Important Changes in New Jersey Law Requiring Structural Inspections, Conducting Capital Reserve Studies, and Funding Reserves for Condominium Associations and Cooperatives

January 19th, 2024 | Attorney Articles and Publications, Blog, Community Association Law Blog

By Eric F. Frizzell, Esq.

On January 8, 2024, New Jersey Governor Phil Murphy signed into law, effective immediately, legislation that addresses two important concerns for community associations: (1) protecting the structural integrity of certain residential condominium and cooperative buildings through a stringent inspection process and (2) imposing new requirements on community associations for conducting periodic capital reserve studies and the funding of their reserves. This Bulletin summarizes key provisions of the law.

I. New Requirements for Structural Inspections

The new statute’s structural inspection requirements apply to “covered buildings”, which are defined as “a residential condominium or cooperative building that has a primary load bearing system that is comprised of a concrete, masonry, steel or hybrid structure including, without limitation, heavy timber and a building with podium decks.” The statute does not apply to certain excluded structures such as wood frame buildings and single family homes.

The statute requires community associations that have covered buildings to retain a licensed New Jersey structural engineer to periodically perform a structural inspection of the building components that comprise the primary load bearing system.

The “primary load bearing system” (“PLBS”) is defined as “the assemblage of structural components within a building comprised of columns, beams or bracing that by contiguous interconnection form a path by which external and internal forces applied to the building are delivered to the foundation.”

If a covered building received its initial certificate of occupancy after January 8, 2009, the initial structural inspection must be performed within one year after the 15th anniversary of the date on which that C.O. was issued. If a covered building received its initial certificate of occupancy before January 8, 2009, the structural inspection must be performed by January 8, 2026.

After this initial inspection is completed, the structural engineer must issue a written report that:

– describes the condition of the PLBS;

– specifies any required maintenance or repairs that the PLBS needs, including any “corrective maintenance” to remedy any detected deterioration;

– provides any other information or guidance necessary to maintain the structural integrity of the covered building; and

– determines when the next inspection of the PLBS must be performed.

The report must be prepared in accordance with the protocol established by the American Society of Civil Engineers or another nationally recognized structural engineering organization, and must be provided to the designated municipal authority, construction official and enforcing agency.

Subsequent inspections must be performed in accordance with the structural inspector’s determination in the report, but in any case no later than ten years after the initial inspection or within 60 days after observable damage to the PLBS, whichever occurs first. However, If a covered building is more than 20 years old, the reinspection must occur within five years of the prior inspection, or by the date provided in the structural engineer’s inspection report, or within 60 days of any observable damage to the PLBS, whichever is earlier.

At the conclusion of subsequent inspections, the structural inspector must issue another report that notes, among other things, any new or progressive deterioration and the maintenance required to address it.

Any inspection reports must be made available to any resident of a covered building upon request.

II. New Requirements for Associations’ Capital Reserve Studies and Reserve Funding

The new law requires community associations to “undertake and fund a capital reserve study that shall determine or assess the adequacy of the association’s capital reserve funds to meet the anticipated costs of replacement or repair of capital assets of [the] common interest community that the association is obligated to maintain.” A community that has less than $25,000 in total common area capital assets is exempt.

If an association has not undertaken a capital reserve study since January 8, 2019, it must do so by no later than January 8, 2025.

The capital reserve study:

– must be prepared in accordance with the latest edition of the Community Association Institute’s National Reserve Study Standards or similar standards by another recognized national organization

– must be performed or overseen by a reserve specialist credentialed by CAI, or a New Jersey licensed engineer or architect

– must include various types of information, including “a proposed 30-year funding plan … that establishes the adequate proposed capital reserve funding over a 30 year-time period.”

The 30-year funding plan must ensure that the association has adequate reserve funds to repair or replace the components that are required to be included in the reserve study, without the need to create a special assessment or loan obligation. However, when a capital asset reaches the end of its established useful life earlier than predicted by the reserve study, the new law does not prevent the imposition of a special assessment or obtaining a loan.

Associations that have a “covered building” as defined in the structural inspection portion of the law (discussed in section I. above) must ensure that a reserve study is conducted and reviewed at least once every five years in accordance with the requirements discussed above.

If an existing association does not have a reserve fund that is “adequate” under the new law, but increasing the association’s budget line item for reserve funding to make it adequate would require the previous year’s common expense assessment to increase by more than 10 percent, the association must “make the deficiency adequate” within either (a) 10 fiscal years or (b) by the date that the reserve study predicts that the balance in the reserve account, absent increased funding, will fall below zero. In either case, the annual increase in reserve funding for the applicable period of time must be an “equal annual line item increase” for each year until the reserve fund is made adequate, even if doing so causes the annual common expense assessment to increase more than 10 percent.

If an existing association does not have a reserve fund that is “adequate” under the new law, and increasing the association’s budget for reserve funding to make it adequate under the reserve study would require the previous year’s common expense assessment to increase by less than 10 percent, the association must make the deficiency adequate within the following two fiscal years.

When an association must spend reserve funds to repair or replace a component covered by the reserve study, the association may only use the amount of those funds that the study allocated for that repair or replacement. However, the board can “borrow” additional amounts from the reserve fund if:

– using additional reserve funds is not reasonably anticipated to prevent or interfere with the association’s ability to undertake additional repairs or replacements in the five years after those funds are spent; and

– the association’s board adopts a written resolution requiring that those additional spent funds be recovered within the following five fiscal years.

If “corrective maintenance” of the “primary load bearing system” (see section I. above) must be performed, an association’s board may adopt an assessment payable by the owners over one or more fiscal years or obtain a loan on such terms as the board determines are reasonable – without the consent of the owners and despite any contrary provision in the governing documents – if necessary to fund the costs of that work.

This Bulletin is intended to highlight key provisions of the new law and does not constitute legal advice by our law firm. Please contact us if you have any questions about your association complying with these new legal requirements.