We all want to get what we pay for—and nobody wants to pay for goods or services they don't actually receive. This is especially true of homeowners associations when it comes to big-ticket municipal services like snow and garbage removal, street lighting, and so forth. In light of that, it's perhaps surprising how many New Jersey HOAs are unaware that they may be overpaying for these services, or are owed reimbursement for them from their municipalities.
A Look at the Law
Here's the fact of the matter, according to attorney David J. Byrne, co-chair of Lawrenceville-based law firm Stark & Stark's Community Associations Group: pursuant to the Municipal Services Act passage in 1989 and amended in 1993, every municipality in New Jersey is required to either provide certain services to each qualified private community within its borders or reimburse the community for these services, including the removal of snow, collection of trash or recyclables or lighting of roads and streets.
“The purpose of the Municipal Services Act is simple,” says Byrne. “It eliminates double taxation of community association residents. In one of the seminal cases interpreting the Act, Briarglen II Condo Association Inc. v. Township of Freehold, the Appellate Division determined that the legislative intent of the Act was to 'help eliminate double payment for some services which the residents of qualified private communities now pay through property taxes and fees to their association.' ”
Although the Municipal Services Act went into effect nearly two decades ago, Byrne says that many qualified associations fail to take advantage of having their municipality provide either services or reimbursement, simply because they don't realize they're entitled to them. “This means countless associations in the state—like the 70 or so in Long Branch that were reimbursed over $100,000 by that town's city council for snow removal and street lighting services in 2006, for example—may be entitled to significant reimbursements that could be used to free up other funds for capital reserves, necessary repairs, or long-overdue improvements to their communities.”
The Root of the Problem
It may seem odd that perpetually cash-strapped buildings and associations (and whose isn't?) would overlook thousands of dollars in services or reimbursements—but, say the pros, that's exactly what happens in many HOAs where volunteer board members may not know the law, or feel entitled to speak up against town officials who have their own agendas and money worries to look out for.
According to legal pros, board members in most condo or homeowner communities consider themselves self-governed—which is true, to an extent. The self-contained aspects of residential communities are a tradition that may have originated with developers trying to “sell” their projects to municipal governments, planning and zoning boards. Prior to the passing of the MSA, it was easier for a builder to get permits for a large-scale housing development if the town knew it wouldn’t be maintaining the roads or picking up the trash—but that kind of developer’s deal doesn't make much sense to future unit owners when they pay their real estate tax bills each year.
As condo construction evolved, says one attorney, “Public officials should have recoiled in horror at the idea of giving away their future constituents’ future rights [to services.]” If developers were looking for a bargaining tool to mitigate the impact of providing services to new housing units, he adds, “They could have offered to build a library or contribute to a senior center—but instead they gave away the [condo project’s] homeowners’ rights.”
And according to attorney Richard Brooks, a partner in the law firm of Marcus Errico Emmer & Brooks of Braintree, Massachusetts, harrumphing town officials are no excuse for not pursuing an HOA's fair share—because in New Jersey at least, it's the law.
“Town officials will complain, 'We don’t have enough money,'” he says, “and will come up with reasons [not to do it], like ‘It’s all private roads in there’ or ‘We can’t pick up [your] dumpsters’ … But those excuses don’t hold water. Sure, the roads may be private, but the association simply grants [the town’s equipment] permission to come on-property. Also, we have found that trash haulers are usually contracted by the municipality, and are already picking up similar dumpsters at other locations. Condo communities use less services in general, and the town comes out way ahead [with tax revenue].”
This is not to say that it's always a pitched battle between HOA administrators and municipal leadership, of course. Plenty of boards get along beautifully with their surrounding townships, says Michael McConville, president of the board at Society Hill at Kilmer Woods II, an HOA in Mahwah.
“In my tenure as president of Society Hill, I have had a very good relationship with the township of Mahwah,” says McConville. “I'm on my third mayor, and I don't think the township is really the issue. I think sometimes, the perception [amongst town residents] was that we were somehow getting off lightly, believe it or not. That we didn't pay property taxes and that sort of thing. And that perception was mostly among the old time Mahwah residents.”
Striking a Balance
According to Paul Santoriello of Taylor Management Company in Whippany and president of the New Jersey chapter of the Community Associations Institute (CAI-NJ), “That's the essence behind the [Municipal] Fair Services Act: that which the town provides to other full taxpaying residents, they must also provide to their condominium association, or reimburse at their cost level. Obviously, they don't have to reimburse the HOA for services they don't provide to other people in the municipality.”
Fundamentally, the Municipal Services Act prevents condo and HOA residents from being doubly taxed for basic, necessary services. “I think municipalities look at the benefit [they] receive from community associations,” says Santoriello. “Obviously, a significant amount of revenue comes from community associations and rateables. And when there is new construction, typically those with assessed values are at the current market rate; so obviously there is significant revenue generation. You have some of the very, very large communities down in South Jersey—the age-restricted communities like Rossmoor that represent a very large percentage of the residents of the municipality and have significant political clout. And obviously, in many regards you have to work with the municipality and the municipality wants to work with the community associations to serve them. Essentially, that's what the municipality is there for. We look at community associations as miniature municipalities and then you've got the overall municipality that serves the association also.”
Room for Debate
The Municipal Services Act went a long way toward eliminating the disparity between HOA residents and single-family homeowners when it comes to paying for municipal services, but even under the Act, disagreements or gray areas do occasionally crop up, says Santoriello. “One of the areas that we haven't been able to be included in the Municipal Fair Services, although we've pursued it, is with regard to having municipalities cover the cost associated with stand pipes or fire hydrants. It's two-fold; it's the water service cost, and having that water available at that stand pipe, as well as repairing those stand pipes. Stand pipe repair is significant, and that's something that associations are having to take on themselves because the municipalities don't do it. Yet on a regular road that your house is on, the municipality covers all that. So that's one area that we're kind of arguing.”
And, adds McConville, sometimes the bottom lines don't add up perfectly. “When you look at what we are reimbursed versus what it cost us for municipal services, we don't get the same services even with the Municipal Services Bill. Financially, it's still not the same deal as somebody who just has a house.”
“We probably can deliver the services that we need faster and more efficiently and probably less expensive than the township could,” says McConville, “because we're much smaller. If I need to get potholes filled for example, I don't have to support a road department. I call a contractor, they come fill the potholes. I don't have to plan three weeks in advance because it's a huge town. I could get it done in a week. So there are trade-offs here. When you start looking at what's fair and what's not fair, you have to look at the whole picture.”
In the end, says Santoriello, the line between municipal responsibilities and HOA jurisdiction is not always clear cut. “There's no doubt there's a huge benefit to municipalities with regard to tax generation, and the strain put on the municipality on a per-individual or per-unit basis [by HOAs] is significantly less [than single-family homes],” he says, “but there's always push-back from the residents. HOAs have more volume, more density...so it's kind of a two sided issue. That being said, I think we've seen municipalities embrace community associations now much more so than in the past. I think municipalities are understanding community associations better and understanding how better serve them and their potentially unique needs and so on. In that respect, I think the relationship is getting better.”
Hannah Fons is Associate Editor of the New Jersey Cooperator. Additional reporting by Editorial Assistant David Chiu.