Condo fee at closing legalized under bill
July 15th, 2007 - Category: Condo, Real EstateWhat started out as litigation here is now legislation in Trenton that will limit but also legalize a standard practice of charging an upfront fee to condominium buyers.
The bill, which has passed both chambers of the Legislature and is now on the governor’s desk, will allow condominium associations, only through their master deed or bylaws, to charge a one-time, nonrefundable “capital contribution fee” upon closing.
For condo associations, charging this fee is nothing new. However, the bill, if signed, will allow associations to charge up to nine times the amount of a unit’s monthly maintenance fee, in addition to legally protecting the practice. The amount was amended in the Senate from 18 times the monthly maintenance fee.
Currently, no law governs what condo associations are allowed to charge, and some have charged “whatever they wanted to new members,” said Peter Botsolas, the chief of staff to Assemblyman Frederick Scalera, D-Essex, who is one of the bill’s primary sponsors and a former condo association president.
“It validates their master deeds or bylaws for the purposes of defraying common expenses, and furthermore it safeguards and earmarks those funds so that they are not used as some sort of slush fund,” Botsolas said.
He added that the common capital contribution fee is between three and six times the monthly maintenance fee.
“That (the cap) is something new, and it provides parameters for associations and gives them guidelines where there were no guidelines before, so we view that as very positive,” said Kurt Macysyn, executive vice president of the Community Associations Institute, New Jersey chapter, located just outside Trenton.
Condo associations and supporting organizations like Community Associations Institute see the potential law as a measure that will protect by statute an additional source of revenue. But some in the real estate world as well as some condo owners believe these upfront fees can pose an additional hardship for new condo buyers and are acceptable only if they can be justified.
Lisa Hurley, who has lived at Wyndham Place in Freehold Township for nearly three years with her husband and daughter, said she has not seen major work being done except for one roof replacement. She said she paid a $1,200 fee at closing, and a neighbor paid $2,200.
“I would like to get my money back and do my own thing if that’s what it takes,” Hurley said.
Moreover, condo buyers often are senior citizens downsizing or newly married couples who cannot afford a home and use a condo as “a stepping stone to their dream” of owning one, said real estate broker Anthony Dell’Omo of Dell’Omo Inc. Realtors in Ocean Township.
“They do not need additional expenses in their closing fees,” said Dell’Omo, who bought a condo 15 years ago and now rents it out. He said he pays $140 a month in maintenance fees. He did not pay a capital contribution fee when he bought it.
Maureen Kurowski, a real estate broker and the manager of Woodward Realty Group in Freehold Township, believes the upfront fee could take some new buyers by surprise.
“Most condo fees seem to be under $200 a month, but still a one-time association fee of $1,500 to $2,000 is an unexpected fee on top of closing costs, especially for many first-time buyers,” Kurowski said in an e-mailed statement.
Hurley said she thinks the legislation is a good idea. “I don’t think new homeowners should have to pay a capital contribution fee unless they (the association) can show they did (or will do) some major work.”
A broker for 37 years, Dell’Omo said he thinks the money collected from the fees generally just winds up in someone’s back pocket.
“It’s additional monies for additional salaries for less work. That’s the way I look at it,” he said.
A capital fee typically is used for items such as a pool or playground or for repairs of common property. Maintenance fees, on the other hand, mainly go toward services such as grass cutting, snow removal, and paying employee salaries.
The Community Associations Institute sought to enact the legislation after a 2005 appellate court decision invalidated a $750 fee charged by the Wyndham Place at Freehold Condominium Association to a Maywood-based limited liability corporation named Micheve. The corporation purchased a Wyndham condominium at a sheriff’s sale and filed the lawsuit on Aug. 26, 2003, in Superior Court in Freehold.
The appellate court invalidated the fee because it was authorized by condo board resolution, not by its master deed or bylaws. Macysyn said the court decision was confusing because it didn’t strictly say the fee was invalid.
“The purpose in getting the bill drafted and passing the law was to give clarity to associations in terms of how this can and should be done,” he said. “That’s why we went toward the legislative remedy. It’s actually a pretty simple bill. It codifies an existing practice of associations charging a capital contribution fee upon closing at a sale or resale of a unit.”
Representatives of Wyndham Place declined to talk about the suit or the bill, and Micheve could not be reached for comment.
Lilo Stainton, Gov. Corzine’s press secretary, confirmed Thursday that the bill is on the governor’s desk, but she said she does not know whether he will sign it.
