Current through Register Vol. 56, No. 18, September 16, 2024
(a)
During developer control of the association's governing board, the association
shall, prior to making an annual assessment, prepare and adopt an operating
budget, which shall provide, for any and all common expenses to be incurred
during the fiscal year, as well as adequate reserve funds for repair and
replacement of the common elements and facilities.
1. Replacement of the common elements may
include repair or replacement of a component of a mechanical system or facility
necessary for the proper maintenance or operation of such system or
facility.
2. "Adequate reserve
funds" are those monies specifically dedicated for repair or replacement of
common elements and facilities that have reached the end of the established
useful life, based on the most recent reserve study, of each common element or
facility, or one or more components of that element or facility, without the
need for special assessments or loans. Contributions shall be established for
common elements and facilities with useful lives, or remaining years of use, up
to and including 30 years, and for roofs regardless of their useful
lives.
3. The amount to be
maintained in the reserve funds account shall be determined by an independent
licensed engineer or architect as part of the reserve study.
4. During developer control of the
association's governing board the following requirements shall apply:
i. Reserve funds shall be maintained in a
segregated account in the name of the association and not comingled with other
common expenses or capital contribution accounts.
ii. The account shall be located in a bank
that is FDIC-insured and authorized to do business in the State of New
Jersey.
iii. Following the election
of the first unit owner to the board, and continuing until control of the
association governing body is transferred to the unit owners, withdrawals from
the reserve funds account shall require one signatory from the developer and
one signatory from the owner-elected board members.
5. Reserve funds shall only be used for
repair and replacement costs for which they are collected. A
developer-controlled association board may not utilize reserve funds to repair
or replace any common element unless:
i. The
item that is sought to be repaired or replaced was included in the reserve
study;
ii. The common element
component to be repaired or replaced has exhausted not less than 90 percent of
the useful life specified in the reserve study. In the event the common element
component to be repaired or replaced has not exhausted 90 percent or more of
its expected life, then a majority vote of a quorum of unit owners, other than
the developer, as defined by the association governing documents, is required
to utilize the reserve funds dedicated and maintained for the specific common
element component's repair or replacement; and
iii. The reserve account has been fully
funded in accordance with the association budget.
(b) A new
reserve study shall be prepared in the following situations:
1. When a developer submits an application
for an expandable project for registration in accordance with
N.J.A.C.
5:26-2.4. Each addition shall require an
update to the reserve study to account for all new common elements and
facilities to be constructed in each expansion phase and all common elements
and facilities constructed in prior phases where repair and replacement costs
were not previously accounted for in the most current reserve study.
i. The developer shall bear the expense of
the reserve study for common elements in any new phase; and
ii. The association shall bear the expense of
any new common element added to a phase that is built out and sold out at the
time of submission of the application to add a new phase.
2. Where the common elements and facilities
differ from the common elements and facilities shown on the building plans or
described in the public offering statement, a new reserve study shall be
conducted. The public offering statement shall be amended, filed, and
registered in accordance with
N.J.A.C.
5:26-4.5 to reflect the updated as-built
common elements and facilities.
3.
Based on the findings set forth in the most recent reserve study, the repair or
replacement cost of those items classified as common elements and facilities in
the governing documents shall be a good faith estimate of the cost to the
association to repair or replace each item identified in the reserve study
including demolition, removal, and other costs related to the repair or
replacement of these items in current dollars.
4. The reserve study shall be accompanied by
a letter of adequacy prepared by an independent licensed architect or
engineer.
5. While the developer
maintains control of the association board, the cost of any reserve study shall
be the responsibility of the developer and shall not be classified as a common
expense.
(c) Any deficit
in the operating fund occurring during the budget year caused by unforeseen or
unanticipated expenses shall be accounted for either by a determination by the
association board that such unforeseen, unanticipated expenses do not
materially affect the ability of the association to meet its current or ongoing
financial obligations, or a determination by the association board that such
expenses render the association unable to meet the association's current or
ongoing financial obligations, in which case the association board shall modify
the budget.
1. When the annual budget to be
used is the full occupancy budget, then when modified, it shall be amended
pursuant to
N.J.A.C.
5:26-4.5, prior to its use as the annual
budget.
i. When the annual budget being used
is other than the full occupancy budget, it shall be amended accordingly, and a
copy of the revised budget shall be provided to the unit owners and the
developer no later than 30 days prior to the start of the next budget
year.
ii. When the developer is in
control of the association board and still selling units in the ordinary course
of business, the amended budget shall also be filed with the Agency as an
amendment to the registration within 30 days of adoption of the budget.
2. In the event the
annual audit of the association determines a different deficit than originally
calculated, the following shall govern:
i.
When the association's final audit reveals that the deficit for the preceding
budget year was greater than the amount previously calculated as of the year
end, the developer shall pay to satisfy the additional deficit within 30 days
following adoption of the final audit, except that portion attributable to unit
owners' delinquency or unforeseen, unanticipated circumstances as set forth in
the governing documents.
ii. When
the deficit is less than the amount previously calculated, the association
shall reimburse the developer the difference between the amount paid by the
developer and the actual deficit amount.
(d) At least 60 days prior to the first day
of the next budget year, the developer shall provide the unit-owner-controlled
board with a written statement of the anticipated number of units to be closed
during the next budget year and shall identify any new common element or
facility anticipated to be placed in use during the next budget year.
(e) When the developer maintains a majority
of the association board, the budget shall be prepared in accordance with this
subsection.
1. In addition to the full
occupancy budget required pursuant to
N.J.A.C.
5:26-4.2(a)8, the developer
shall prepare, or cause to be prepared, for each budget year an annual budget
including all anticipated association operations, deferred maintenance, and
replacement reserves. The annual budget shall be based upon the number of units
anticipated to be under construction during the budget year, including units
previously closed and units registered with the Agency, but not conveyed to a
purchaser; and the reasonable expenses, taking into account the number of units
anticipated to be under construction for the budget year and any common
elements or facilities that were put into use during a prior budget year. All
budgets prepared by the developer while it is in control of the board shall
include an expense line item equal to three percent of common expenses to
account for assessments unpaid by unit owners.
2. No budget prepared by the developer, or by
the association board while under the control of the developer, shall contain
any payment or subsidy by the developer that minimizes the monthly assessment,
unless the details are fully disclosed in the public offering statement as a
special notice to the satisfaction of the Agency.
(f) While the developer maintains control of
the executive board, the executive board shall have an annual audit of
association funds prepared by an independent public accountant, a copy of which
shall be delivered to each unit owner within 90 days of the expiration of the
fiscal year of the association. The audit shall cover the operating budget,
capital reserve, and other reserve fund accounts.
(g) Until the expiration of any management
contracts entered into while the developer maintains control of the executive
board, the developer shall ensure that a bond, or other guarantee acceptable to
the Agency, is posted.
1. For the first year
of operation, the bond or other guarantee shall be in an amount equal to the
annual budget. For the second year and for succeeding years, the bond or other
guarantee shall be in an amount equal to the annual budget plus accumulated
capital reserve and other reserve funds.
2. While the developer maintains control of
the association board, the developer shall provide the agency with proof of
such bond or other guarantee as may be necessary at the time of registration
and annually thereafter.
