New Jersey Governor Phil Murphy recently signed S2760 / A4384, a new law effective in New Jersey as of January 8, 2024, which includes two major components affecting community associations. The first component concerns building inspections, and the second component pertains to reserve studies.
Read below for an overview of these two components and the corresponding procedures, one of which may affect your association and the other of which impacts all associations.
Building Inspections
Under the statute, the structural inspections component only applies to certain types of buildings that are defined by the law as “covered buildings.” The statute describes “covered buildings” as residential condominium or cooperative buildings that have a primary load bearing system that is comprised of a concrete, masonry, steel, or hybrid structure including, without limitation, heavy timber and buildings with podium decks. Excluded from this definition are standard wood-frame buildings, such as single-family homes and typical townhouse projects.
With respect to covered buildings, the following will be required:
- For covered buildings that had a certificate of occupancy (C.O.) issued more than 15 years ago (e.g. prior to 2009), a structural engineer must perform a structural inspection within two years.
- For covered buildings that are less than 15 years old, the association must have a structural inspection within one year after the 15th anniversary of the issuance of the C.O.
- The structural engineer must perform the structural inspection pursuant to the protocols established by the American Society of Civil Engineers.
- If the structural engineer determines that the primary load bearing system requires any maintenance or repair, the engineer will provide a time period within which the work must be performed.
- Copies of the reports must be sent to the local construction official and all unit owners, as well as any residents of the building who request a copy.
- Follow-up structural inspections are required within 10 years of the preceding inspection, provided that if the building is more than 20 years old, inspections must occur within the earlier of (a) five years following the prior inspection, (b) the date the structural engineer provided in the report, or (c) within 60 days of any damage to the primary load bearing system.
Reserve Studies
All associations will be required to have a reserve study and to fund their reserve account in accordance with the funding plan the association’s governing board selects, which would typically be either baseline funding (the most risky) or one of the threshold funding alternatives.
The statute’s reserve study requirements include:
- If no reserve study has been conducted within the prior five years, then a reserve study must be undertaken within one year.
- If a reserve study has been conducted within five years, the next reserve study must be undertaken not more than five years later.
- If a deficiency in the reserve account based on the study would require more than a 10 percent increase in the common expense assessment, then the association will have the earlier of 10 years to catch up the deficiency in its reserves or the date by which it is projected that the reserve account will have a negative balance.
- If any deficiency in the reserve account would increase the maintenance fee by less than 10 percent, then the association is required to immediately budget for sufficient reserves to conform to the requirements of the reserve study and its chosen funding plan.
- Associations will be limited in using only so much of the reserve funds as have been allocated to any common element at the time that common element requires repair or replacement. However, the statute allows the governing board to borrow from its own reserves the additional amount needed to pay for the repair or replacement of a common element, provided that the board adopts a resolution to reimburse the amount borrowed from reserve account within five years assuming the board can reasonably conclude that the borrowing of reserves will not jeopardize the funding of other repairs or replacements.
Other Important Information You Should Know
For new associations, developers will be required to prepare a preventative maintenance document that provides for an itemized schedule for required preventative maintenance. The developer’s budget for the association must account for these preventative maintenance requirements.
The statute also provides that despite any contrary provision of the governing documents, if the association’s governing board must assess the unit owners to pay for any repair to the structure of the building, no vote of the owners will be required.
This client alert is a brief overview of the new statute; however, it is not intended to set forth in detail every provision of the law.
Attorneys at Becker were instrumental in drafting this legislation, and should you have any questions concerning it, please feel free to contact your Becker attorney.