Insights from the NJ Department of Community Affairs Regarding its “Radburn” Rules
October 18th, 2020 | Community Association Law Blog
By Eric F. Frizzell, Esq.
In May 2020, the New Jersey Department of Community Affairs (“DCA”) issued numerous new regulations, pursuant to the Planned Real Estate Development Full Disclosure Act, that have had a major impact on board meetings, annual meetings and elections, and other aspects of community association life. Many of the regulations, commonly called the ”Radburn rules”, are poorly conceived and unclearly written, which has resulted in confusion for community association boards, residents, managers, and attorneys attempting to comply with them. The DCA, however, provided some clarification of the intended scope of some of the rules, clarification that does not appear in the rules themselves. In specific, as part of the rule-making process, the DCA was required to consider comments from the public about the draft rules before they were finally enacted. The DCA’s written responses to more than 150 public comments answer some important questions that have been raised about the rules, but, unfortunately in other instances just add to the confusion.
We now review the DCA’s interpretations of various rules, as gleaned from its responses to public comments.
Can a community association be fined for an unintentional violation of the complex new annual meeting and election rules? It’s not likely. The DCA stated that to “allay any fears regarding enforcement” of those rules, the DCA “intends to resort to penalties only as a result of direct refusal or failure to comply after notice of a violation and an opportunity to cure the violation or assure future compliance.” (Response to Comment 3).
Can a board take binding votes on confidential matters in closed session? Incredibly, no. For many years, it has been accepted practice for boards to take binding votes on sensitive matters such as contract negotiations, litigation, and employment matters, in closed session, in order to protect the confidentiality of those matters and the best interests of the association. The DCA’s illogical position, however, is that “if a matter requires a binding vote, the vote must be taken at a subsequent open meeting in a manner that does not disclose any confidence.” (Response to Comment 121). This requirement will lead to ridiculously vague and general votes being taken by boards in open session. For example, suppose there is a highly sensitive and complex lawsuit that the board wants to authorize the association’s legal counsel to prepare, with the intention of filing it a few months later. Will the resolution by the board simply state: “The board approves the association’s legal counsel to file suit in the XYZ matter”? Considering the best interests of the association, it would seem that any minimal degree of transparency that is achieved by requiring this vote in open session is significantly offset by the potential detriment to the association in disclosing even that small amount of information.
Can a board take binding votes on matters in closed session and then ratify them at a future open meeting? No – but that should not be a surprise to well-run communities because the law on this question actually has been pretty clear for years. Nonetheless, some associations had continued to regularly engage in the improper practice of taking binding votes on non-confidential matters in closed session, and then ratifying those votes at an open meeting many months later. Often these ratification votes occurred after the action on which the board voted, such as the hiring of a contractor, has already occurred. The DCA stated: “Any binding vote taken in a non-open meeting is a violation” of the applicable law. (Response to Comment 103).
What is the cut-off date for determining whether a unit owner is in arrears and not in good standing to vote? There has been considerable confusion and difference of opinion on this question. The DCA seems to indicate, again without total clarity, that the cut-off date for determining unit owners who are in arrears and ineligible to vote is 30 days from the date of the election, but that such unit owners have until five business days before the meeting in which to rectify their lack of good standing. In other words, anyone who is in arrears 30 days before the meeting cannot vote unless they cure their arrears no later than five business days before the meeting; but anyone who was not in arrears 30 days before the meeting, and falls into arrears after that cutoff date, can still vote.
The DCA stated: “The record dates established by associations for payment are distinct from the timeframes established by the Department. The 30-day timeframe was established in the Election Law [PREDFDA], and the Department’s rulemaking established five business days as an appropriate timeframe for rectifying standing within that context.” (Response to Comment 77, emphasis added). The DCA’s use of the word “rectifying” is important because it clearly supports the conclusion that the cut-off date is 30 days before the meeting, subject to allowing people in arrears on that date to rectify their good standing up until five days before the meeting. This conclusion is given indirect support by a comment that the DCA made regarding quorum: the quorum “figure will be final five days before the vote, and anyone qualified to vote by that date will be able to do so.” (Response to Comment 135).
