything of value you own or invest in, you need to pay attention to the details. You are simply taking steps to protect the interests of all of the owners, and of course the most important owner – you.”