Structural Integrity and Reserves

On January 8th, New Jersey Governor Phil Murphy signed into law S2760/A4384, commonly known as the Structural Integrity Bill. This law was enacted in response to the 2021 Champlain Tower South Condominium collapse in Florida in order to prevent a similar tragedy in New Jersey. This new legislation puts in place procedures for inspecting, evaluating and maintaining the structural integrity of certain residential condominiums and cooperatives, as more specifically defined in the legislation. The new legislation is composed of several components and not all of the legislation applies to all types of associations. The following are a few highlights of the new legislation which are divided into 2 categories—structural integrity and reserves.

Covered Buildings. This portion of the law addresses the structural integrity of “Covered Buildings” which are more specifically defined in the legislation. “Covered Buildings” are limited to condominium associations and cooperatives having a primary load bearing system that is comprised of a concrete, masonry, steel, or hybrid structure including heavy timber and buildings with a podium deck (a structural slab or deck). This description is generally associated with mid-or high-rise buildings, but other structures may be included as well. There are exceptions. Most notably apartments and single family homes are excluded.

When Inspections Must Occur. In those “Covered Buildings” an initial inspection of the “Primary Load Bearing System” (also defined in the statute) must be obtained within the earlier of (a) 15 years from the date on which the building received a certificate of occupancy or (b) 60 days after observable damage to the Load Bearing System. If the Certificate of Occupancy (CO) was issued more than 15 years before January 8, 2024, then an inspection must occur within 2 years from January 8, 2024. If the CO was issued less than 15 years prior to January 8, 2024, then the inspection must occur within one year of the 15th anniversary of the issuance of the CO. These inspections must be performed by a New Jersey licensed engineer with specific qualifications. Furthermore, the inspector is required to issue a report with details as to any work that is required and determine a reasonable period of time for the next inspection to occur (but no longer than 10 years from the first inspection or more than 60 days after there is observable damage to the load bearing system.

Required Maintenance. If the inspection identifies maintenance that is required, the association is obligated to perform such maintenance based on plans to be filed with the municipality. The maintenance must be performed notwithstanding any limitation on board-authorized expenditures in the association’s governing documents. A governing board may, without the approval of the owners or the developer, authorize an assessment or obtain a loan to fund the cost of corrective maintenance as long as the Board obtains a written report from a New Jersey licensed engineer or architect that failure to perform the maintenance will result in imminent or foreseeable hazard to health or safety, will violate other provisions of this statute or will result in a material increase in the cost of the maintenance if delayed.

Reserve Studies Required by Law. While it has long been common practice in New Jersey for community associations to perform reserve studies and maintain replacement reserve accounts, it is now the law. This legislative change will impact all associations and not just those subject to the structural integrity requirements. The bill amended the Planned Real Estate Development Full Disclosure Act to require that all associations (with an exception for those with less than $25,000 in common area capital assets) obtain a capital reserve study and a 30-year funding plan “to ensure that the association has adequate reserve funds available to repair or replace the capital assets located on the common elements and facilities that the association is obligated to maintain without need to create a special assessment or loan obligation, except that in those cases in which a capital asset reaches the end of its established useful life earlier than predicted by the reserve study.” The Legislature made it clear, however that nothing in the law is intended to prevent the imposition of a special assessment or obtaining a loan.

Who May Perform and How Often. The standards and the components that must be included in the reserve studies are set forth in the new law which requires completion by a licensed engineer, architect or a reserve specialist, whose qualifications are also defined. An existing association that has not undertaken a reserve study within the 5 years prior to January 8, 2023, will have 1 year to complete the study. A new association formed after January 8, 2024, will be required to complete the study not more than 2 years following the election of a majority of the board by the members other than the developer.

Reserves Must Be Funded. Completion of the study is step one. The statute also requires that associations fund the reserves as provided for in the study. While the association may be able to borrow the money from the reserves because the current funding is inadequate, such borrowing may now only be undertaken in accordance with specific guidelines.

In the event that an association does not have adequate funding as of January 8, 2024, and the increase in the budget will result in an increase of 10% or more of the previous year’s assessment, the deficiency must be made adequate within the earlier of 10 years or that date by which the association’s reserves are predicted to fall below zero. If the deficiency in funding of the Association’s reserves is less than 10% of the previous year’s assessment, it must be made up within 2 years.

The new statutory requirements will present a challenge for some associations. The Hill Wallack Community Association team is here to help our clients navigate through the process. For further information, contact one of our team members: Ronald L. Perl, Kenneth R. Sauter, Caroline Record, Michael S. Karpoff, George Greatrex, Gregg Shivers, Terry A. Kessler, Jennifer Webb, Catherine M. Brennan, Daria B. Janka, Lucas B. Klirsfeld, Mel Edgar.