Some people, however, interpret the new provision to mean that anyone who is in arrears five days before the election cannot vote, including people who fell into arrears in the period between 5 and 30 days before the election. I respectfully disagree with this interpretation for two reasons. First, it would render the 30-day timeframe entirely irrelevant as associations would consider only who is in arrears five days before the meeting. Second, the new regulations require an association to notify every unit owner who is not in good standing, at least 30 days before the date of the meeting and election, that they are not in good standing. Obviously, an association cannot comply with this requirement, and notify a unit owner at least 30 days before the annual meeting that they are not in good standing, if the unit owner only fell into arrears and out of good standing less than 30 days before the meeting.
Once control of an association’s board has transitioned to the unit owners, does a developer lose its seat on the board if the developer stops selling its remaining units? The DCA confirmed that a developer who has stopped selling units in the “regular course of business” is not entitled to an automatic seat on the board. The DCA stated that it will include a definition of “regular course of business” in a future amendment to the rules. (Response to Comment 36).
Can a Board permit unit owners with a small balance to vote in the annual election? Apparently not! Many associations customarily allow unit owners to vote in the annual election if they owe only a small, “de minimis” amount to the association. Boards do this in an effort to reach quorum or from a sense of fairness, i.e., that a unit owner with a small past due balance should not be disqualified from voting. The DCA , however, declined to amend its rules so that boards could permit owners with outstanding balances of $25.00 or less to participate in an annual meeting. The DCA stated that it was unable to consider this change because the good standing provisions came directly from the PREDFDA statute. The clear import of the DCA’s response is that boards do not have authority to allow unit owners to vote if they owe only a small amount of arrears. (Response to Comment 44). However, if the unit owner has entered into a settlement agreement/approved payment plan with the association, or has challenged the amount owed through ADR or a pending court action, the unit owner is considered in good standing and must be allowed to vote.
Can a unit owner take back their ballot and change their vote once their ballot has been cast? The DCA stated that whether a vote can be changed after it is cast is a question that is “more appropriately handled by the governing documents” of an association than by a change in the DCA’s rules. (Response to Comment 45).
Can a board member use an association‘s newsletter or letterhead to support a candidate who is seeking election to the board? The DCA’s position on this inquiry was weak. The DCA stated that whether a board member can support any candidate, including themselves, on any association document, newsletter, or association letterhead, or use their title as a trustee on any election literature, “is more appropriately established by the governing documents of each individual association” than by a DCA rule. (Response to Comment 47). Despite the DCA’s lack of guidance on this issue, it is my view that board members should not use any association resources to promote the candidacy of any nominee seeking election to the board, as such use could be considered improper.
Are an association’s attorneys prohibited from participating in the tabulation of ballots? No. The DCA declined to agree that ballots should be tallied only by unit owners who are not, or have not been, on the board, and by the management company, and that an association’s attorneys should be prohibited from participating in the tallying. (Response to Comment 61). The new election rules require that the ballots must be counted in public – can electronic voting still be utilized? Yes. The DCA agreed that electronic voting systems cannot accommodate being tallied in public, but stated nonetheless that “[b]ecause electronic systems show the tally, this does not conflict with any of the requirements applicable to physical ballots”. In other words, electronic balloting is acceptable even though the votes are automatically tallied and not “counted” in “public”. (Response to Comment 66).
How can anonymity of ballots be maintained in associations where unit owners’ votes are based on their percentage interest in the common elements or the number of shares that they own? In some associations, voting is done on a weighted basis by percentage interest in the common elements or by shares that vary among units. This fact has raised a concern about how the anonymity of a ballot could be maintained. The DCA advised that the inner envelope of a “double envelope” voting system or the ballot itself could contain information regarding the weight of the vote, without expressly identifying the unit owner. (Response to Comments 66 and 136).
What kind of “sample” ballot must be included with the notice of meeting? The Radburn rules require that a “sample” ballot must be included with the notice of meeting. The DCA clarified that the sample ballot is of the in-person ballot “just as voters receive sample ballots in advance of general elections.” The sample ballot is not of an absentee ballot. (Response to Comment 73).
