N.J. Admin. Code § 5:26-8.6

Current through Register Vol. 56, No. 19, October 7, 2024

Section 5:26-8.6 - Assessments for common expenses

(a) Until such time as the association shall make an assessment for common expenses, the developer, while in control of the association, shall pay all of the expenses of the common elements and facilities, except as provided at (a)1i below. Upon acquisition of title to a unit, each new association member may be required to make a one-time, non-refundable and non-transferable, working capital contribution. The working capital contribution shall be assessed in accordance with the governing documents of the association, but in no event shall the working capital contribution exceed nine times the amount of the monthly common expense assessment for that unit at the time of closing. During developer control of the association's governing board, working capital funds shall be held in a separate account located in a bank that is FDIC-insured and authorized to do business in the State of New Jersey.

1. The intent of the working capital assessment is to provide the association with cash flow until the association begins receiving common expense assessments. Working capital assessment funds shall be used for one-time expenses limited to association startup operations. Startup operations may include on-site office equipment, utility deposits, and similar one-time expenses needed to establish an association, but shall not include any costs related to construction of a management office, or any expenses for off-site equipment.

i. Working capital assessment funds may be used to pay for unforeseen, unanticipated expenses in lieu of a special assessment. The term "unforeseen or unanticipated expenses" means those expenses that could not be reasonably anticipated at the time the annual budget was adopted by the association board. Unforeseen or unanticipated expenses shall not include: expenses that are normal or customary for the association and are the purpose for which the budget was adopted; expenses for capital improvements, reserves, or repairs to items of defective construction; or a budget deficit or a deficit in the association funds resulting from a difference between the number of units, pursuant to N.J.A.C. 5:26-8.7, that the developer calculated would be closed during the year or the date by which such closings would occur and the number of units actually conveyed or the actual dates when closed.

2. While the developer maintains a majority of the association board, it shall not use funds from the working capital assessments to pay for budget line items, to minimize the assessments needed to operate the association, or to lower the amount due from the developer to the association.

(b) This subsection shall govern the assessment of common expenses.

1. When the association has made a common expense assessment, the assessment shall be assessed against:

i. Units that have been conveyed by the developer to owners (hereafter referred to as "unit owners").

ii. Units that have been registered with the Agency in accordance with the Act and this chapter (hereafter referred to as "developer units").

2. Each unit owner shall pay a share of the common expense assessments, in the proportion set forth in the governing documents, for the full occupancy budget or the annual budget. The developer shall pay a full share of the assessments for all developer units, in the proportion set forth in the governing documents, for the full occupancy budget or the annual budget.

i. When the developer elects to subsidize the association common expenses for any given budget year, each unit owner, other than the developer, shall pay the share of the subsidized common expenses, in the proportion set forth in the governing documents, for the proposed budget or the annual budget.

ii. When the developer elects to subsidize the amount of each owner's total share of the budgeted assessment, this shall be disclosed in the full occupancy budget or the annual budget and set forth in a narrative statement in the "Special Notice" section of the public offering statement. The amount of the common expenses to be paid by the owners shall be referred to as the "Owners' Share." The amount of the subsidized common expenses to be paid by the developer shall be referred to as the "Developer's Share."

3. The association's governing documents shall provide for the manner of payment of common expenses.

i. When the developer elects to subsidize the association's common expenses for any given budget year, the developer shall be responsible for the payment of that portion of the common expenses that is the difference between the total common expenses and the Owners' Share. The Developer's Share of the common expense payments shall be paid no less frequently than the common expense payments due from unit owners.

ii. When the association board is controlled by unit owners, if the developer does not pay its share when due, the association shall have the same remedies as it does in connection with the collection of common expenses from the unit owners, as set forth in the governing documents.

iii. Except as provided in (b)5 below, when the association board is controlled by the developer, if the developer does not pay its share when due, the developer shall be required to make a lump sum payment for any unpaid budgeted common expenses before the start of the next budget year.

4. In the event that the assessment of common expenses results in a deficit in the operating fund of the association at the end of any budget year, the developer shall be responsible for satisfying such deficit. The developer shall make such payment within 60 days of the start of the new budget year.

i. The developer shall not be responsible for satisfying the deficit when it is the result of unforeseen, unanticipated expenses caused by conditions reasonably beyond the control of the developer, including, but not limited to, the situation in which the total amount of assessments unpaid by unit owners exceed three percent of the budget. In such event, the developer-controlled board may use working capital to satisfy the deficit in accordance with the association's governing documents. Prior to using working capital, the developer-controlled board shall approve such use in a meeting open to the unit owners pursuant to N.J.A.C. 5:26-8.12. The basis for the working capital being used under this subparagraph shall be set forth in the minutes of the board meeting.

5. In the event that the assessment of common expenses results in an operation fund surplus at the end of the budget year, the board shall recalculate the amount of assessments actually due from the owners and the developer based on their respective shares. The surplus shall be allocated among the unit owners and the developer in the same manner that the common expenses were assessed, either as a refund or a credit against future assessments. The decision to issue a credit or refund shall be determined by a vote of the unit owners, other than developer. If a quorum of unit owners cannot be reached, the association board shall be entitled to make the final determination whether to issue a refund or apply the surplus as a credit to future assessments.

6. The association board shall make the final determination of any deficit or surplus based upon the annual audit of the association funds.

7. In the event of an immediate need for additional funds to meet the association's financial obligations due to unforeseen, unanticipated conditions reasonably beyond the control of the developer (that is, force majeure), the board may impose a special assessment. The unit owners and the developer shall be obligated to pay their respective shares of the special assessment.

N.J. Admin. Code § 5:26-8.6

Amended by 53 N.J.R. 1213(a), effective 7/19/2021