Are associations required to send unit owners a proxy and absentee ballot? In somewhat confusing comments that warrant clarification by the DCA, the DCA stated that the Radburn rules do “not require the use of either proxies or absentee ballots” – even though that statute expressly states that the notice of meeting “shall include a proxy ballot and an absentee ballot” – but then further states that the new rule “requires proxies and absentee ballots be included in meeting notices when the association allows their use.” (Response to Comment 74, emphasis added).
Our association has different seats with different terms up for election, but all of the candidates have announced that they are seeking the seats with the longer terms. How do we fill the seats with the shorter terms? Under the new rules, if there are seats with different length terms up for election, each candidate must specify the term for which they are seeking election, and the ballot must contain this information. But what if all of the candidates seek election for the longer term? The DCA indicated that an association’s by-laws can provide that the candidate receiving the greater number of votes fills the seat with the longer term and the candidate with the next highest number of votes would fill the shorter term. (See Response to Comment 75).
What are the rights of owners of affordable housing units to run for and vote for seats on an association’s board? The regulations require an association’s by-laws to reserve at least one seat on the board for election by owners of affordable housing units under the Fair Housing Act, where those units represent a minority of units in the development. But owners of affordable housing units are also allowed to run for, and vote for, the other open seats that are up for election. The DCA rejected concerns that this provision “would create hostility between the market owners who are not permitted to run for the seat on the board reserved for the affordable unit owner [sic] while the affordable unit owners are entitled to run for that seat and others on the executive board.” The DCA indicated that owners of affordable housing units are permitted to vote to fill their seat on the board and to also vote for the other seats on the board, although owners of market rate unit owners are not entitled to vote for both categories of open seats. (Response to Comment 81). The DCA rejected concerns that this was “reverse discrimination” against owners of market rate units or was unfair to them.
What form of ADR must be provided to a board member whose removal from the board is sought by the other board members? The new regulations permit a board to remove a board member under specified circumstances, but requires that ADR be offered to the board member whose removal is sought. Although the language of the regulation suggests that arbitration must be provided, the DCA indicated that either mediation or arbitration is acceptable and that the conclusion of whichever form of ADR is selected is non-binding. (Response to Comment 85).
What process must unit owners follow if they wish to remove a board member? The by-laws of many associations contain a provision that allows the removal of a board member, with or without cause, at any meeting of the unit owners. Some associations’ by-laws permit a special meeting of the unit owners to be called for the purpose of seeking the removal of a board member, with or without cause, upon the submission of a petition or written request from a specified percentage of unit owners.
Under the new regulations, however, a petition signed by 51 percent of association members must be submitted to initiate the process to remove a board member who was elected by the unit owners. This provision supersedes any contrary provision in the association’s by-laws. As stated by the DCA: “The reason the Department set the threshold to petition for a special election to remove a board member at 51 percent was to ensure that a majority of association members are aware of the allegation and concur on the importance of having open, formal discussion of its significance and the associated facts.” (Response to Comment 95). The submission of the petition does not automatically result in the removal of the board member. Instead, a special election must be held within 60 days of receipt of the petition. (Response to Comment 96).
Can ballots be returned by fax or email? The regulations permit ballots for a vote to amend the by-laws to be submitted by fax or email “provided that such return protects the anonymity of the voter”. N.J.A.C. 5:26-8.13.(f)(4). The DCA offered no guidance on how to accomplish complete anonymity in these circumstances. One question that arises is whether a unit owner has the legal right to waive anonymity, given the fact that the anonymity rule is intended to protect the votes cast by individual owners. The DCA has not spoken on this issue. In addition, this fax/email provision raises the question of whether ballots in a board election can also be returned by fax or email, provided that the anonymity of the voter is protected. The DCA has not answered that question.
What is the difference between a “master” association and an “umbrella” association? The DCA indicated that the terms “master” association and “umbrella” association are interchangeable and without distinction as used in its rules.
Please contact us if you have any questions about any of the matters above or any other aspect of the DCA’s new “Radburn” rules.